US Drinks Conference 2010 Brought to you by: The U.S. Beverage Alcohol Industry: Navigating Brand...

US Drinks Conference 2010US Drinks Conference 2010US Drinks Conference 2010US Drinks Conference 2010

Brought to you by:

The U.S. Beverage Alcohol Industry:The U.S. Beverage Alcohol Industry:

Navigating Brand Entry & DistributionNavigating Brand Entry & Distribution

The U.S. Beverage Alcohol Industry:The U.S. Beverage Alcohol Industry:


U.S. Drinks Conference 2010U.S. Drinks Conference 2010

•The US Beverage Alcohol Distribution System– Historical Perspective– “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.


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• Price Structures For Wine, Spirits, and Beer

• New Brand Introduction Trends

• Brand / Industry Valuation Discussion

• Distribution Options / Partners / Approaches To Market Entry

• Summary



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• To understand it today and to consider where its going tomorrow, history is important

• Direct Shipping, privatization of control states, HR 5034

• There is the potential for big changes over the next decade


The US Beverage Alcohol Distribution SystemThe US Beverage Alcohol Distribution System

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History Of Beverage Alcohol In US History Of Beverage Alcohol In US

55



66



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U.S. Drinks Conference 2010U.S. Drinks Conference 2010 88



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U. S. Beverage Alcohol IndustryU. S. Beverage Alcohol Industry

1933 Repeal Of Prohibition And Enactment Of Twenty-First Amendment

– Protect Federal Tax Revenues

– Federal Regulations (BATF-Now TTB)

• Licensing qualified importers, manufacturers, wholesalers, warehouses, not retailers)

• 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

1010


U. S. Beverage Alcohol IndustryU. S. Beverage Alcohol Industry

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)

History & overviewHistory & overview

1111


Three Tier SystemThree Tier System

PRODUCER(Wineries, Brewers, Distilleries, Importers)

Wholesaler (Distributor)

Retailer

Consumer1212


Control StatesControl States

1313

Wholesalers and State Control (21st Amendment) verses suppliers and consumers that prefer a Federal approach consistent with other consumer products (Commerce Clause)


NavigatingNavigating Brand Entry & Distribution Brand Entry & Distribution

HR 5034 - Beverage Alcohol and the Commerce ClauseHR 5034 - Beverage Alcohol and the Commerce Clause

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Direct Shipment OverviewDirect Shipment Overview

Powered By SHIPCOMPLIANT

Reciprocity States

Limited Direct Shipping &

Permit States Allowance of

limited shipments

Direct Shipment

not possible

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Federal Certificate Of Label Approval (COLA)

– Submitted by licensed importer or domestic producer

– Approval process and timeline is dependant upon the product, category (wine, spirits or beer) and specific requirements of TTB

• Pre import approval, TTB lab and formula submissions, statement of method of manufacture and approvals, TTB flavor approvals etc



Brand Entry - The Approval ProcessBrand Entry - The Approval Process

1616

State Registration and Approval

– Most states require the out of state entity (shipper) to maintain certain state licenses and / or permits in order to sell products to wholesalers

– Most states require the Federal COLA as a requirement for brand approval

– Many states require paperwork submissions with fees and return a formal approval prior to shipping

– Be aware of franchise states



Brand Entry - The Approval ProcessBrand Entry - The Approval Process

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Brand Approval / Launch Timeline 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

1818


States Have Unique Rules / RegulationsStates Have Unique Rules / Regulations

Outlet Differences• Supermarkets/ grocery

stores/ drug stores, convenience stores, gas stations, Liquor Stores selling beer, wine , spirits

Off Premise Sale• Sunday sales (8 states still

prohibit)• In store tastings (12 states

prohibit)

Promotion & Merchandising• Discounts, consumer refunds,

sweepstakes, gift sets / combo packs

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Wine Brand Economics ExampleWine Brand Economics Example

750ML / 12 Bottle Case Imported $9.99 Retail Bottle Price750ML / 12 Bottle Case Imported $9.99 Retail Bottle Price

Supplier FOB (Varies-Packaging etc.) $29.00 OceanFreight 4.50 Fed Tax/Duty (80 Proof) 3.30 PPU/BF/INS 1.40Importers Margin (28% Margin) 12.14Price to Distributor $50.34 State Tax 0.71 Freight 2.50Distributor Margin (50% Mark Up/33% Margin) 26.37Distrib. Price To Retail $79.92Retailer Margin (50% Mark Up/33%Margin) 39.96Retail Case Price $119.88Retail Bottle Price $9.99

2020


Premium Spirit Brand Economics ExamplePremium Spirit Brand Economics Example

750ML / 12 Bottle Case Imported $29.99 Retail Bottle Price (Generally sold in 6 Packs)750ML / 12 Bottle Case Imported $29.99 Retail Bottle Price (Generally sold in 6 Packs)

Supplier FOB (Varies-Packaging etc.) $65.00 OceanFreight 4.50 Fed Tax/Duty (80 Proof) 26.00 PPU/BF/INS 1.40Importers Margin (40% to 50% Margin) 88.24Price to Distributor $185.14 State Tax 15.30 Freight 2.50Distributor Margin (33% Mark Up/25% Margin)67.65Distrib. Price To Retail $270.59Retailer Margin (33% Mark Up/25%Margin)89.29Retail Case Price $359.88Retail Bottle Price $29.99

