The Insider's Guide to Selling Your Baby

FILED FEBRUARY 22, 2016

2015 was one of the busiest years we've seen for mergers and acquisitions in the beverage alcohol space, so we thought it fitting to cover a session at the US Bev Expo last week that focused on what it's like to build a small brand and sell it to a larger company.

The panel included Ralph Erenzo, founder of Tuthilltown Spirits, which sold Hudson Whiskey to William Grant & Sons in 2010; Adam Lee, co-founder of Siduri Wines, which sold to Jackson Family Wines in 2015; and Greg Hall, brewmaster of Goose Island, sold to Anheuser Busch in 2011 and co-founder of Virtue Cider, which sold a majority stake to Goose Island in 2015.

BUILDING THE BRAND. The two key elements of building a brand that someone will eventually want to buy are having production scalability and a good tasting brand with a good back story, said Greg. "No one is going to want to buy you if you're capped out on how much production you can make forever."

Goose Island learned that the hard way when they capped out production capacity at 130,000 barrels in an urban brewery in Chicago. "We couldn't buy the guys across the street, so we either had to start pulling out of markets or risk hurting distribution," he said, adding "It's never fun to say we don't have anymore."

Ralph added that wholesalers become pivotal when you start to grow. "In the beginning, we viewed wholesalers as the devil. We didn't understand that it was easy [to self-distribute] in the beginning because we were just servicing our region... the moment you try to step out of the state, it becomes a whole new ball game," he said.

"A small operation doesn't have the administrative staff to manage all of the registrations, tax payments, etc. and you can get yourself in trouble."

SETTLING ON THE TERMS. Adam said they had several offers for Siduri, but they took the second highest number because they were able to meet Jackson Family Wines' chairman Barbara Banke and her kids to "get the family aspect of it." In total, the transaction only took three months from start to finish, he said.

When dealing with William Grant, Tuthilltown decided to sell the rights to Hudson Whiskey, but keep its distillery and other brands. Ralph said they told William Grant: "You're not going to want to write a check that will convince us to walk away from this thing we've spent six years and everything we have building." And turns out William Grant agreed.

Greg said when AB called Goose Island they were "skeptical up front," but it helped that AB was clear in saying: 'We're not coming in there to change what you're doing, we're coming in to give you the resources to do what you've always wanted to do.' Shortly after the sale Greg left Goose Island to establish Virtue Cider in Michigan, which sold a portion of its business to Goose Island last fall.

SELLER'S REMORSE? When each of the panelists were asked if they felt any seller's remorse, Adam said initially 70% of him was sure about selling the business, but in the year that he's been working with JFW, his confidence in the sale increased to over 90%.

"I think my partner would say 'Yeah, every day' but my partner is on the production side," joked Ralph. He believes "for the Hudson brand itself, being out in the general marketplace under the direction of the sixth largest whisky business in the world gave us a cache and credibility that we could not have gotten any other way."

"It's kind of ironic," said Greg. "We get accused of making a deal with the devil, but the reality is, we're now getting to do the fun stuff" and spending more time in the cellar. He said ABI doesn't pressure them "at all" to move away from making Virtue the way they want. "What they've figured out, starting with beer, there isn't one solution at all. There has to be a growing number of solutions."

PETER MONDAVI LAST OF THE "12 LIVING LEGENDS" DIES

One of Napa Valley's most influential winemakers, Peter Mondavi Sr, has died at his home in St. Helena. He was 101. Peter cut his teeth in the wine business at Charles Krug Winery -- the oldest operating winery in Napa Valley -- bought by his parents Cesare and Rosa Grassi Mondavi in 1943. As a kid he worked at the family business doing odds and ends, and went on to earn a degree in economics from Stanford in 1938. He eventually became president and ceo of Charles Krug in 1976 when his mother died, according to Wine Searcher.

Peter is responsible for some of the wine industry's common practices like cold fermentation and the use of French oak barrels for aging in Napa Valley, and he was also one of the first to plant pinot noir and chardonnay in Carneros.

Peter is well-known for his staunch refusal to sell the family business. During a nine-year period beginning in 2001, he invested $22 million to replant 400 acres of vineyards with red Bordeaux varietals, establish sustainable farming practices and buy "state-of-the-art winemaking equipment," to equipt the business for the future, according to the Napa Valley Register.

Among several other accolades, in 1986, Peter was named one of the Napa Valley Vintners "Twelve Living Legends in the Napa Valley" and he was the last survivor of the indelible group. He is survived by his daughter Siena, sons Marc and Peter Jr, nine grandchildren and two great-grandchildren.

PERNOD CONFIRMS HAVANA CLUB TRADEMARK RENEWAL

On Friday, Pernod Ricard confirmed the Havana Club trademark registration has been renewed, effectively throwing the issue back onto the court. The trademark has been renewed for ten years through January 27, 2026, per a release.

