moderator john beaudette, president and ceo, mhw, ltd
TRANSCRIPT
Moderator
John Beaudette, President and CEO,
MHW, Ltd.
PanelistsVince O’Brien, Senior
Counsel, Nixon Peabody
Bill Earle, President, NABI
Jim Squeo, President and CEO, NABCA
Charles Merinoff, Chairman and CEO,
Charmer Sunbelt Group
Navigating Brand Entry & The Three Tier System
• US Beverage Market Overview.
• The US Beverage Alcohol Distribution System.– “Three Tier System” & Distribution Outlets.– Open verses Control States.– Understanding the past and looking to the future.
• Brand Approval-Federal / State Process, and Launch Time Line.
• Price Structures For Wine, Spirits, and Beer.
• New Brand Introduction Trends.
• Brand / Industry Valuation Discussion.
• Distribution Options / Partners / Approaches To Market Entry.
• Panel Discussion
Navigating Brand Entry & The Three Tier System
2010 US Beverage Consumption
50 Billion Gallons50 Billion Gallons
2010 Beverage Consumption Alcohol Trends
Source: Beverage Information Group
• To understand it today and to consider where its going tomorrow, history is important.
• Direct Shipping, privatization of control states, H.R. 1161.
• There is the potential for some changes over the next decade .
The US Beverage Alcohol Distribution System
History Of Beverage Alcohol In Us
History Of Beverage Alcohol In Us
• 1933 Repeal Of Prohibition And Enactment Of Twenty-First Amendment.• Protect Federal Tax Revenues.• Protect The Public -Federal Regulations (BATF-Now TTB)
• Licensing qualified importers, manufacturers, wholesalers, warehouses, not retailers). (Prevent Organized Crime)• Approve labels and formulas -Certificate of Label Approval (COLA)
• Bans “tied-house”.• Prohibits consumer deception and ensures quality with
standards of identity, labels and formula approval.• Bans false advertising.• Bans unfair inducements to retailers .
History & OverviewHistory & Overview
History Of Beverage Alcohol In Us
• 1933 Repeal Of Prohibition And Enactment Of Twenty-First Amendment (Continued).– States Given Power To Regulate Sale & Distribution Of Beverage
Alcohol Within Their State.• 32 “Open States” (Private enterprises working through
“Three Tier System”).• 18 “Control States” and Montgomery Cty MD-State controls
products entering and sold in the state (primarily for spirits, some wine).
— State Excise Taxes and Control
History & OverviewHistory & Overview
History Of Beverage Alcohol In Us
Three Tier System
PRODUCER(Wineries, Brewers, Distilleries, Importers)
Wholesaler (Distributor)
Retailer
Consumer
Control States
Navigating Brand Entry & Distribution
HR1161 – Community Alcohol Regulatory Effectiveness (CARE) Act Of 2011
• Wholesalers looking to reaffirm states authority over beverage alcohol (21st Amendment), limit litigation and reduce unnecessary costs from those challenging the system (direct shipper advocates)
----------• Suppliers want to leave the existing regulatory system as is,
fearing states might enact protectionist and anti-competitive laws
Where does this take the industry in the near future?
Brand Approval / Launch Timeline
Federal Label (COLA) Approval• 1 to 8 weeks
depending on product and complexity
State Registration & Approval• 1 to 8 weeks including
price posting where required
Product Ships To Wholesaler
Caution-New TTB Turnaround
Wine Brands Economics Example
Supplier FOB (Varies-Packaging etc.) $ 29.00
Ocean Freight 4.50
Fed Tax/Duty (80 Proof) 3.30 PPU/BF/INS 1.40
Importers Margin (24% Margin) $ 12.14
Price to Distributor $50.34 State Tax .71 Freight 2.50
Distributor Margin (50% Mark Up/33% Margin) 26.37 Distrib. Price To Retail $79.92
Retailer Margin (50% Mark Up/33%Margin) 39.96
Retail Case Price $119.88
750ML / 12 Bottle Case Imported $ 9.99 Retail Bottle Price
Bottle Price $9.99
Spirit Brand Economics Example
Supplier FOB (Varies-Packaging etc.) $ 65.00
Ocean Freight 4.50
Fed Tax/Duty (80 Proof) 26.00 PPU/BF/INS 1.40
Importers Margin (40% to 50% Margin) $ 88.24
Price to Distributor $185.14 State Tax 15.30 Freight 2.50
Distributor Margin (33% Mark Up/25% Margin)Distributor Margin (33% Mark Up/25% Margin) 67.65 Distributor Price To Retail $270.59
Retailer Margin (33% Mark Up/25%Margin) 89.29
Retail Case Price $359.88
750ML / 12 Bottle Case Imported $ 29.99 Retail Bottle Price (Generally Sold in 6 Bottle Cases)
Bottle Price $29.99
Premium Beer Brand Economics Example
Supplier FOB (Varies-Packaging etc.) $ 11.00
Ocean FreightOcean Freight 2.00
Fed Tax/Duty (80 Proof) 1.30 PPU/BF/INS .65
Importers Margin (25% to 40% Margin) $ 5.05
Price to Distributor $20.00 State Tax .60 Freight 1.75
Distributor Margin (33% Mark Up/25% Margin) 7.38 Distrib. Price To Retail $29.73
Retailer Margin (33% Mark Up/25%Margin) 9.81
Retail Case Price $39.53
Six Pack Price $9.88
24 Bottle / 12 oz Case Imported $9.88 6 Pack 24 Bottle / 12 oz Case Imported $9.88 6 Pack (Generally sold in 6 Packs)(Generally sold in 6 Packs)
Top U.S. Wine And Spirits Wholesalers
Distributor MarketsSales
Revenue2009E
(Millions) 2010P
Percent Change
Market2009E
Share2010P
1Southern Wine
& Spirits of America
Alabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Kentucky, Maine, Mississippi, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina,
Utah, Vermont, Virginia, Washington, West Virginia, Wyoming
$ 8,535 $ 8,765 2.7% 19.2% 19.7%
2Republic National
Distributing Co.
