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Interview: Wayne Chaplin of Southern Wine & Spirits

December 22, 2011

Southern Wine & Spirits is the nation’s largest spirits and wine distributor, with estimated revenues of more than $9 billion for calendar year 2011. The company now has operations in 34 states and Washington, D.C., and also has a distribution license for the state of Texas, although it has yet to make a move in the Lone Star state. It’s always a busy time at Southern—even if 2011 has been relatively quiet on the deal-making front, the company is constantly on the move. Shanken News Daily recently spoke with Wayne Chaplin, Southern’s president and COO, about the company’s performance in 2011 and the strategic issues that lie ahead.

SND: How has your business progressed in 2011?

Chaplin: Despite the challenging economy, wine and spirits is still a great business. It continues to outperform many other consumer product categories. When you look at brands over $2 million in sales through the grocery channel in Nielsen data, volumes in wine and spirits both are in the top 10 among consumer goods categories. As for Southern Wine & Spirits, our volume year-on-year is up by more than 5% for both wines and spirits. In dollar terms, our spirits business is up 6% and wine is up by more than 7%. Overall, we’re in a great position to exceed our revenue projection for 2011.

SND: In our last report on the U.S. wholesalers, we reported that you were projecting total revenues of $9.14 billion for 2011. Are you on target with that?

Chaplin: That’s conservative.

SND: How big is your national footprint now? How many states are you in?

Chaplin: Currently we’re operating in 35 markets—including 17 open markets and 18 control states. We’re the only broker in all control markets. In the Pacific Northwest, Maryland, Washington, D.C. and Minnesota, we have joint ventures where we take the lead on sales and our partners leverage their distribution platform. In Texas and Nebraska, we’re licensed but don’t yet have an active operation in either market. We’re challenging the residency requirement in Missouri, and if successful we’ll seek the right opportunity to enter that market as well.

SND: What are your strongest markets?

Chaplin: All our markets are performing well, especially given the overall marketplace as far as macroeconomics and unemployment are concerned. As I mentioned, our sales are up by more than 5% across all our open markets. Our New York business on the spirits side is growing by over 8% this year. Demand has really started to return this year, and we’re tracking up strongly through October. That’s especially true on the premium and super-premium side—for wines and spirits.

SND: How are Florida and Nevada doing—two states that were seriously affected by the ecomonic crisis?

Chaplin: Our wine business in Nevada is extremely strong, with growth at over 12% year-to-date. The big hotels in Nevada are seeing occupancy return to levels prior to 2008-2009. The high-end tourism there probably isn’t the same as it was back then, but we’re starting to see the head count recover very strongly in the resorts. In Florida, it’s more a tale of two states. The south Florida market is very strong—fueled by Europeans and South Americans. The middle and northern parts of the state are coming along nicely, though a little bit slower.

SND: Last month, Washington voters approved Initiative 1183, which will privatize liquor distribution in the state. What does this mean for Southern and for the industry?

Chaplin: With our 40 years of experience and what we believe is the industry’s most efficient operation, we’re confident that suppliers and customers will continue to see the value in working with us exclusively in Washington’s new three-tier environment. We’re sorting through the full applications of I-1183, but for now we’re still a wine wholesaler selling in excess of 2.5 million cases to licensed wine accounts across the state, and we plan to leverage and expand our infrastructure as needed. We have a proven track record of ramping up effective operations in a very short time. In Indiana, for example, we established a fully operational sales and service division from the ground up within three weeks. So we have the ability to ramp up a spirits division in Washington. We’ve already invested $20 million in a new 350,000-square-foot facility there, back in 2010. We’re currently in the midst of another $7 million upgrade of our material handling system. We therefore won’t be making a bid for the state’s warehouse, but we are making a significant investment to be ready by March to sell to the on-premise and by July to begin selling to the off-premise in Washington. Obviously there will be a franchise law in place as part of Initiative-1183, so our goal is to help suppliers see the benefit of exclusively aligning with Southern Wine & Spirits as a full-service wine and spirits wholesaler.

SND: Do you foresee further consolidation at the wholesale level?

Chaplin: Yes, due to supplier and retailer consolidation. As the retail tier continues to consolidate, we’ll see further wholesaler consolidation. Suppliers will continue to seek out distributors who can handle their business across a large national footprint. That’s why we’ve continued to develop our national account group. For SWS today, 40 national accounts represent about 50% of our off-premise sales. Given that we’ve got the largest national footprint among all distributors, our national account group can add huge value to our suppliers and our retail customers.

SND: Southern has a license to operate in Texas but so far hasn’t made a move. What is the update?

Chaplin: Well, we’ve been actively looking for the right opportunity to enter Texas, as it’s one of the top five states in the market. We believe we can add significant value for suppliers and retailers by leveraging our expertise from other markets. Whether we enter through a greenfield (project) like we did in Indiana or through acquisition, the move would be through the support of our key suppliers. So we’re ready, willing and able to enter the market. We’re just waiting for the right opportunity.

For the complete interview with Wayne Chaplin, see the January 1&15 issue of Impact.


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