MEGAMERGER DELIVERS BLOW TO WIRTZ CORP. LIQUOR DISTRIBUTOR
27 Mar 2006
By Gregory Meyer.
Last year’s $14 billion purchase of liquor and wine company Allied Domecq PLC took a big cask of cash away from Wirtz Corp. this month.
Allied’s exclusive Illinois distributor, Wirtz subsidiary Judge & Dolph Ltd., lost $95 million of its $540 million in annual business March 1 when the Allied brands’ new owners switched them to another wholesaler. Such libations as Beefeater gin, Stolichnaya vodka, Sauza tequila and Maker’s Mark bourbon are now hauled in the trucks of Miami-based Southern Wine & Spirits of America Inc., the country’s largest liquor distributor.
The exodus represents the business risks to distributors as manufacturers consolidate globally. Allied, based in the United Kingdom, was sold to French distiller Pernod Ricard SA last July, which in turn sold more than 20 Allied labels to Lincolnshire-based Fortune Brands Inc. "It’s one of the frightening realities of what we do," says Paul Jenkins, executive director of the Wine & Spirits Distributors of Illinois, a trade group. Both Pernod and Fortune already had exclusive distribution agreements with Southern’s Illinois subsidiary in Bolingbrook, so the shift centralized all the newly acquired brands in Southern’s warehouses.
At 17.5% of 2005 revenues, it was big chunk of business for Judge & Dolph, based in Wood Dale. "Any time you lose a line it’s a significant loss," said Ed Callison, a Judge & Dolph vice-president.
Wirtz had in 1999 successfully lobbied the Illinois General Assembly to pass a law forcing liquor suppliers to show "just cause" before they were allowed to switch distributors. In 2002, a federal judge overturned the law as unconstitutional, reopening the possibility of big account swings. But Mr. Callison said the law wouldn’t have stemmed the loss to Southern: "In the case of a sale, which just happened, all bets are off."
According to an industry source, the loss boosts Southern’s marketshare to about half the roughly $1.4 billion wholesale liquor market in Illinois, up from 40%, while Judge & Dolph’s share has declined to 30% from 40%. No. 3 player Union Beverage Co. of Chicago of has most of the rest.
Similar shifts took place nationwide as Fortune’s Future Brands LLC distribution joint venture and Pernod named new wholesalers in several states.
Southern’s Illinois general manager, Will Conniff, declined to provide Southern’s revenues, but Impact, a trade publication, estimated 2005 Illinois sales at $600 million.
Despite its magnitude, the Allied loss alone will not result in immediate layoffs or major operational changes at Judge & Dolph, Mr. Callison said. Judge & Dolph’s business after the shift is still bigger than it was three years ago, he said.
In 2003, the company won exclusive Illinois distribution of Diageo PLC, the world’s largest spirits company. And last year Judge & Dolph snagged the Illinois account for Brown-Forman Corp., the distiller of Jack Daniels whiskey, from Southern Wine.
Mr. Callison estimated organic growth of 7% to 10% this year will lift Judge & Dolph’s 2006 sales to at least $470 million. Crain’s estimate of 2005 revenues at Chicago-based Wirtz Corp., which also owns the Chicago Blackhawks, several other liquor distributorships and real estate and banking interests, is $1.29 billion. Mr. Conniff was equally modest in assessing the impact. "It’s a good increase in business, but there’s constant changes in our business," he said.