Moderator

John Beaudette, President and CEO,

MHW, Ltd.

PanelistsVince O’Brien, Senior

Counsel, Nixon Peabody

Bill Earle, President, NABI

Jim Squeo, President and CEO, NABCA

Charles Merinoff, Chairman and CEO,

Charmer Sunbelt Group

Navigating Brand Entry & The Three Tier System

• US Beverage Market Overview.

• The US Beverage Alcohol Distribution System.– “Three Tier System” & Distribution Outlets.– Open verses Control States.– Understanding the past and looking to the future.

• Brand Approval-Federal / State Process, and Launch Time Line.

• Price Structures For Wine, Spirits, and Beer.

• New Brand Introduction Trends.

• Brand / Industry Valuation Discussion.

• Distribution Options / Partners / Approaches To Market Entry.

• Panel Discussion

Navigating Brand Entry & The Three Tier System

2010 US Beverage Consumption

50 Billion Gallons50 Billion Gallons

2010 Beverage Consumption Alcohol Trends

Source: Beverage Information Group

• To understand it today and to consider where its going tomorrow, history is important.

• Direct Shipping, privatization of control states, H.R. 1161.

• There is the potential for some changes over the next decade .

The US Beverage Alcohol Distribution System

History Of Beverage Alcohol In Us

History Of Beverage Alcohol In Us

• 1933 Repeal Of Prohibition And Enactment Of Twenty-First Amendment.• Protect Federal Tax Revenues.• Protect The Public -Federal Regulations (BATF-Now TTB)

• Licensing qualified importers, manufacturers, wholesalers, warehouses, not retailers). (Prevent Organized Crime)• Approve labels and formulas -Certificate of Label Approval (COLA)

• Bans “tied-house”.• Prohibits consumer deception and ensures quality with

standards of identity, labels and formula approval.• Bans false advertising.• Bans unfair inducements to retailers .

History & OverviewHistory & Overview

History Of Beverage Alcohol In Us

• 1933 Repeal Of Prohibition And Enactment Of Twenty-First Amendment (Continued).– States Given Power To Regulate Sale & Distribution Of Beverage

Alcohol Within Their State.• 32 “Open States” (Private enterprises working through

“Three Tier System”).• 18 “Control States” and Montgomery Cty MD-State controls

products entering and sold in the state (primarily for spirits, some wine).

— State Excise Taxes and Control

History & OverviewHistory & Overview

History Of Beverage Alcohol In Us

Three Tier System

PRODUCER(Wineries, Brewers, Distilleries, Importers)

Wholesaler (Distributor)

Retailer

Consumer

Control States

Navigating Brand Entry & Distribution

HR1161 – Community Alcohol Regulatory Effectiveness (CARE) Act Of 2011

• Wholesalers looking to reaffirm states authority over beverage alcohol (21st Amendment), limit litigation and reduce unnecessary costs from those challenging the system (direct shipper advocates)

----------• Suppliers want to leave the existing regulatory system as is,

fearing states might enact protectionist and anti-competitive laws

Where does this take the industry in the near future?

Brand Approval / Launch Timeline

Federal Label (COLA) Approval• 1 to 8 weeks

depending on product and complexity

State Registration & Approval• 1 to 8 weeks including

price posting where required

Product Ships To Wholesaler

Caution-New TTB Turnaround

Wine Brands Economics Example

Supplier FOB (Varies-Packaging etc.) $ 29.00

Ocean Freight 4.50

Fed Tax/Duty (80 Proof) 3.30 PPU/BF/INS 1.40

Importers Margin (24% Margin) $ 12.14

Price to Distributor $50.34 State Tax .71 Freight 2.50

Distributor Margin (50% Mark Up/33% Margin) 26.37 Distrib. Price To Retail $79.92

Retailer Margin (50% Mark Up/33%Margin) 39.96

Retail Case Price $119.88

750ML / 12 Bottle Case Imported $ 9.99 Retail Bottle Price

Bottle Price $9.99

Spirit Brand Economics Example

Supplier FOB (Varies-Packaging etc.) $ 65.00

Ocean Freight 4.50

Fed Tax/Duty (80 Proof) 26.00 PPU/BF/INS 1.40

Importers Margin (40% to 50% Margin) $ 88.24

Price to Distributor $185.14 State Tax 15.30 Freight 2.50

Distributor Margin (33% Mark Up/25% Margin)Distributor Margin (33% Mark Up/25% Margin) 67.65 Distributor Price To Retail $270.59

Retailer Margin (33% Mark Up/25%Margin) 89.29

Retail Case Price $359.88

750ML / 12 Bottle Case Imported $ 29.99 Retail Bottle Price (Generally Sold in 6 Bottle Cases)

Bottle Price $29.99

Premium Beer Brand Economics Example

Supplier FOB (Varies-Packaging etc.) $ 11.00

Ocean FreightOcean Freight 2.00

Fed Tax/Duty (80 Proof) 1.30 PPU/BF/INS .65

Importers Margin (25% to 40% Margin) $ 5.05

Price to Distributor $20.00 State Tax .60 Freight 1.75

Distributor Margin (33% Mark Up/25% Margin) 7.38 Distrib. Price To Retail $29.73

Retailer Margin (33% Mark Up/25%Margin) 9.81

Retail Case Price $39.53

Six Pack Price $9.88

24 Bottle / 12 oz Case Imported $9.88 6 Pack 24 Bottle / 12 oz Case Imported $9.88 6 Pack (Generally sold in 6 Packs)(Generally sold in 6 Packs)

Top U.S. Wine And Spirits Wholesalers

Distributor MarketsSales

Revenue2009E

(Millions) 2010P

Percent Change

Market2009E

Share2010P

1Southern Wine

& Spirits of America

Alabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Kentucky, Maine, Mississippi, Montana, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina,

Utah, Vermont, Virginia, Washington, West Virginia, Wyoming

$ 8,535 $ 8,765 2.7% 19.2% 19.7%

2Republic National

Distributing Co.

