Johnson Bros. Acquires Mutual Distributing in NC

Johnson Brothers has agreed to acquire Mutual Distributing Co., one of the largest wine and beer distributors in North Carolina.

Founded in 1946, Mutual is a beer and wine distributor servicing the entire state of North Carolina with over 700 employees and seven branch offices throughout the state. The majority of its portfolio is wine, including the likes of Groth, Duckhorn, JaM Cellars, and Atlas Peak, as smaller craft beer brands like Lucky Buddha, Port City, and Brooklyn Brewery, plus some sake and non-alcoholic beverages.

Johnson Bros. has been in the wholesale business in North Carolina since 1975, servicing Raleigh, Charlotte, Greensboro, and Winston-Salem, but this deal expands its reach.

“As the industry continues to change, we look at Mutual as the perfect strategic extension of our footprint,” says Johnson Bros. coo Todd Johnson. “This is a significant moment in our company’s history.”

Johnson Bros. now has operations in 24 states. You’ll recall, it recently expanded into New York through a partnership with Nestor Imports, and into West Virginia through a partnership with Mountain State Beverage.

CONSTELLATION WINE, SPIRITS BUSINESS “UNDER PRESSURE”

Constellation Brands closed out its fiscal year (ended February 28) with total sales up 3%. The wine and spirits sector took a backseat to beer on this morning’s earnings call (which we’ve mostly come to expect as beer is a much larger segment for them), but chief Rob Sands said wine and spirits showed margin improvement for the year. Wine and spirits grew depletions by about 1% and sales were up 5%, minus the impact of the recent Canadian wine business sale.

The fourth quarter showed an improvement for the wine and spirits division, with sales up 4.3% compared to Q3 when sales dropped 10.3%.

But the larger wine category growth has slowed, writes RBC analyst Nik Modi in a recent note, highlighting incremental competitive pressure from the likes of Treasury Wine Estates and Ste. Michelle as “both are increasing promotions to move volume.”

“We’ve been generally organizing our portfolio and tweaking our portfolio to keep it moving up the price spectrum from an average price point perspective. So I think we’re particularly well positioned,” said Rob.

BRAND WINNERS, LOSERS. The portfolio’s focus brands, which account for about 70% of the wine and spirits business, are still a bright spot with depletions up 7% for the quarter. Marketing investments drove depletion growth for Meiomi (24%), The Prisoner (18%) and Ruffino (10%), per a release.

The RBC note provided a bit more color on how Constellation’s brands are performing. Total wine volumes for Constellation were up nearly 3% for the 12 weeks through March 10 and spirits volumes were up 5.7%.

The best performers were: The Prisoner (26.6%), Kim Crawford (26.1%), Black Box (22.6%), Meiomi (20.6%), Clos du Bois (5.5%) and Robert Mondavi (8.1%). And even Svedka volumes were up 10.4%.

But it wasn’t all positive. Several focus brands’ volumes were in the red for the period, including Mark West (-6%), The Dreaming Tree (-9.2%), Estancia (-10.5%) and Wild Horse (-23%).

EMPHASIS ON INNOVATION. The company is also leveraging its TBA position to churn out new crossover products including: Western Standard, a lager finished in High West whiskey barrels, and Svedka spiked premium seltzer, a play for the female demographic and the healthy trend. Both are being rolled out in test markets this summer.

Additionally, Black Box Spirits should begin hitting shelves in the current quarter.

LOWERING EXPECTATIONS. Looking ahead, Constellation lowered their guidance for fiscal 2019 for its wine and spirits business to between 2%-4%. And cfo David Klein noted the first quarter of the new fiscal year could see depletions down as much as 10-15% and sales down to low to mid-single digits, thanks to tough comps.

TX ABC THWARTS MCLANE, REISSUES LIQUOR LICENSE TO COMPETITOR

The Texas Alcoholic Beverage Commission has made the decision not to enforce the ruling of an Administrative Law Judge in a high-profile case that involves Core-Mark Midcontinent and McLane Co., the Texas-based food distributor owned by Warren Buffet’s Berkshire Hathaway.