"We are confident that Cubaexport, the Cuban entity that owns the US trademark registration for Havana Club rum, will prevail in defending its registration against pending litigation," says general counsel of Pernod Ricard Ian FitzSimons.

As it stands, contention for ownership of the brand can now be returned to the courts. But you may recall, Bacardi is working the legislative angle too. Last month a US House of Representatives Judiciary Committee held a hearing to look into the issue of confiscated property in Cuba [see WSD 02-12-2016].

YEAR OFF TO SLOW START IN CONTROL STATES

The control state spirit volumes for January fell -1.3%. Although January generally has the smallest monthly share at 7.2% of the control state annual market, 2016 represents the lowest reported for January since 2000, according to NABCA data. Spirits sales, which have been trending at 5.2% for the past 12 months, were up 2%.Pennsylvania was the only control state to report a monthly growth rate exceeding its 12-month trend.

Meanwhile, wine volumes were up 0.9%, with a rolling 12-month trend of 1.3% - a slight decrease from December's 1.4%.

NABCA notes that part of the poor January performance can partially be attributed to 13 fewer selling days reported over last year. Once normalized, spirits volumes were at 0.3% growth and sales grew 3.5%.

WSD BRIEFS:

B&G WHOLESALER'S JAMES "MAC" ARMSTRONG DIES. We regret to report that beloved James "Mac" Armstrong died on Friday after an extended illness. James worked at B&G Wholesalers/Horizon Wine & Spirits in Nashville for more than four decades, working his way up to vp of sales and marketing before retiring in January 2014. "Mac was well known for his drive, colorful interviews and helping create the structure that led to the unprecedented growth and success of Horizon," per a release from the company. Services will be held as follows: visitation will be February 22nd from 4 pm - 7 pm and Tuesday February 23 10 am - 11:30 am at Woodlawn Funeral Home in Nashville. The funeral will be February 23 at 11:30 am with burial to follow at the Woodlawn Cemetery. In lieu of flowers, the family has asked that donations be made to Alzheimer's Tennessee.

CRIMSON WINE GROUP VP OF MARKETING DEPARTS. Crimson Wine Group has eliminated the role of vp of marketing and Natasha Hayes, who held the role for the company since 2012, had departed, per an SEC filing. Natasha joined Crimson to oversee direct-to-consumer, trade marketing and public relations. She joined the company after managing brands such as Kendall-Jackson, Ravenswood, Blackstone and Lindemans.

DARK RED BLENDS RACE UPDATE. Following our piece on dark red blends last week, readers wrote in and asked Nielsen for an update of the category's growth leaders heading into 2016. When Nielsen inspected the most current 12 weeks of data through January 30, they found that Cupcake Black Forest had jumped into the top 5 brands within that segment. Moreover, brands that added the most dollars over the past 12 weeks were Apothic Dark, Dark Horse Big Red Blend, Cupcake Black Forest, Franzia Dark Red Blend and Stella Rosa Black. "Given the dynamic nature of this segment of Red Blends, we're likely to see more changes over the next year," writes Nielsen.

SUBCOMMITTEE OFFERS "CONCEPTUAL AMENDMENT" TO WINE IN MS GROCERY STORES BILL, per a local publication. The Ways and Means Temperance Subcommittee plans to rewrite HB 841 to call for a study on the issue of wine in grocery stores in Mississippi. Kroger and other advocates for the bill have started the Looking for Wine? Coalition, stating that wine in grocery stores is a "customer thing." Critics of the bill believe that it would hurt liquor store sales and even "suck revenue out of our state," says Victor Pittman, owner of Silver Leaf Wine and Spirits and vp of the American Beverage Licensees Association. DISCUS adds that the state should consider allowing Sunday sales. The bill will now head to the full Ways and Means Committee for consideration.

CONSTELLATION BRANDS DEBUTS MULTI-MILLION DOLLAR CAMPAIGN TO RELAUNCH CASA NOBLE BRAND. The new campaign, with the tagline "The Noble Pursuit," marks the biggest marketing investment in the brand's history, centering on the history of the tequila makers as well as Casa Noble's distillation process. There will be a new digital and social media advertising campaign, updated website and enhanced point-of-sale material including new primary and secondary packaging to highlight the brand's premium image, per a release. Moreover, Constellation also plans to take advantage of cross-promotional opportunities by putting Mexican beers and tequila side by side - Casa Noble will be featured alongside Corona Extra on a TV spot for Cinco de Mayo promotion.

Until tomorrow,
Emily

"You never really understand a person until you consider things from his point of view." -- Harper Lee

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---------- Sell Day Calendar ----------
Today's Sell Day: 16
Sell days this month: 21
Sell days this month last year: 20
This month ends on a: Mon.
This month last year ended on a: Fri.
YTD sell days Over/Under: 0

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