Southern Wine & Spirits and Glazer’s Inc. announced 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 efficiencies 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.
Bacardi Makes Unprecedented Move, Shifting Business to Southern Glazer’s Across U.S.
In
an unprecedented move, Bacardi USA is shifting its business to the
newly formed Southern Glazer’s operation across the U.S. market, as
reported by SND. Bacardi, the fourth-largest U.S. spirits marketer, with
annual sales of around 15 million cases and distribution revenue of
more than $1 billion, has informed its current network of
distributors—which include Republic National Distributing Co., Breakthru
Beverage Group (the new joint venture formed by Charmer-Sunbelt Group
and Wirtz Beverage Group) and Young’s Market Co., among others—that it’s
moving its business to Southern Glazer’s in the more than 40 states in
which the distribution giant operates.
At the advice of counsel,
Bacardi has filed declaratory judgments against its current
distributors. While SND understands that Bacardi isn’t seeking damages
through this action, the supplier is aiming to protect itself amid the
distribution revamp. We will be sharing more information with our
readers as it becomes available.
