Biggest Distributor Stories of 2013

FILED DECEMBER 16, 2013

Dear Client:

Despite a challenging economy and an ever-changing category, 2013 marks another year of prosperity within the distribution tier. While previous years have featured more acquisitions, this year was all about partnerships and alignment. Below are a few of the highlights from the past 12 months in chronological order.

--The first big distributor news of the year was when Glazer's, Wirtz Beverage and Charmer Sunbelt Group launched a joint "exploratory effort to gauge best practices and efficiency opportunities related to back office operations." The operating areas to be analyzed will be Finance, Human Resources, IT, Supply Chain, Procurement and Share Services. You may recall, the companies explicitly stated this is not an exploration of a merger.

--Virginia-based importer and distributor The Vintner Group (formerly The Country Vintner) has been one of the busiest companies of 2013. Their first acquisition of the year was Prestige Wine Wholesale of Atlanta.

--Also in the first month of the year, Accolade Wines North America announced it had appointed Southern Wine & Spirits its representative in 24 states, and Diageo and Charmer formed an exclusive distributor agreement in AZ, CO, DE, MD, NY, SC and D.C.

--Meanwhile, Banfi continued its consolidation streak in 2013. Banfi Vintners and its joint venture with Concha y Toro, Excelsior Wine Company, signed an agreement making Glazer's its exclusive distributor in Texas, Louisiana, Oklahoma, Iowa and Mississippi. Later in January, it announced it had aligned its entire portfolio with Southern Wine and Spirits in 11 markets including: AK, CA, DE, HI, ID, KY, NV, OR, UT, WA and WY. Although most of Banfi's portfolio was already with Southern, its recently acquired VinMotion Wine brands, Pacific Rim, Rainstorm and Sweet Bliss were distributed by competing wholesalers in some states.

--In March, Trinchero Family Estates, which is estimated to have approximately 5% share of the wine market, extended its partnership with Southern to include Indiana. The two are now aligned in nine US markets.

--Wirtz and and McLane Company, owned by Warren Buffett's Berkshire Hathaway, entered Missouri together through a joint venture with Missouri Beverage (MoBev) in April. The partnership gave new territory to Wirtz and McLane, but it also solved a problem for MoBev, which had been looking to partner with someone bigger for a few years. Thanks to Missouri's residency requirements, Missouri Beverage still technically holds majority share in the company.

--The Vintner Group made its second acquisition in Atlanta for the year with the purchase of Quality Wine & Spirits of Atlanta.

--In May Wirtz formed its third partnership of the year in Iowa with Johnson Brothers. Through a brokerage partnership, Johnson Bros. brought suppliers such as E & J Gallo, Constellation Brands, Sazerac and The Wine Group to the table, while Wirtz brought William Grant & Sons, Brown-Forman, Bacardi and Proximo Spirits.

"There is great strength in alliances and our companies have a strong mutual respect for each other," noted Danny Wirtz, Wirtz Beverage Group executive vp. "Together we have the longest history and the best relationships in the market with both customers and regulators. That's a huge opportunity for us both."

--You'll recall that Jose Cuervo transferred distribution rights from Diageo to Proximo Spirits, which resulted in some distribution changes (see WSD 03-01-2013 ). For the most part, Proximo cut its ties with Wirtz, Horizon Beverage and Glazer's in order to partner with Charmer Sunbelt Group, Republic National Distributing Co., Young's Market, Southern, Johnson Bros. and Martignetti Co. where possible.

More specifically: Charmer already distributed Cuervo in Colorado and then picked up Proximo's smaller brands; Young's Market gained Cuervo and now distributes all of Proximo's portfolio in CA, AZ, HI, OR, ID, MT, WY, and UT; RNDC now represents all of Proximo's brands in Texas, Louisiana and some control states; and finally, Southern represents Proximo's portfolio in Maine, Vermont and New Hampshire.

-- In June The Vintner Group made its third acquisition of the year, Martin Scott Wines in New York. The acquisition expanded the distributor's footprint into New York, Connecticut and New Jersey. To read our interview with The Vintner Group's ceo David Townsend see WSD 07-25-2013.

-- In July Glazer's acquired the majority control of Star Distributing Co., its second Memphis-based distributor. In the deal, Glazer's picked up such suppliers as Diageo, Bacardi, Sazerac, TWE, Brown-Forman and several other big names. At one time there were six independent distributors in Memphis and all but one (Athens Distributing) have been swallowed up.

-- 2013 was much slower than 2012 for Foley Family Wines, but in August the company bought a minority interest in California importer and distributor Epic Wines. "I just felt like we needed ... more influence in where our wines are sold," said Bill Foley. "Now I can sell through a distributor that I'm a partner in." As a bonus, Bill also became a part-owner in the Butterfield Station brand, which sells about 80,000 cases annually.