Alabama, Arizona, Colorado, Florida, Indiana, Kentucky , Louisiana, Maryland, Mississippi, Nebraska, North Carolina,

North Dakota, Ohio Oklahoma, South Carolina, South Dakota Texas , Virginia, Washington, DC, West Virginia

$ 3,832 $ 4,365 13.8% 8.6% 9.8%

3 Charmer Sunbelt Group

Alabama, Arizona, Colorado, Connecticut, Delaware, Florida, Maryland, Mississippi, New Jersey, New York, Pennsylvania, South Carolina, Virginia, Washington DC

$ 3,765 $ 3,755 -0.4% 8.5% 8.4%

4 Glazer´s Family of Companies

Arizona, Arkansas, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, Oklahoma, Texas $ 2,550 $ 2,750 6.1% 5.7% 6.1%

5 Young´s Market Co

Alaska, Arizona, California, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming $ 1,835 $ 1,895 3.3% 4.1% 4.3%

Top U.S. Wine And Spirits Wholesalers

Distributor MarketsSales

Revenue2009E

(Millions) 2010P

Percent Change

Market2009E

Share2010P

6 Wirtz Beverage Group

Illinois, Iowa, Minnesota, Nevada, Wisconsin$ 1,455 $ 1,510 3.8% 3.3% 3.4%

7 Martignetti Companies

Massachusetts, Maine, New Hampshire, Rhode Island, Vermont $ 950 $ 1,050 10.5% 2.1% 2.4%

8Johnson Brothers Liquor Co

Alabama, Arizona, Florida, Hawaii, Indiana, Iowa, Minnesota, Nebraska, Nevada, New York, North Carolina, North Dakota, Rhode Island, South Dakota, Wisconsin

$ 860 $ 880 2.3% 1.9% 2.0%

9Allied

Beverage Group

New Jersey$ 665 $ 705 6.0% 1.5% 1.6%

10 Fedway Associates

New Jersey $ 605 $ 615 1.7% 1.4% 1.4%

Total Top 10 $ 25,055 $ 26,245 4.7% 56.4% 59.0%

Other Wholesalers $ 19,380 $ 18,205 -6.1% 43.6% 41.0%

Total U.S. Market $ 44,435 $ 44,450 * 100.0% 100.0%

* Less than 0.05%.Source: Impact Databank

New Wine Brand Introductions

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010

USI talyFranceAustraliaS. AfricaArgentinaSpainNew ZealChileOthers

257257269269 260260 152152307307 232232 Source: Beverage Information Group

New Distilled Spirit Brand Introductions

Source: Beverage Information GroupSource: Beverage Information Group

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008 2009 2010

VodkaRumTequilaCord& LiqOther

Majority Are Imports!

65% in ‘10

Majority Are Imports!

65% in ‘10200200153153 225225 183183186186 266266

Brand Sales & Valuations

• Spirit Brands Commanding Huge Prices.• Major Beverage Companies willing to pay big for growth brands caught

in early stages of development.• Valuation Ranges/Methods:

• Annual Case Multiples (ACM) $300 to $1,500 (spirits)• Revenue Multiples (1 to 3 Times)• EBITDA Multiple (6 to 14 Times)

• Historical Brand Sales• Grey Goose stretched the multiple• Campari (Carolans, Frangelico, Irish Mist), Grey Goose, 42 Below,

Hpnotiq, Wild Turkey, Chambord, Svedka, Absolut, Ketel One, Wines-Big House, Red Truck, Rex Goliath, many others.

Foreign Supplier Approaches To U.S. Market

OPTIONS AND ALTERNATIVESOPTIONS AND ALTERNATIVES PROS PROS CONSCONS

Major US Importer And National Major US Importer And National DistributorDistributor

Small / Medium Sized ImporterSmall / Medium Sized Importer

National Import & Distribution Service National Import & Distribution Service CompaniesCompanies

State Wholesalers With Import State Wholesalers With Import LicensesLicenses

US Based Internet & Direct Mail US Based Internet & Direct Mail Distribution SystemsDistribution Systems

Establish US Based Import OperationEstablish US Based Import Operation

Key References For Foreign Suppliers

MHW, LTD.Nationally Licensed Import And Distribution Services, As Well As Consulting

www.mhwltd.comJohn Beaudette

REGULATORY &INFORMATION

-TTB (Formerly BATF) (online)-State Web Sites -Wine Institute-NABCA (Control States)-Beverage Information Group (Provided the statistical data for this presentation)

-Beer Institute

www.ttb.govwww.wineinstitute.org

www.nabca.orgwww.beveragenet.netwww.beerinstitute.org

ORGANIZATIONS

-NABI (National Association Of Beverage Importers)-WSWA (Wines & Spirits Wholesalers Association) -The Brewers Association,-Distilled Spirits Council of the United States

www.nabi-inc.orgwww.wswa.org

www.brewersassociation.org

PanelistsVince O’Brien, Senior

Counsel, Nixon Peabody

Bill Earle, President, NABI

Jim Squeo, President and CEO, NABCA

Charles Merinoff, Chairman and CEO,

Charmer Sunbelt Group