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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 Bill Earle, President, NABI Jim Squeo, President and CEO, NABCA Charles Merinoff, Chairman and CEO, Charmer Sunbelt Group

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 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

7 2010 US Beverage Consumption 50 Billion Gallons

8 2010 Beverage Consumption Alcohol Trends Source: Beverage Information Group

9 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

10 1830’s Temperance Movement Begins 1851 Maine Passes Prohibition 1893 The Anti-Saloon League is formed 1919 18 th Amendment Ratified- Prohibition in Effect at Federal Level (Volstead Act Impact) 1920’s Bootleggers and Organized Crime Take Over / Elliot Ness/ Chaos December 5 th, 1933 Prohibition Repealed via the 21 st Amendment History Of Beverage Alcohol In Us

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12 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 & Overview History Of Beverage Alcohol In Us

13 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 & Overview History Of Beverage Alcohol In Us

14 Three Tier System PRODUCER (Wineries, Brewers, Distilleries, Importers) Wholesaler (Distributor) Retailer 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 (21 st 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 State Registration & Approval 1 to 8 weeks including price posting where required Product Ships To Wholesaler Caution- New TTB Turnaround

18 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

19 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) 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

20 Premium Beer Brand Economics Example Supplier FOB (Varies-Packaging etc.) $ 11.00 Ocean 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 (Generally sold in 6 Packs)

21 Top U.S. Wine And Spirits Wholesalers DistributorMarkets Sales Revenue 2009E (Millions) 2010P Percent Change Market 2009E Share 2010P 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$ 8,7652.7%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$ 4,36513.8%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$ 2,7506.1%5.7%6.1% 5 Young´s Market Co Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming $ 1,835$ 1,8953.3%4.1%4.3%

22 Top U.S. Wine And Spirits Wholesalers DistributorMarkets Sales Revenue 2009E (Millions) 2010P Percent Change Market 2009E Share 2010P 6 Wirtz Beverage Group Illinois, Iowa, Minnesota, Nevada, Wisconsin $ 1,455$ 1,5103.8%3.3%3.4% 7 Martignetti Companies Massachusetts, Maine, New Hampshire, Rhode Island, Vermont $ 950$ 1,05010.5%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$ 8802.3%1.9%2.0% 9 Allied Beverage Group New Jersey $ 665$ 7056.0%1.5%1.6% 10 Fedway Associates New Jersey $ 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% * Less than 0.05%. Source: Impact Databank

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

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

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 PROSCONS 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 www.mhwltd.com 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 www.ttb.gov www.wineinstitute.org www.nabca.org www.beveragenet.net www.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.org www.wswa.org www.brewersassociation.org

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


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