BACKGROUND. Recall, in November 2016, McLane Co. formally protested the renewal of Core-Mark Midcontinent’s liquor license because Core-Mark, one of the largest distributors of consumer goods in North America, is owned by institutional investors such as Vanguard and T. Rowe Price, which also own share in international alcohol retailers and suppliers like Nordstrom and Molson Coors.

Administrative Law Judge Robert Jones reluctantly sided with McLane, and recommended that Core-Mark’s license not be renewed based on a strict interpretation of the TABC code [see WSD 09-26-2017].

However, the TABC did not agree with his ruling. The agency explains in its official order that the Texas beverage code is complex and created almost 80 years ago. If it were to be carried out literally to the word there would likely be no legal alcohol beverage industry in Texas. So essentially enforcement is somewhat subjective.

WILL MCLANE TRY AGAIN? Since McLane believes its ownership structure was similar to Core-Mark’s, does this mean McLane is going to try again for a license? And if so, would they get it?

“Until an application is received, the agency can’t determine whether it would be approved or denied,” TABC spokesman Chris Porter tells WSD. And this decision doesn’t necessarily change anything for McLane either. “TABC uses the Alcoholic Beverage Code Sec. 102.01 to determine which parties are eligible to hold a license or permit to manufacture, distribute, or sell alcohol in the state. This decision will not change that standard,” writes Chris.

We’ll take a closer look at TABC’s decision and what it means for Texas (and McLane) next week in WSD.

FETZER GROWTH LED BY BONTERRA, 1000 STORIES

Concha y Toro US subsidiary Fetzer Vineyards grew both sales (2.5%) and volumes (3.8%) for the year ended December 31. In an earnings release out this week, the company highlighted the performance of priority brands, Bonterra and 1000 Stories, which grew volumes 15% and 34%, respectively. Meanwhile, US exports were up 10% in volume, 14.1% in sales for the year.

Digging into Q4, Fetzer’s sales (excluding shipments to distribution subsidiaries) totaled $36.4 million, increasing 6.4%. Sales in the US were up 11.5%, while volumes grew 8% for the period. Exports increased 14.8% in volume and 17.7% in sales.

In 2017, CyT initiated a restructuring program “to attend to the markets in which it operates in a more specialized way, and continue to strengthen the Premium focus of its wines produced in Chile, Argentina and California.” Under the new program, premium wines, and wines from Argentina and the US will get new marketing and commercial structures, per the company. CyT says the restructuring has already begun delivering efficiencies.

WSD BRIEFS:

SEBAGO LAKE EXPANDS THROUGHOUT EAST COAST. In partnership with Brite Brands and Horizon Beverage, Maine-based Sebago Lake Distillery will have products on shelves in Maine, Massachusetts, New Hampshire and Rhode Island this year, with plans to be in distribution throughout the East Coast by spring 2019. Sebago’s portfolio includes: Original Rum, KOPI (coffee flavored) Rum, and Spider Island Rum with a fourth rum to be released later this year.

ROUND POND PROMOTES SCOTT REED TO NATIONAL SALES MANAGER. Scott joined Round Pond Estate in January 2015 as midwest regional sales manager before being promoted to Eastern Division sales manager in May 2017. Now he has been promoted to national sales manager. Scott will work with the sales team to strengthen trade relationships and brand identity across the country. Before Joining Round Pond Estate, he worked with other wineries and importers including C. Mondavi & Sons and Casa Vinicola Zonin.

WE’LL BACK BACK IN YOUR INBOX MONDAY. Due to the Easter and Passover holidays, we’re taking a break tomorrow and will resume publication on Monday. Enjoy the long weekend and family time!

Until Monday,
Your Editors

Emily Pennington – emily@winespiritsdaily.com
Sarah Barrett – sarah@winespiritsdaily.com

“If you only have a hammer, you tend to see every problem as a nail.” — Abraham Maslow

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