December 2015 Issue of Wines & Vines

Mergers Continue for Major Distributors

by Paul Franson
Wine Sales
In light of the mergers of national wine distributors, more small producers are turning to specialty distributors, brokers and marketers.

Miami, Fla.—Amid talk about the mega-merger of two international beer giants and consolidation of retail chains, mergers of wine and spirits distributors continue to upend wine sales channels.

One impact has been to enhance prospects of large wine companies while threatening small and medium-sized wineries, which are increasingly having to turn to direct-to-consumer and specialty distributors and brokers to survive.

Most recently, just days after second-tier Charmer-Sunbelt and Wirtz Beverage Group signed a letter of intent to form an alliance, Southern Wine & Spirits and Glazer’s announced a similar alliance. Meanwhile The Winebow Group, an importer and distributor of fine wines and craft spirits, announced plans to acquire Noble Wines of Seattle, Wash.

The Southern and Glazer’s deal would combine the country’s first- and fourth-largest spirits and wine wholesalers into a behemoth with revenue of $16 billion and operations in more than 40 states. From the companies’ perspective it’s a perfect match, as Southern and Glazer’s have little geographical overlap.

Miami-based Southern operates in 35 markets, and Dallas-based Glazer’s in 15, but they share only seven states. Southern is strongest on the coasts with California, Florida and New York providing more than 60% of its revenues, while Glazer’s is strong in Texas, Louisiana and Missouri.

Southern Wine & Spirits’ last acquisition was Phoenix Wine & Spirits of Salt Lake City in 2013. Also in 2013, Glazer’s acquired the majority control of Star Distributing Co. in Memphis, Tenn., and formed a venture with Stoller Wholesale of Illinois to return to that state after a five-year absence.

Under the partnership, the company operates as Stoller Wholesale Distributing of Illinois, a Glazer’s company. (Glazer’s had previously sold Union Beverage in Illinois to Wirtz Corp. in 2008.) Charmer Sunbelt Group, which ranks third in size among U.S. distributors with $5.3 billion in revenue last year, would combine with Chicago-based Wirtz Beverage Group—the sixth-largest distributor by sales at $2.5 billion—to create a New York-based company called Breakthru Beverage Group. The merged company will serve 16 markets.

Wirtz Beverage operates in Illinois, Minnesota, Nevada, Wisconsin and Canada (though the Canadian arm will apparently remain separate).

Also in 2013,Wirtz and McLane Co. entered Missouri together through a joint venture with Missouri Beverage (MoBev). Wirtz also formed a partnership in Iowa with Johnson Brothers.

The Winebow Group is itself a product of mergers. The Virginia-based importer and distributor was created when The Vintner Group Inc. merged with Winebow and became Winebow Group LLC in 2014.

With the latest deal, the companies will combine their efforts in Washington and Idaho and operate as Noble Wines, a member of The Winebow Group. The move will boost Winebow’s distribution network to 19 states.

Earlier this year, the Winebow Group acquired Purple Feet Wines of Wisconsin.

When it was still The Vintner Group (formerly The Country Vintner), the company acquired Prestige Wine Wholesale and Quality Wine & Spirits, both in Atlanta, and Martin Scott Wines in New York in 2013.

The consolidation by distributors seeks the ultimate goal: a countrywide network that could distribute in all states and hold immense power. This is hampered by state laws, however, as some restrict such ownership. The Federal Trade Commission, which once restricted mergers that reduced competition, seems to have become laissez faire about such matters.

These mega distributors pursue rights to distribute major wine and spirits brands across their networks, and many major wine companies have been signing exclusive agreements across multiple states with the expanded distributors. These result in dedicated sales forces and special attention paid to their brands—often at the expense of smaller and independent wine companies.

One result has been an increase in independent specialty distributors as well as brokers and marketers who augment distributor efforts.

For many wineries outside the top tiers, direct sales to consumers have become vital, and though most are still initiated in tasting rooms and then wine clubs, Internet and mail-order sales are growing rapidly as industry efforts have opened up more states.

Less noticed, many wineries are beefing up direct sales to retailers and restaurants. California and many other states already allow that, and California’s nearly 1,200 “virtual” wineries hold wholesale as well as retail licenses, swelling the number of distributors even as the major players consolidate.

Some other states also allow direct-to-trade sales from wineries outside their borders, particularly small wineries.

Of course, consolidation in wine and spirits wholesalers isn’t unique. Beer giant Anheuser-Busch is acquiring its big rival, InBev SABMiller, though it has to divest its joint venture with Miller Coors in the United States.

Likewise, Albertsons and Safeway, which are major retailers of alcoholic beverages in many states, are now co-owned, and Walgreen’s drug stores is acquiring RiteAid, both also major retailers in many states.

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