Buffett's McLane Expands with New Licenses

FILED MARCH 22, 2011

Dear Client:

WSD has learned that McLane Beverage, owned by Warren Buffett's Berkshire Hathaway, has purchased a distributor and import license in Illinois, and has licenses pending in Texas and California. And as we reported last fall, they have a wholesaler license in Florida, Virginia and Washington. This covers some of the biggest markets in the United States, and its likely McLane has pending or active licenses in other states as well. As you know, McLane acquired Empire Distributors of Georgia and North Carolina last spring, followed by Horizon Wine & Spirits in Tennessee in October.

So does this mean McLane will move into every state where it has a license? Not exactly. We view this as a preemptive move on McLane's part in case it decides to acquire a distributor or set up its own operations. Getting a license takes time, so it shows they are thinking ahead. With that said, it's feasible that McLane will apply for a license in every state where it has a foodservice or grocery distribution warehouse. That includes: Oregon, Washington, California, Arizona, Colorado, Texas, Kansas, Mississippi, Tennessee, Georgia, Florida, Alabama, Ohio, Minnesota, North Carolina, Kentucky, Wisconsin, Illinois, New York, Virgina, New Jersey, Pennsylvania and New Hampshire. As you can see, McLane already had warehouses in the states where it bought out a distributor: North Carolina, Georgia and Tennessee. This could leave room for expansion.

PARALLELS BETWEEN MCLANE AND SOUTHERN. So far its strategy has been to acquire established wholesalers rather than setting up its own operations from scratch. But it's notable that McLane has warehouses across the nation that could potentially be used to distribute alcohol, which means it could potentially become one of the largest wholesalers in the country if suppliers jump on board. Just look at Southern Wine & Spirits who built a warehouse in Indiana and was able to attract suppliers, including Diageo.

We think that right now Buffett is testing the water. He's targeting medium-sized distributors who are looking to get out of the business for one reason or another. We think he will stick to this tactic in the near term, but in the next few years he will need to decide if he wants to go big or go home.

If he decides to go big, we could see McLane setting up operations throughout the country and competing against the big boys. Crazier things have happened. Don't forget that Southern, the largest wine and spirits distributor in the country, is a relative newcomer to the industry, entering the scene in 1968. Other large distributors like Young's, Republic and Glazer's were in the business even before prohibition, and Charmer entered soon after. How did Southern get its start? By snatching up small wholesalers around the country.


As we told you in a special issue on Sunday, the Beckmann family, owners of Jose Cuervo, "is in talks to appoint Barclays to explore a possible sale of all or part of the group," according to a report from the Sunday Times. Sources were not named. Diageo is allegedly mulling a $2 billion bid and is considered "an early favorite" because it owns the international distribution rights to Cuervo. Bacardi, Pernod Ricard and Brown-Forman were also named as possible rivals.

Trevor Stirling of Bernstein Research views B-F "as a very unlikely bidder since they already own Herradura and El Jimador." He noted that Bacardi's interest "may also be somewhat limited, since they already own a minority stake in Patron tequila." And Pernod has already said it is not looking to make an acquisition in the near term. Clearly Diageo has the most to gain.

According to the article, the Beckmanns are considering selling Cuervo as a preemptive move in case Sauza tequila becomes available, although Beam Global says its brands are not for sale.

Art Shapiro suggested this in his Booze Business Blog: "Perhaps it's a warning shot to Diageo to pick up the pace since their contract comes to an end in a few years."

But he also had this interesting thought: "What I can't understand is where Proximo (also owned by Beckmann family members) fits in the equation. They are doing well and could easily handle the addition of Cuervo to the portfolio. But, their strength is strictly in the US. So, perhaps the low price tag is for international distribution."

Our initial instinct is this: Diageo's contract with Cuervo doesn't end until June 2013 so perhaps the news is more of a negotiating tactic by the Beckmanns, as Art suggested. But Diageo chief Paul Walsh has said many times they would like to acquire Cuervo if the opportunity arises, so we're confident the company is closely considering any and all options.


Skyy Spirits saw total organic growth of 2.1% in the US for the full year ended December 31, parent company Gruppo Campari said in its fiscal year earnings.

Skyy Vodka benefitted from an "improving consumption pattern" and the "successful" performance of Skyy Infusions. The flagship brand experienced a "slight increase" in the US, "where the category was affected by strong price competition." Campari says it "expects continuing competitive pressure in US vodka market" in 2011.

Campari plans to relaunch Wild Turkey in the US this year, where depletions grew in the low single digits in 2010. Cabo Wabo's overall growth of 29.4% was helped by new packaging and repositioning in the US.


The Maryland House Alcohol Sub-Committee has endorsed HB 1175, which allows only in-state and out-of-state wineries to ship directly to consumers, but not retailers. This is a step forward for winery proponents in a state that has failed to pass direct shipping legislation in the past. Its co-sponsors are Charles Barkley, the chair of the Alcohol Sub-Committee and Dereck Davis, the Chair of the House Economic Matters Committee from which the Alcohol Sub-Committee springs. Wineries can only sell up to 12-cases per person. If passed, it will take effect July 1. The bill will now head to the House Economic Matters Committee for review.

The committee chose not to endorse a bill (HB 234) that had more than 80 sponsors in the Maryland House of Delegates and would have allow direct shipping from both retailers and wineries. The only chance retailers have at this point is if the Maryland Senate decides to include them on their bill, which is scheduled for a vote later this week.


LUKSUSOWA VODKA, owned by WJ Deutsch & Sons, was named the second-fastest growing spirits brand by Impact magazine. The company also unveiled a new packaging for the brand, which is expected on shelf by mid-May and will be available in 750ml, 1L and 1.75L sizes.

BULLEIT WHISKEY, owned by Diageo, is adding Bulleit Rye to its portfolio. It is available nationwide for a suggested retail price of $27.99 for a 750 ml bottle.

Until tomorrow, Megan

"Death is more universal than life; everyone dies but not everyone lives."
A. Sachs

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