A Game Changer For U.S. Wine And Spirits Distribution

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Brian Tuite
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A Game Changer For U.S. Wine And Spirits Distribution

#1 Post by Brian Tuite » January 11th, 2016, 10:28 am

What do you in retail think of this?

Exclusive: The Deal Is Done

The Southern-Glazer’s Alliance: A Game Changer For U.S. Wine And Spirits Distribution. More Changes Expected.

Today, Southern Wine & Spirits and Glazer’s Inc. are announcing an accord to join forces and create a distribution powerhouse covering 41 U.S. states, as well as Washington, D.C., Canada and the Caribbean. Based on Impact Newsletter’s wholesaler numbers for 2015, this deal combines Southern’s $11.8 billion in sales revenue with Glazer’s $3.7 billion—forming a juggernaut with over $15 billion in annual sales, not including an expected $1 billion in annual revenue from a new national supplier agreement with Bacardi (see story below).

The new company, Southern Glazer’s Wine & Spirits LLC, will have roughly 20,000 employees, including a sales force of more than 12,000. It will distribute more than 150 million cases of wine and spirits annually, and serve more than 350,000 on- and off-premise customers. Southern Glazer’s will have nearly a 30% share of the U.S. spirits and wine market in dollar terms. The companies’ biggest spirits suppliers in common are Diageo, Moet Hennessy, Beam Suntory and the newly signed Bacardi. (Southern has Pernod Ricard as a major supplier, while Glazer’s does not.)

With this agreement, Southern chairman Harvey Chaplin becomes chairman of Southern Glazer’s Wine and Spirits, while Glazer’s chairman Bennett Glazer is executive vice chairman of the new entity. Wayne Chaplin, Southern’s president and chief executive officer, will be CEO of Southern Glazer’s, while Glazer’s CEO Shelly Stein will serve as the Southern Glazer’s president. In this exclusive interview, Marvin R. Shanken, chairman of M. Shanken Communications, met with these four executives to discuss this agreement and its implications for the industry’s future.

Marvin R. Shanken: My first question is simple: why did you do this deal?

Wayne Chaplin: At Southern, we’ve always invested in building a footprint for our long-term future. In 2008-2009, we first talked with Bennett and his family about putting together a combination to create a national distributor and change the paradigm at the second tier. This deal will produce a totally unique route to market, offering suppliers a one-stop opportunity in the United States. It represents a changing of the landscape.

Shelly Stein: When I joined Glazer’s over five years ago, it was clear that the industry would continue to consolidate. We could have remained on our own, but consolidation would make it more difficult as time went on. We face pressures from suppliers and retailers, and we need to run very efficient businesses. So it made sense to have a national footprint.

Bennett Glazer: Strategically, this was by far the best fit. If you look at the United States as a big puzzle, we were the missing piece for Southern. But the key reason is that they’re a family-owned company, and so are we. I’ve watched Southern from the beginning, I admire and respect what they’ve done, and I felt they would fit perfectly with our culture and what we’ve accomplished.

Harvey Chaplin: We looked at Glazer’s and what we were missing. When we obtained a license in Texas several years ago, no suppliers took us, and that’s a real compliment to Glazer’s. When Wayne and I discussed this plan, I said I’d been there once and didn’t want to be reminded of that faux pas. The comfort is that Wayne’s knowledge of the industry is equal to mine, and I felt he could make this deal. And that’s what he’s done.

Marvin R. Shanken: This agreement is not a marriage of equals, in the sense that Southern has a much larger business than Glazer’s. How is the ownership divided up?

Wayne Chaplin: In the structure going forward, the company will be majority-owned by Southern Wine & Spirits Holding Company. The new Southern Glazer’s Wine and Spirits will have two shareholders—Southern Wine & Spirits Holding and Glazer’s, Inc.

Marvin R. Shanken: Going back to the negotiations of 2008-2009, what stopped that deal from getting done?

Bennett Glazer: That deal was structured very differently from what we have today. It wasn’t really a merger, because we would have continued owning our equity, and Southern would have continued owning theirs. At the time, we were trying to create a new partnership approach—a joint venture where we would share in the upside. It was a fairly complex arrangement, and ultimately untenable.

Shelly Stein: And five years ago, Glazer’s wasn’t the same company it is today. We had issues with management, suppliers and technology, and Glazer’s was under pressure to make a move because its suppliers weren’t happy. So it wasn’t a good time for Glazer’s. Today things are very different. We’re a healthy company facing no pressure. This agreement was a choice. The more time Wayne and I spent together, the more I liked the deal. Wayne has been great about treating Glazer’s as a true partner.

Marvin R. Shanken: Talk to me about the commonality of your suppliers. Is there a significant overlap? And how will this deal affect the possibility of new suppliers joining your national platform?

