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Moderator John Beaudette, President and CEO, MHW, Ltd.

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Presentation on theme: "Moderator John Beaudette, President and CEO, MHW, Ltd."— Presentation transcript:

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3 Moderator John Beaudette, President and CEO, MHW, Ltd.

4 Panelists Vince O’Brien, Senior Counsel, Nixon
Peabody Charles Merinoff, Chairman and CEO, Charmer Sunbelt Group Jim Squeo, President and CEO, NABCA Bill Earle, President, NABI

5 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.

6 Navigating Brand Entry & The Three Tier System
Price Structures For Wine, Spirits, and Beer. New Brand Introduction Trends. Brand / Industry Valuation Discussion. Distribution Options / Partners / Approaches To Market Entry. Panel Discussion

7 2010 US Beverage Consumption
50 Billion Gallons

8 2010 Beverage Consumption Alcohol Trends
Source: Beverage Information Group

9 The US Beverage Alcohol Distribution System
To understand it today and to consider where its going tomorrow, history is important. Direct Shipping, privatization of control states, H.R There is the potential for some changes over the next decade .

10 History Of Beverage Alcohol In Us
1830’s Temperance Movement Begins 1851 Maine Passes Prohibition 1893 The Anti-Saloon League is formed th Amendment Ratified-Prohibition in Effect at Federal Level (Volstead Act Impact) 1920’s Bootleggers and Organized Crime Take Over / Elliot Ness/ Chaos December 5th, 1933 Prohibition Repealed via the 21st Amendment

11 History Of Beverage Alcohol In Us

12 History Of Beverage Alcohol In Us
History & Overview 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 .

13 History Of Beverage Alcohol In Us
History & Overview 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

14 Three Tier System PRODUCER Wholesaler (Distributor) Retailer Consumer
(Wineries, Brewers, Distilleries, Importers) Thousands Hundreds but Dominated By Few Wholesaler (Distributor) Retailer 630 thousand Outlets 221 Million over 21 Yrs old Consumer

15 Control States

16 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?

17 Brand Approval / Launch Timeline
Federal Label (COLA) Approval 1 to 8 weeks depending on product and complexity Product Ships To Wholesaler Caution-New TTB Turnaround State Registration & Approval 1 to 8 weeks including price posting where required

18 Wine Brands Economics Example
750ML / 12 Bottle Case Imported $ 9.99 Retail Bottle Price Supplier FOB (Varies-Packaging etc.) $ 29.00 4.50 Ocean Freight Fed Tax/Duty (80 Proof) 3.30 1.40 PPU/BF/INS 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 39.96 Retailer Margin (50% Mark Up/33%Margin) Retail Case Price $119.88 Bottle Price $9.99

19 Spirit Brand Economics Example
750ML / 12 Bottle Case Imported $ Retail Bottle Price (Generally Sold in 6 Bottle Cases) Supplier FOB (Varies-Packaging etc.) $ 65.00 4.50 Ocean Freight Fed Tax/Duty (80 Proof) 26.00 1.40 PPU/BF/INS 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) 67.65 Distributor Price To Retail $270.59 Retailer Margin (33% Mark Up/25%Margin) 89.29 Retail Case Price $359.88 Bottle Price $29.99

20 Premium Beer Brand Economics Example
24 Bottle / 12 oz Case Imported $ Pack (Generally sold in 6 Packs) Supplier FOB (Varies-Packaging etc.) $ 11.00 2.00 Ocean Freight Fed Tax/Duty (80 Proof) 1.30 .65 PPU/BF/INS 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

21 Top U.S. Wine And Spirits Wholesalers
Distributor Markets Sales Revenue 2009E (Millions) 2010P Percent Change Market Share 1 Southern 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% 2 Republic 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% 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%

22 Top U.S. Wine And Spirits Wholesalers
Distributor Markets Sales Revenue 2009E (Millions) 2010P Percent Change Market Share 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% 8 Johnson 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% 9 Allied Beverage Group New Jersey $ 665 $ 705 6.0% 1.5% 1.6% 10 Fedway Associates $ 605 $ 615 1.7% 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% Source: Impact Databank * Less than 0.05%.

23 New Wine Brand Introductions
269 257 307 260 152 232 Source: Beverage Information Group

24 New Distilled Spirit Brand Introductions
Majority Are Imports! 65% in ‘10 153 200 186 225 183 266 Source: Beverage Information Group

25 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.

26 Foreign Supplier Approaches To U.S. Market
OPTIONS AND ALTERNATIVES PROS CONS Major US Importer And National Distributor Small / Medium Sized Importer National Import & Distribution Service Companies State Wholesalers With Import Licenses US Based Internet & Direct Mail Distribution Systems Establish US Based Import Operation

27 Key References For Foreign Suppliers
MHW, LTD. Nationally Licensed Import And Distribution Services, As Well As Consulting John 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 ORGANIZATIONS -NABI (National Association Of Beverage Importers) -WSWA (Wines & Spirits Wholesalers Association) -The Brewers Association, -Distilled Spirits Council of the United States

28 Panelists Vince O’Brien, Senior Counsel, Nixon
Peabody Charles Merinoff, Chairman and CEO, Charmer Sunbelt Group Jim Squeo, President and CEO, NABCA Bill Earle, President, NABI


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