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After Strong Fourth Quarter, Charmer Sunbelt Expects Robust Organic Growth in 2012

January 27, 2012

Coming off a strong fourth-quarter, New York-based distributor Charmer Sunbelt reported total sales revenue of $4.8 billion in 2011, including all owned and joint venture operations. This year, Charmer Sunbelt expects organic growth within its existing portfolio in the range of 3%-4%. Charmer Sunbelt CEO Charlie Merinoff cites strong on-premise performances in key metro markets as an indication of improved consumer confidence. Shanken News Daily interviewed Merinoff recently about trends in the 10 states (plus Washington, D.C.) where Charmer Sunbelt does business and the overall issues facing the distribution tier.

SND: How was the fourth quarter for Charmer Sunbelt?

Merinoff: We had a very good fourth quarter, with a strong finish.

SND: What were the key trends?

Merinoff: I think there was certainly some pent-up celebration. People who are gainfully employed felt secure for the first time. Five years ago, when everyone was doing well, no one felt fortunate. Today, if you’re employed and you got a bonus, you had something to celebrate. Champagne performed well for that reason. Also, tourism was very strong in places like New York and Florida. Arizona also was strong. The on-premise has been very robust.

SND: Florida and New York are your two biggest markets. How did they perform in 2011?

Merinoff: It’s almost in reverse proportion to how bad things were. We had a great year in Florida and came back very strong both on- and off-premise, with on-premise a little bit stronger than off-premise. New York is a tale of two cities, with the off-premise still struggling, but the on-premise so strong that it really carried the day. So Florida was a little bit stronger than New York, but it was in a much deeper hole. New York never fell quite as far as Florida.

SND: How’s business in Connecticut and New Jersey?

Merinoff: New Jersey was one of our stronger markets, up over 6%. Connecticut had a tough time over the last two years with the recession, but it came back very nicely, again, thanks to the on-premise.

SND: Has the trading down abated?

Merinoff: It’s different between spirits and wine, and I think it’s different on-premise versus off-premise. In spirits, we never saw trading down in the on-premise among people who normally go out and drink premium spirits. But we did see that in the off-premise. That really shaped the mindset of the industry, but I think the trading down was overemphasized. We saw trading down because of the emergence of a new category in the vodka business—imported vodka at domestic prices—led by Svedka and Pinnacle. That created a category which made it easy for people to trade down without really looking like they were doing so. But I didn’t see as deep a trade down in Scotch whisky or other brown spirits.

SND: What are your strongest and weakest markets right now?

Merinoff: I would say the places that are still struggling are upstate New York and Maryland, to some extent. Markets like New Jersey, Arizona, Florida—the states that were really hurt deeply, particularly Florida and Arizona—are coming back the strongest.

SND: What’s your opinion on the initiative to privatize Pennsylvania?

Merinoff: They’re going to run into the same problem that Virginia had. These initiatives are proposed with the best intentions, but they struggle in figuring out how to sell off the state stores while not losing revenue. It’s very hard to sell something and continue having the same income. They came pretty close in Virginia, but they couldn’t bring it together. I think we’ll see the same problems in Pennsylvania. There is momentum to get it done, but I’m not sure how they’ll overcome that obstacle.

SND: What’s your position on the CARE act and do you think it will pass this year?

Merinoff: I don’t think it will pass this year. We’re pretty passionate about CARE. We see that it’s created some real disharmony within the industry, and that’s something we wholesalers need to figure out how to fix. We need to come together with DISCUS and devise a platform that works for both of us.

SND: Why are the suppliers so opposed to it?

Merinoff: This is one of the times where I really wish my father (the late Herman Merinoff) were at my side, because he was truly brilliant at constitutional law. He could have really helped us determine what the key issues are, because for the life of us, we don’t see what the problem is. We think suppliers are seeing things that aren’t there. I don’t think they’re being disingenuous—I think they see real issues that are problems for them. We don’t understand that, we don’t see it. But it’s real for them and it’s creating disharmony.

SND: Will DISCUS members choose not to attend the WSWA convention again this year?

Merinoff: I think some of the larger suppliers were questioning their role at WSWA even before the CARE act became an issue. Large suppliers with well-established distribution systems are struggling to find their place at WSWA. Whether or not they return, I don’t think the CARE act will be the reason. There are other underlying issues.

SND: Now that Washington state’s privatization initiative has been approved by voters, what repercussions will there be nationally? And do you have any plans to enter Washington?

Merinoff: Right now we don’t have plans to enter the market. There’s a lot of uncertainty there. No one is quite sure what the new system will look like. They haven’t figured out the rules and regulations and how it will all work. I think there’s a tremendous amount of anxiety on everyone’s part about how it will work and all its implications.

SND: Will there be much more consolidation at the wholesale tier, as it continues at the retail level?

Merinoff: I predict you’ll see both. I think all the major markets ultimately will have two major distributors. So in states with three or four major distributors, consolidation will continue. I also see the emergence of a new type of wholesaler: the small niche wine distributor that’s adding spirits. We’ll see the growth of artisanal, local spirits, similar to the local craft beers, and I know our company is not prepared to handle all of them. So other distributors will emerge to do that. We have a small wine company called Bacchus in Maryland and Washington, D.C., and they’ve started a little spirits division. So I see those small, niche distributors of wine and spirits emerging.

SND: What do you think of Berkshire Hathaway’s McLane subsidiary getting into beverage alcohol distribution in Georgia, North Carolina and Tennessee? How big of a threat do they pose to you and other leading wholesalers?

Merinoff: I don’t see it as a threat at all. I don’t think their infrastructure allows them to compete with what we do. If they want to operate in a marketplace, they’ll have to do it the same way we do. They’re going to have to buy someone or start from scratch and build a very different infrastructure. But I think it’s great to have new people enter the industry. They’re a deep-pocketed company that likes the industry, and they’re a potential buyer.

SND: Where are you looking for future growth?

Merinoff: Our growth strategy isn’t based on acquisitions. It’s based on driving organic growth in each one of our markets with the portfolios we have. There are opportunities for acquisition, but it’s not something we seek in order to achieve a certain growth level or to have a certain type of footprint. Our strategy is about building superior growth with the portfolio we have. That’s how we gauge our success.


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