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Premium Beer Brand Economics ExamplePremium Beer Brand Economics Example

24 Bottle / 12 oz Case Imported $9.88 6 Pack (Generally sold in 6 Packs)24 Bottle / 12 oz Case Imported $9.88 6 Pack (Generally sold in 6 Packs)

Supplier FOB (Varies-Packaging etc.) $9.00Ocean Freight 2.00Fed Tax/Duty 1.30PPU/BF/INS 0.65Importers Margin (25% to 40% Margin) 7.05Price to Distributor $20.00State Tax 0.60Freight 1.75Distributor Margin (33% Mark Up/ 25% Margin) 7.38Distrib. Price To Retail (33% Mark Up/25% Margin) $29.73Retailer Margin (33% Mark Up/25%Margin) 9.81Retail Case Price $39.53Retail 6 pack price $9.88

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Three Tier SystemThree Tier System

PRODUCER(Wineries, Brewers, Distilleries, Importers)

Wholesaler (Distributor)

Retailer

Consumer2323


Three Tiers Are ConsolidatingThree Tiers Are Consolidating

Increasing Dominance Creates Worries For The Smaller PlayersIncreasing Dominance Creates Worries For The Smaller Players

Sources: Impact Newsletter; Beverage Marketing Group Handbooks; USDA (Food Marketing System Briefing Room) and Food Marketing Institute (May 2008.

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Top U.S. Wine And Spirits Wholesalers.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%

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%

3Charmer 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%

4Glazer´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%

5Young´s

Market Co

Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming $ 1,835 $ 1,895 3.3% 4.1% 4.3%

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Source: 2010 Impact Databank


Distributor MarketsSales

Revenue2009E

(Millions) 2010P

Percent Change

Market2009E

Share2010P

6Wirtz

Beverage Group

Illinois, Iowa, Minnesota, Nevada, Wisconsin$ 1,455 $ 1,510 3.8% 3.3% 3.4%

7Martignetti 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%

10Fedway

AssociatesNew 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% 100 %

Top U.S. Wine And Spirits Wholesalers.Top U.S. Wine And Spirits Wholesalers.

* Less than 0.05%.Source: 2010 Impact Databank

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Click to edit Master title styleClick to edit Master title style

There are over 340,000 Beverage Alcohol retailers divided into the on and on-premise channels with several sub-segments each

There Are 342,739 Retail Outlets That Sell Spirits

Bar/Night Club79,521 Outlets

On Premise230,207 Outlets

Dining92,458 Outlets

Lodging12,719 Outlets

Recreation36,000 Outlets

Catering3,715 Outlets

Liquor Stores / State Stores35,913 Outlets

Off Premise110,161 Outlets

Grocery8,977 Outlets

Warehouse Club310 Outlets

Convenience Stores11,438 Outlets

Source: TDLinx

Other5,794 Outlets

Other50,739 Outlets

Military On/Off1,666 Outlets – Under Reported

Other Premise2,371

Transportation519 Outlets

Other186 Outlets

Drug2,784 Outlets

Overview The U.S. Retailer Tier

U.S. Drinks Conference 2010U.S. Drinks Conference 2010 2727

Source: BIG 2010 Handbook


New Wine Brand IntroductionsNew Wine Brand Introductions

0

20

40

60

80

100

120

2005 2006 2007 2008 2009

USI talyFranceAustraliaS. AfricaArgentinaSpainNew ZealChileOthers

Source: The B.I.G. 2010 Wine Handbook257269 260 152307

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New Distilled Spirit Brand IntroductionsNew Distilled Spirit Brand Introductions

0

10

20

30

40

50

60

70

80

2005 2006 2007 2008 2009

VodkaRumTequilaCord& LiqOther

Majority Are Imports!

74% in ‘09200153 225 183186

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Source: The B.I.G. 2010 Spirits Handbook

• Spirit Brands Commanding Huge Prices– Grey Goose stretched the multiple

• Major Beverage Companies willing to pay big for growth brands caught in early stages of development

• All categories involved in the rush to market-intent to sell

• Discussion on brand valuations and brand sales

– 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


Brand Sales & ValuationsBrand Sales & Valuations

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• 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

• Other


Distribution Approaches For Foreign SuppliersDistribution Approaches For Foreign Suppliers

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Foreign Supplier Approaches To U.S. Wine MarketForeign Supplier Approaches To U.S. Wine Market

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• Initial Market Research Is Critical

• Committed Approach To US Market Including Adequate Resources (Time!!)?

• Finding The Right Importer And Distribution Approach

– Test market where possible

• Monitoring Sales & Brand Activity (Keeping Sales Pressure Up & Understanding Market Conditions)

• You Must Be Active!!– Brand Ambassadors etc.

• Key Organizations And Memberships With Critical Contacts

• Key Trade Shows

• Industry Law Firms For TTB Licensing, Contracts etc.

• Industry Consulting And / Or Service Companies (Outsourcing Operations for Efficiencies etc.)

• Independent Sales & Marketing Agents / Brokers

• Key Industry Reference Material


Entering The US Beverage Alcohol MarketEntering The US Beverage Alcohol Market

CHALLENGES ANSWERS

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Key References For Foreign SuppliersKey References For Foreign Suppliers

3434

THANK YOU

John Beaudette

President

272 Plandome Road

Manhasset, NY 11030

516-869-9170

[email protected]


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