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Moderator

Moderator. John Beaudette, President and CEO, MHW, Ltd. Panelists. Vince O’Brien , Senior Counsel, Nixon Peabody. Charles Merinoff, Chairman and CEO, Charmer Sunbelt Group. Jim Squeo, President and CEO, NABCA. Bill Earle, President, NABI.

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Moderator

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  1. Moderator John Beaudette, President and CEO, MHW, Ltd.

  2. Panelists Vince O’Brien, Senior Counsel, Nixon Peabody Charles Merinoff, Chairman and CEO, Charmer Sunbelt Group Jim Squeo, President and CEO, NABCA Bill Earle, President, NABI

  3. 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.

  4. Navigating Brand Entry & The Three Tier System • Price Structures For Wine, Spirits, and Beer. • New Brand Introduction Trends. • Brand / Industry Valuation Discussion. • Distribution Options / Partners / Approaches To Market Entry. • Panel Discussion

  5. 2010 US Beverage Consumption 50 Billion Gallons

  6. 2010 Beverage Consumption Alcohol Trends Source: Beverage Information Group

  7. The US Beverage Alcohol Distribution System • 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 .

  8. History Of Beverage Alcohol In Us

  9. History Of Beverage Alcohol In Us

  10. History Of Beverage Alcohol In Us History & Overview • 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 .

  11. History Of Beverage Alcohol In Us History & Overview • 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

  12. Three Tier System PRODUCER (Wineries, Brewers, Distilleries, Importers) Thousands Hundreds but Dominated By Few Wholesaler (Distributor) 630 thousand Outlets Retailer 221 Million over 21 Yrs old Consumer

  13. Control States

  14. 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?

  15. Federal Label (COLA) Approval • 1 to 8 weeks depending on product and complexity Product Ships To Wholesaler Brand Approval / Launch Timeline Caution-New TTB Turnaround • State Registration & Approval • 1 to 8 weeks including price posting where required

  16. Wine Brands Economics Example 750ML / 12 Bottle Case Imported $ 9.99 Retail Bottle Price $ 29.00 Supplier FOB (Varies-Packaging etc.) 4.50 Ocean Freight 3.30 Fed Tax/Duty (80 Proof) 1.40 PPU/BF/INS $ 12.14 Importers Margin (24% Margin) $50.34 Price to Distributor .71 State Tax 2.50 Freight 26.37 Distributor Margin (50% Mark Up/33% Margin) $79.92 Distrib. Price To Retail 39.96 Retailer Margin (50% Mark Up/33%Margin) $119.88 Retail Case Price $9.99 Bottle Price

  17. Spirit Brand Economics Example 750ML / 12 Bottle Case Imported $ 29.99 Retail Bottle Price (Generally Sold in 6 Bottle Cases) $ 65.00 Supplier FOB (Varies-Packaging etc.) 4.50 Ocean Freight 26.00 Fed Tax/Duty (80 Proof) 1.40 PPU/BF/INS $ 88.24 Importers Margin (40% to 50% Margin) $185.14 Price to Distributor 15.30 State Tax 2.50 Freight 67.65 Distributor Margin (33% Mark Up/25% Margin) $270.59 Distributor Price To Retail 89.29 Retailer Margin (33% Mark Up/25%Margin) $359.88 Retail Case Price $29.99 Bottle Price

  18. Premium Beer Brand Economics Example 24 Bottle / 12 oz Case Imported $9.88 6 Pack (Generally sold in 6 Packs) $ 11.00 Supplier FOB (Varies-Packaging etc.) 2.00 Ocean Freight 1.30 Fed Tax/Duty (80 Proof) .65 PPU/BF/INS $ 5.05 Importers Margin (25% to 40% Margin) $20.00 Price to Distributor .60 State Tax 1.75 Freight 7.38 Distributor Margin (33% Mark Up/25% Margin) $29.73 Distrib. Price To Retail 9.81 Retailer Margin (33% Mark Up/25%Margin) $39.53 Retail Case Price $9.88 Six Pack Price

  19. Top U.S. Wine And Spirits Wholesalers

  20. Top U.S. Wine And Spirits Wholesalers Source: Impact Databank * Less than 0.05%.

  21. New Wine Brand Introductions 269 257 307 260 152 232 Source: Beverage Information Group

  22. New Distilled Spirit Brand Introductions Majority Are Imports! 65% in ‘10 153 200 186 225 183 266 Source: Beverage Information Group

  23. 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.

  24. Foreign Supplier Approaches To U.S. Market

  25. Key References For Foreign Suppliers

  26. Panelists Vince O’Brien, Senior Counsel, Nixon Peabody Charles Merinoff, Chairman and CEO, Charmer Sunbelt Group Jim Squeo, President and CEO, NABCA Bill Earle, President, NABI

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