Wine, Beer, & Spirits Retailers
Date September 2016
Approximate net recovery on cost
Fastest growing spirits categories in 2015
Malt beverage growth in 2015
- Values continue to be stable in the industry, a trend we’ve observed for the past five years.
- While regional demand continues to vary, broader trends including growing interest in craft beers, artisanal spirits, and sparkling wines are driving growth
- Average industry profit margin has improved since 2011, rising from 1.2 percent of revenue to 2.5 percent in 2016
- The Consumer Price Index for alcoholic beverages rose 1.2 percent during the first half of 2016 compared to the same period the previous year
2015 in Review: Beer, wine, and spirits supplier gross revenues were up for the five-year period through 2015. Spirits led the pack with 18 percent growth, wine at 14 percent growth, and beer at 10 percent growth, according to the Distilled Spirits Council of the United States.
During 2015, overall shipments of spirits rose 2.3 percent. Whiskey volume increased 4.9 percent and revenue grew 8 percent led by strong sector growth in Irish, single malt, and blended whiskey. For the same period, both shipment levels and revenue increased for tequila (7.4 percent and 9.4 percent, respectively) and cognac (14 percent and 16.2 percent, respectively). Vodka shipments were up 1.8 percent but revenue remained flat; declines in flavored vodka shipments restrained growth in the category. In general, younger buyers’ interest in discovery and innovation has driven growth in craft and artisanal products. This was a major factor contributing to the steep increases in shipments of High End Premium and Super Premium products last year.
Domestic wines, both within value and volume sales, continue to dominate in 2015. Sparkling wines gained in popularity, especially Prosecco. While Italy led in total percentage of sales, New Zealand showed the greatest growth in imports.
Alternative packaging growing: 3 liter boxes and Tetra packs posted the strongest growth. Consumption of wine is projected to increase industry revenue by 0.6 percent to $18.4 billion in 2016, along with projected growth of 0.3 percent in 2017.
According to the National Beer Wholesalers Association, 2015 volume was flat to slightly up year over year; however, major shifts were noted within categories. Notably, shipments of craft brews jumped 15 percent while macro brew volume declined 3.1 percent. However, the top two brewers (Anheuser-Busch InBev and MillerCoors) still commanded more than 68 percent of the market.
Gross recovery values on retail are generally higher than average for the majority of liquor categories, regardless of retailer format, with domestic and imported beer typically recovering at the higher end. Over the next five years, the industry is expected to benefit from continued reductions in both alcohol retail regulations and excise taxes on the sale of alcohol, which will bode well for disposition sales in the sector.
Industry Regulation Determines Sale Parameters: Disposition sale events within the alcohol industry are subject to federal, state, and local government regulations. “Blue laws” in 12 states prohibit retail sales of distilled spirits for part or all of the day on Sunday. Currently, 38 states permit Sunday sales of distilled spirits products. Most states are also license or “open” states, which allow private ownership of liquor stores; however, in control states, the state government acts as a distributor. Additionally, some control states also operate retail outlets. Regulations can differ significantly from state to state. Seventeen states and jurisdictions in Alaska, Maryland, Minnesota, and South Dakota are control states, and the state government controls the distribution channel. Individual state laws specify what types of retailers may sell alcohol, limit days and hours of operation, restrict types of alcohol sold at particular venues, and may also limit the levels of discounting permitted on certain products. Many states prohibit interstate sales of alcohol. The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) and Federal Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) regulate interstate commerce for alcohol, collect excise taxes, issue licenses, and establish marketing standards. Excise taxes on alcohol generate millions in revenue for state and federal governments, and can represent more than half of the retail price of a bottle of liquor. While collection is primarily the job of distributors, tax rates affect liquor store pricing and profits.
In addition to state restrictions and limitations on distribution, competitors’ impact on sales volume in a given market can have a material impact on sales in the liquor industry. External competition from supermarkets, gas stations, and grocery stores has increased in the past few years. Large warehouse stores with greater market power, such as Costco, are securing favorable supply contracts, allowing these retailers to lower alcohol prices and increase competition for industry operators. Online retail in the beer industry is also expanding through online retailers such as Drizzly, Minibar, and Amazon. External competition is expected to continue to grow over the coming years.
For asset-based lenders looking to lend on liquor assets, partnering with an appraiser that has national experience liquidating alcohol and related products is a key consideration. It is important to note that all appraisals conducted on liquor assets assume all necessary retailer permits and licenses are in place and valid. Gross recovery would be significantly impacted if proper permitting were not in place.