3ModeratorJohn Beaudette,President and CEO,MHW, Ltd.
4Panelists Vince O’Brien, Senior Counsel, Nixon PeabodyCharles Merinoff, Chairman and CEO, Charmer Sunbelt GroupJim Squeo, President and CEO, NABCABill Earle, President, NABI
5Navigating 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.
6Navigating 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
82010 Beverage Consumption Alcohol Trends Source: Beverage Information Group
9The 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.RThere is the potential for some changes over the next decade .
10History Of Beverage Alcohol In Us 1830’s Temperance Movement Begins1851 Maine Passes Prohibition1893 The Anti-Saloon League is formedth Amendment Ratified-Prohibition in Effect at Federal Level (Volstead Act Impact)1920’s Bootleggers and Organized Crime Take Over / Elliot Ness/ ChaosDecember 5th, 1933 Prohibition Repealed via the 21st Amendment
12History Of Beverage Alcohol In Us History & Overview1933 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 .
13History Of Beverage Alcohol In Us History & Overview1933 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
14Three Tier System PRODUCER Wholesaler (Distributor) Retailer Consumer (Wineries, Brewers, Distilleries, Importers)ThousandsHundreds but Dominated By FewWholesaler (Distributor)Retailer630 thousand Outlets221 Million over21 Yrs oldConsumer
16Navigating Brand Entry & Distribution HR1161 – Community Alcohol Regulatory Effectiveness (CARE) Act Of 2011Wholesalers 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 lawsWhere does this take the industry in the near future?
17Brand Approval / Launch Timeline Federal Label (COLA) Approval1 to 8 weeks depending on product and complexityProduct Ships To WholesalerCaution-New TTB TurnaroundState Registration & Approval1 to 8 weeks including price posting where required
18Wine Brands Economics Example 750ML / 12 Bottle Case Imported $ 9.99 Retail Bottle PriceSupplier FOB (Varies-Packaging etc.)$ 29.004.50Ocean FreightFed Tax/Duty (80 Proof)3.301.40PPU/BF/INSImporters Margin (24% Margin)$ 12.14Price to Distributor$50.34State Tax.71Freight2.50Distributor Margin (50% Mark Up/33% Margin)26.37Distrib. Price To Retail$79.9239.96Retailer Margin (50% Mark Up/33%Margin)Retail Case Price$119.88Bottle Price$9.99
19Spirit Brand Economics Example 750ML / 12 Bottle Case Imported $ Retail Bottle Price(Generally Sold in 6 Bottle Cases)Supplier FOB (Varies-Packaging etc.)$ 65.004.50Ocean FreightFed Tax/Duty (80 Proof)26.001.40PPU/BF/INSImporters Margin (40% to 50% Margin)$ 88.24Price to Distributor$185.14State Tax15.30Freight2.50Distributor Margin (33% Mark Up/25% Margin)67.65Distributor Price To Retail$270.59Retailer Margin (33% Mark Up/25%Margin)89.29Retail Case Price$359.88Bottle Price$29.99
20Premium Beer Brand Economics Example 24 Bottle / 12 oz Case Imported $ Pack (Generally sold in 6 Packs)Supplier FOB (Varies-Packaging etc.)$ 11.002.00Ocean FreightFed Tax/Duty (80 Proof)1.30.65PPU/BF/INSImporters Margin (25% to 40% Margin)$ 5.05Price to Distributor$20.00State Tax.60Freight1.75Distributor Margin (33% Mark Up/25% Margin)7.38Distrib. Price To Retail$29.73Retailer Margin (33% Mark Up/25%Margin)9.81Retail Case Price$39.53Six Pack Price$9.88
21Top U.S. Wine And Spirits Wholesalers DistributorMarketsSales Revenue2009E(Millions)2010PPercent ChangeMarketShare1Southern Wine & Spirits of AmericaAlabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Kentucky, Maine, Mississippi, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Vermont, Virginia, Washington, West Virginia, Wyoming$ 8,535$ 8,7652.7%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$ 4,36513.8%8.6%9.8%3Charmer Sunbelt GroupAlabama, 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%4Glazer´s Family of CompaniesArizona, Arkansas, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, Oklahoma, Texas$ 2,550$ 2,7506.1%5.7%5Young´s Market CoAlaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming$ 1,835$ 1,8953.3%4.1%4.3%
22Top U.S. Wine And Spirits Wholesalers DistributorMarketsSales Revenue2009E(Millions)2010PPercent ChangeMarketShare6Wirtz Beverage GroupIllinois, Iowa, Minnesota, Nevada, Wisconsin$ 1,455$ 1,5103.8%3.3%3.4%7Martignetti CompaniesMassachusetts, Maine, New Hampshire, Rhode Island, Vermont$ 950$ 1,05010.5%2.1%2.4%8Johnson Brothers Liquor CoAlabama, Arizona, Florida, Hawaii, Indiana, Iowa, Minnesota, Nebraska, Nevada, New York, North Carolina, North Dakota, Rhode Island, South Dakota, Wisconsin$ 860$ 8802.3%1.9%2.0%9Allied Beverage GroupNew Jersey$ 665$ 7056.0%1.5%1.6%10Fedway Associates$ 605$ 6151.7%1.4%Total Top 10$ 25,055$ 26,2454.7%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%.
23New Wine Brand Introductions 269257307260152232Source: Beverage Information Group
24New Distilled Spirit Brand Introductions Majority Are Imports!65% in ‘10153200186225183266Source: Beverage Information Group
25Brand 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 SalesGrey Goose stretched the multipleCampari (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.
26Foreign Supplier Approaches To U.S. Market OPTIONS AND ALTERNATIVESPROSCONSMajor US Importer And National DistributorSmall / Medium Sized ImporterNational Import & Distribution Service CompaniesState Wholesalers With Import LicensesUS Based Internet & Direct Mail Distribution SystemsEstablish US Based Import Operation
27Key References For Foreign Suppliers MHW, LTD.Nationally Licensed Import And Distribution Services, As Well As ConsultingJohn BeaudetteREGULATORY &INFORMATION-TTB (Formerly BATF) (online)-State Web SitesWine Institute-NABCA (Control States)-Beverage Information Group (Provided the statistical data for this presentation)-Beer InstituteORGANIZATIONS-NABI (National Association Of Beverage Importers)-WSWA (Wines & Spirits Wholesalers Association)-The Brewers Association,-Distilled Spirits Council of the United States
28Panelists Vince O’Brien, Senior Counsel, Nixon PeabodyCharles Merinoff, Chairman and CEO, Charmer Sunbelt GroupJim Squeo, President and CEO, NABCABill Earle, President, NABI