Foley Family Wines' portfolio, which includes Chalk Hill, Merus, Firestone, Foley Estates etc., is with Young's Market in California, Hawaii, Alaska and a few other western states. Part of the portfolio will stay with Young's, but about 150,000 cases will go to Epic.

-- In November Glazer's joined forces with Stoller Wholesale of Illinois to return to Illinois after a five-year absence. Under the partnership, the company will do business as Stoller Wholesale Distributing of Illinois, a Glazer's company. You may recall, Glazer's previously operated in Illinois through its ownership of Union Beverage. In 2008 Glazer's exited Illinois when it sold Union to Wirtz Corp.

-- Brown-Forman and Bacardi USA transferred brokerage services from RNDC to Hive Beverage International (the Hive) in Alabama West Virginia and Mississippi. The Hive has worked with Brown-Forman in Canada for over 14 years and is currently B-F Canada's exclusive distributor, as well as their sales and marketing arm across the country.

THE MISSOURI DEBACLE

Perhaps the biggest distributor story of 2013 was the supplier-distributor struggle in Missouri. You may recall, the whole ordeal was set in motion in January when Pernod filed a lawsuit against its distributors, Major Brands and Glazer's Midwest, over the legality of terminating its contracts with both. The distributors argued Pernod had a franchise agreements and Pernod claimed the opposite.

In March, Diageo and Bacardi joined the fray by filing lawsuits within one day of each other wanting to end their distribution agreements with Major Brands as well. Shortly thereafter, Glazer's relinquished Pernod's business so Major Brands could distribute the entirety of the spirits company's portfolio.

Meanwhile, Missouri-based distributor Garco Wine Company filed a lawsuit against Constellation Brands after Constellation asked its wholesalers to compete for statewide control of its business - the same move as Pernod - or risk having its brands pulled. Garco not only refused to participate under Missouri franchise law, but claimed the separate suppliers in the state are colluding to restrict competition in Missouri.

Then Luxco got involved when Major Brands filed a lawsuit against the company for terminating its distribution contract in attempt to move its brands to Glazer's.

And that brings us to intra-wholesaler tensions. Major Brands chief Sue McCollum said she thought Glazer's was behind the flurry of suppliers trying to pull their business. "It has become clear that what is occurring is nothing less than an effort by the largest liquor suppliers in the world, with the collusion of a multi-state liquor wholesaler, to take control of the wholesale tier in Missouri's three-tier system of liquor distribution by destroying Glazer's chief competitor, Major Brands," wrote Major Brands in a legal memorandum. Sue also pointed out that Glazer's supported legislation to narrow the definition of distributor franchise laws in the past, but did not back this year's bill, which ultimately did not pass through the legislature (see WSD 05-20-2013).

THE FALLOUT: In June, the court ruled in the Diageo v. Major Brands case that the two companies do have a franchise relationship, however, it would not grant a preliminary injunction to prevent Diageo from terminating its agreement. Major Brands still lost Diageo as a supplier, but is required to pay damages yet to be determined. The ruling is a pretty "extraordinary statement," Drew Jaglom of Tannenbaum Helpern Syracuse & Hirschtritt LLP told WSD (see WSD 06-27-2013 ). "It essentially means that even where there is a franchise law, or a contract barring termination except in specific circumstances, a supplier can always end a relationship with a distributor without any justification, so long as it is prepared to pay up," he continued.

As it stands, Major Brands' cases with Bacardi are still on-going in both a federal court and a state court. The Missouri court has yet to rule on the damages Diageo will be forced to pay Major Brands, but we expect those in 2014. In November, the court conducted a status conference with Garco Wine Co. and Constellation, in which the counsel for the two parties said "a resolution of the case is pending," and requested a stay of the case. The court complied and now we wait.

As if Missouri's situation wasn't complicated enough, Southern Wine and Spirits was also fighting its own lawsuit in the state. Recall, Southern has spent the better part of two years attempting to overthrow the state's residency requirements, which it successfully did in Texas and Indiana. In September, Southern lost its appeal as the 8th Circuit court dismissed it's Commerce Clause and Equal Protection challenges to Missouri law. Southern can still technically appeal to the Supreme Court, but nothing so far.

We don't expect this Missouri situation to die out anytime soon, so plan on more such headlines in 2014.

WSD BRIEF:

RECALL, TOTAL WINE & MORE ATTEMPTED TO EXPAND into the San Antonio market earlier this year, but was hit with a lawsuit that forced it to withdraw its application for a package store permit (see WSD 09-23-2013 ). However, last week Total Wine & More quietly opened its first San Antonio location. According to Bexar County Court records, Gabriel's Investment Group (the plaintiff) lifted the temporary injunction prohibiting the Texas Alcoholic Beverage Commission from acting on Total Wines' pending package store license. Though the case is still listed as "pending." Total Wine declined to comment on the case.

Until tomorrow, Emily

"If I had asked people what they wanted, they would have said 'faster horses.'"
-- Henry Ford

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