Shelly Stein: We both handle everybody somewhere, with 75% of our top 25 suppliers directly overlapping.

Wayne Chaplin: And while we have many common suppliers, we also have many who aren’t the same. In both cases, there are benefits. The suppliers handled by Southern will see this deal as greatly simplifying their route to market in terms selling, pricing, execution, IT, and the overall supply chain. It’s a game changer on all fronts. For suppliers with whom Glazer’s does business and we do not, or vice versa, their newfound ability to expand across multiple markets represents a major opportunity. (Editor’s note: as with Bacardi’s recent distribution announcement.) Our chain customers and our suppliers are much bigger than they were five or 10 years ago, and this deal will enable us to service their needs far better. I would add that it’s critically important to have a very capable chief operating officer to lead the commercial enterprise at Southern Glazer’s. We’re lucky to have Brad Vassar in that role. He’s been with Southern since 1991, and he’s a proven leader and winner.

Marvin R. Shanken: As the national chains continue to expand, how will you capitalize on those changes?

Wayne Chaplin: The major customers want to know what’s happening in their stores every single day, in real time. With current technology, that’s doable, and Southern and Glazer’s have both invested to make that happen. Now we have an opportunity do that on a national basis—with total transparency between brand owner, distributor and customer instead of having it done through 30-40 distributors. Doing business with one distributor, one IT system and one set of data creates tremendous simplicity.

Marvin R. Shanken: Will smaller retailers and restaurateurs feel less important?

Wayne Chaplin: This deal is good for our smaller customers too, because our scale will allow us to create new efficeincies in our operations and the supply chain. It’s important to us to take care of the mom-and-pops in every market. We don’t want to face the prospect of having just five or ten big customers. We want lots of customers.

Part 2 of this exclusive interview will appear in tomorrow’s SND. The full interview will appear in the January issue of Impact, complete with revised U.S. wholesaler rankings and other data. To subscribe to Impact newsletter, click here.
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A Game Changer For U.S. Wine And Spirits Distribution

#2 Post by Carter Y. » January 11th, 2016, 10:46 pm

I'm slightly surprised by the lack of discussion about this topic on WB. I'd especially be interested in hearing how winemakers think about this merger.
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A Game Changer For U.S. Wine And Spirits Distribution

#3 Post by Marc_Hanes » January 12th, 2016, 7:46 am

I see this as ultimately leading to diminished competition and choice, as any such merger usually does, regardless of industry. I'm not a retail buyer anymore but it was never fun to deal with Southern or similarly large and monolithic wholesalers. My hope here is that their sheer size and dominance forces the hand of those who would prefer to play it safe on the sidelines. Affected parties need to get political on this.

That said, on the ground, there will always be smaller "boutique" importers and wholesalers so it's not like Chambers Street Wines or that sort of retail outlet will lack for choices to stock and sell. It's more going to play out in the vast middle terrain, the small chain restaurants or retail chains that get squeezed and are forced to play ball with Southern out of fear or necessity. In order to get access to A, taking B or C will become an even more standard practice. Southern exists to leverage their weight, this is not a live and let live operation.

As a result, the extremes will be more or less unchanged but there will be fewer interesting choices to be found in the middle ground, both on and off premise. Curious to see which states "fall" next as post-merger plans coalesce and become real. I suspect New Jersey will be one of the final hold outs. Which are the states not covered by Southern Glazer’s Wine & Spirits?
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A Game Changer For U.S. Wine And Spirits Distribution

#4 Post by PeterJ » January 12th, 2016, 10:02 am

I never totally understood why a relatively small winery would go with a distributor as big as Southern. When you watch how much of the smaller retail wine selection process is done in store visit tastings by a sales rep you become aware of just how little exposure a winery may get to potential buyers. But the path to big volume retailers requires (pretty much) going through a big distributor, so wineries make that choice.

As stated, the loser in this is the mid-level retailer whose sales needs include larger, visible brands. Not only is there more retail price competition in that arena, but now the distributor is even more important to the wineries they represent. The dreaded 'suits' can be even more powerful.

The smaller, niche retailer can (thankfully) stock their shelves with product from smaller distributors/brokers/wineries, but they are the end of the retail spectrum most dependent on a knowledgeable and loyal customer base. So the specialists will be even more specialized (a good thing if it works for them) and that customer who needs the comfort of a well-known label will find less of them in small retailers. JMHO of course.
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A Game Changer For U.S. Wine And Spirits Distribution

#5 Post by johngonzales » January 12th, 2016, 7:29 pm

I like it, and the Bacardi deal, but my wife works for Southern. I check her head periodically for horns and so far she's clean.

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