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The RNDC-Breakthru Deal: Challenges And Opportunities Ahead

November 21, 2017

Yesterday, Shanken News Daily exclusively reported that the nation’s second- and third-ranked wine and spirits wholesalers—Republic National Distributing Co. (RNDC) and Breakthru Beverage Group (BBG)—have agreed to merge to create a distribution giant with nearly $14 billion in annual revenue.

With the deal expected to close in the second quarter of next year, the new partners will embark on the major challenge of integrating the two existing companies, which will have a combined workforce of 17,000. Breakthru president and CEO Greg Baird has been named chief integration officer to oversee that effort after the transaction closes. “Our objective is to provide the best resources in terms of people and processes to create a sustainable competitive advantage to grow brands,” Baird tells SND, adding that the new company intends to be “the most efficient wholesaler across the entire value chain and generate cash to reinvest for growth.”

Among the advantages gained by joining forces, RNDC-Breakthru’s supplier profiles are complementary in a number of key markets. For example, both distributors already handle Gallo brands in Florida. The new company’s portfolio in Florida will also combine brands from The Wine Group (RNDC) and Jackson Family (Breakthru), as well as Brown-Forman (Breakthru) and Sazerac (RNDC) on the spirits side. Meanwhile, the deal will allow the combined group to leverage RNDC’s strength in Texas—where it has sales of $2.2 billion and distributes Brown-Forman, Pernod Ricard, Sazerac, Constellation, Trinchero, The Wine Group, Jackson Family and Ste. Michelle brands, among others—with Breakthru’s business in Illinois, which totals $1.1 billion and includes Diageo, Gallo, William Grant, Brown-Forman, Sazerac and others.

Beyond offering suppliers an enhanced geographic footprint, the two companies noted that the merger will “facilitate investments in technology that will enhance all aspects of the business, including supply chain management, customer and supplier connectivity, e-commerce, predictive analytics, digital marketing, data transparency, consumer experience and operational efficiency.”

By virtue of its vastly enlarged scale and reach, the combined RNDC-Breakthru will present a new challenge to wholesale market leader Southern Glazer’s Wine & Spirits, which has operations in 46 markets and annual revenues of $17.5 billion. The key difference between the two is Southern Glazer’s strength in New York and California, where the RNDC-Breakthru combination has yet to make landfall. Southern Glazer’s CEO Wayne Chaplin tells SND that the RNDC-Breakthru deal serves as further validation of Southern’s pursuit of its merger with Glazer’s at the start of last year.

“It’s an affirmation of our vision that the U.S. market is moving toward a national footprint model,” Chaplin says. “Over time, I think that national model will create a lot of efficiencies for suppliers and customers. I’m sure having a coast-to-coast footprint like ours is something they will strive toward. But gaining it is just the first step in the process. We started that process 17 months ago, and now we’re looking to leverage it on a nationwide basis. I think it’s great that the market is moving in that direction.”—Daniel Marsteller

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