Alabama, Arizona, Colorado, Florida, Indiana, Kentucky , Louisiana, Maryland, Mississippi, Nebraska, North Carolina,
North Dakota, Ohio Oklahoma, South Carolina, South Dakota Texas , Virginia, Washington, DC, West Virginia
$ 3,832 $ 4,365 13.8% 8.6% 9.8%
3 Charmer Sunbelt Group
Alabama, Arizona, Colorado, Connecticut, Delaware, Florida, Maryland, Mississippi, New Jersey, New York, Pennsylvania, South Carolina, Virginia, Washington DC
$ 3,765 $ 3,755 -0.4% 8.5% 8.4%
4 Glazer´s Family of Companies
Arizona, Arkansas, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, Oklahoma, Texas $ 2,550 $ 2,750 6.1% 5.7% 6.1%
5 Young´s Market Co
Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming $ 1,835 $ 1,895 3.3% 4.1% 4.3%
Top U.S. Wine And Spirits Wholesalers
Distributor MarketsSales
Revenue2009E
(Millions) 2010P
Percent Change
Market2009E
Share2010P
6 Wirtz Beverage Group
Illinois, Iowa, Minnesota, Nevada, Wisconsin$ 1,455 $ 1,510 3.8% 3.3% 3.4%
7 Martignetti Companies
Massachusetts, Maine, New Hampshire, Rhode Island, Vermont $ 950 $ 1,050 10.5% 2.1% 2.4%
8Johnson Brothers Liquor Co
Alabama, Arizona, Florida, Hawaii, Indiana, Iowa, Minnesota, Nebraska, Nevada, New York, North Carolina, North Dakota, Rhode Island, South Dakota, Wisconsin
$ 860 $ 880 2.3% 1.9% 2.0%
9Allied
Beverage Group
New Jersey$ 665 $ 705 6.0% 1.5% 1.6%
10 Fedway Associates
New Jersey $ 605 $ 615 1.7% 1.4% 1.4%
Total Top 10 $ 25,055 $ 26,245 4.7% 56.4% 59.0%
Other Wholesalers $ 19,380 $ 18,205 -6.1% 43.6% 41.0%
Total U.S. Market $ 44,435 $ 44,450 * 100.0% 100.0%
* Less than 0.05%.Source: Impact Databank
New Wine Brand Introductions
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010
USI talyFranceAustraliaS. AfricaArgentinaSpainNew ZealChileOthers
257257269269 260260 152152307307 232232 Source: Beverage Information Group
New Distilled Spirit Brand Introductions
Source: Beverage Information GroupSource: Beverage Information Group
0
10
20
30
40
50
60
70
80
90
100
2005 2006 2007 2008 2009 2010
VodkaRumTequilaCord& LiqOther
Majority Are Imports!
65% in ‘10
Majority Are Imports!
65% in ‘10200200153153 225225 183183186186 266266
Brand Sales & Valuations
• Spirit Brands Commanding Huge Prices.• Major Beverage Companies willing to pay big for growth brands caught
in early stages of development.• Valuation Ranges/Methods:
• Annual Case Multiples (ACM) $300 to $1,500 (spirits)• Revenue Multiples (1 to 3 Times)• EBITDA Multiple (6 to 14 Times)
• Historical Brand Sales• Grey Goose stretched the multiple• Campari (Carolans, Frangelico, Irish Mist), Grey Goose, 42 Below,
Hpnotiq, Wild Turkey, Chambord, Svedka, Absolut, Ketel One, Wines-Big House, Red Truck, Rex Goliath, many others.
Foreign Supplier Approaches To U.S. Market
OPTIONS AND ALTERNATIVESOPTIONS AND ALTERNATIVES PROS PROS CONSCONS
Major US Importer And National Major US Importer And National DistributorDistributor
Small / Medium Sized ImporterSmall / Medium Sized Importer
National Import & Distribution Service National Import & Distribution Service CompaniesCompanies
State Wholesalers With Import State Wholesalers With Import LicensesLicenses
US Based Internet & Direct Mail US Based Internet & Direct Mail Distribution SystemsDistribution Systems
Establish US Based Import OperationEstablish US Based Import Operation
Key References For Foreign Suppliers
MHW, LTD.Nationally Licensed Import And Distribution Services, As Well As Consulting
www.mhwltd.comJohn Beaudette
REGULATORY &INFORMATION
-TTB (Formerly BATF) (online)-State Web Sites -Wine Institute-NABCA (Control States)-Beverage Information Group (Provided the statistical data for this presentation)
-Beer Institute
www.ttb.govwww.wineinstitute.org
www.nabca.orgwww.beveragenet.netwww.beerinstitute.org
ORGANIZATIONS
-NABI (National Association Of Beverage Importers)-WSWA (Wines & Spirits Wholesalers Association) -The Brewers Association,-Distilled Spirits Council of the United States
www.nabi-inc.orgwww.wswa.org
www.brewersassociation.org
PanelistsVince O’Brien, Senior
Counsel, Nixon Peabody
Bill Earle, President, NABI
Jim Squeo, President and CEO, NABCA
Charles Merinoff, Chairman and CEO,
Charmer Sunbelt Group