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The stunning implosion of the #2 wine and spirits distrib Republic Natl Dist Co remains unprecedented in the history of alc bev distribution. And the hits keep coming. Last week, RNDC announced it will “permanently close” in IL as “there currently is no financing available to continue” there. After that and the completion of several still pending deals, the once-mighty RNDC, over $12 bil in revs just a few years ago, will be down to 2 states, Georgia and New Mexico (both franchise-protected), carried on by the entity NDC (Natl Dist Co), one of the owners of RNDC. In this extraordinary saga, RNDC still could have further to fall. There are creditors and suppliers who reportedly haven’t gotten paid. Some sources raise the prospect of breach of contract claims and other legal issues. Whatever happens, the meaning of these earthshaking developments extends far beyond RNDC. Problems With “National Alignment” Model As the wine and spirits biz got tuffer in recent years, something went wrong with wine and spirits “national alignment” model of distribution, Rabobank’s Bourcard Nesin wrote in a Jun 11 report (tho clearly not in all cases). That model gave suppliers “cushy contracts, guarantees and dedicated divisions” that “enabled suppliers to neglect their own sales and execution capabilities” as they received “upfront payments and performance guarantees.” But now they are switching to a “more fragmented ‘best athlete’ strategy,” he added, “choosing distributors market by market, based on state level fit, execution and dynamics.” That’s less a “deliberate strategy” than a “default outcome” following RNDC’s fall and fears about what else could happen.“Structural Impact” of RNDC “Collapse”; Reducing “Risk” RNDC’s “collapse has a structural impact on the wholesale market,” sez Bourcard. When it shut its doors in CA last yr, that left “hundreds of brands scrambling for a wholesaler in the country’s largest market.” While some suppliers saw distribs as “all powerful, money-printing machines whose dominance was written into the laws of the US three-tier system,” RNDC’s “rapid retreat” and the “supplier ‘bank run’ that followed – forced a sudden realization: Wholesalers are vulnerable.” Given that, “suppliers now feel compelled to spread exposure and reduce the risk of becoming collateral damage if another large distributor fails.” Another?As the natl model developed, three giant distribs, Southern, RNDC and Breakthru grew to become over half of total wine and spirits distribution. And there are several other sizable entities. Southern in particular has amassed an empire of over $25 bil in revs (#1 in wine and spirits and #10 private co). RNDC faltered in part as it attempted to compete in a land grab/arms race with SGWS. But almost all wine and spirits distribs face the same declining trends, signed some of the same (too) demanding contracts, have too much inventory and face other cost pressures. Even Breakthru and Southern each laid off hundreds of employees earlier this yr and Breakthru has ongoing strikes in MO and IL that make delivering more difficult. But so far, no other RNDC-style cracks in edifice visible elsewhere in wine and spirits system, tho there are some rumblings. That makes RNDC story even more remarkable.Southern Buying Beer Distribs, Adding Brands; Eagle Rock to Close Jul 31; Working on Settlement With FTC Southern still spent hundreds of millions of $$ buying beer distributorships this yr and also added key spirits brands in WA (Tito’s) and NY (Edrington), among other mkts/pickups. Purchase of Clare Rose in NY closed late May, but its Eagle Rock distrib purchase in CO delayed until end of Jul. Meanwhile, Southern and FTC asked Fed Ct in CA for a 45 day pause as parties attempt to hammer out a settlement. So lots going on at Southern as per usual. Its beer and RTDs now up to 60 mil cases/yr, co sez.Beer Distribs Beneficiaries of RNDC Fall; Sazerac; More Resilient System? Franchise Laws A number of beer distribs have been among big beneficiaries of all the brands that RNDC initially lost as well as the states now being sold off. This new fragmentation model should perhaps be called the “Sazerac model,” posited Rabobank’s Bourcard, because its “shift to a more fragmented network was a major driver of RNDC’s collapse.” A number of beer distribs got the brands in 2022-23. And as RNDC fell, a number of MC/STZ megadistribs are acquiring states/brands, especially Reyes Bev Group (see last issue), but also Manhattan Beer and Columbia. Multi-state AB operator Quality in midwest picking up several states too. Beer distribs looking to develop another leg of the stool as beer still in decline. Beer distribs are frequently best-positioned to acquire fragmenting spirits system. So far, the beer system has not suffered any epic shocks similar to what happened to RNDC. Beer distribs have their challenges, but system seemingly more resilient, in large part because of franchise protections. Ironic that last 2 states where remnants of RNDC will be operating are among few states franchise-protected.

Wild and Wooly World of Wine and Spirits Distribution; Further to Fall? Fragmentation Model and Beer Distribs

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