Billionaire investor Warren Buffett is believed to be intent on building a US-wide distribution network for alcoholic drinks, in a move that would increase the pressure on existing players.
Buffett’s supply chain business, McLane Co, has acquired Tennessee’s largest alcohol distributor, Horizon Wine & Spirits, for an undisclosed fee. It is McLane’s second acquistion since entering alcoholic drinks distribution with the takeover of Empire Distributors in April this year.
The word in the drinks trade is that Buffett is intent on significantly expanding his beverage distribution presence via McLane, which is a wholly-owned subsidiary of Buffett’s investment vehicle, Berkshire Hathaway. If confirmed, Buffett’s move would intensify competition in the sector and could spark a fresh drive for efficiency in US drinks distribution.
Boston Beer Co’s founder, Jim Koch, told a trade conference this week that McLane is believed to be applying for licenses to distribute beer, wine and spirits in all 50 US states.
McLane was unavailable for comment on the speculation, but Buffett has previously spoken of his desire to expand in drinks distribution. Following McLane’s purchase of Empire, which distributes in North Carolina and Georgia, he said: “We expect that the Empire acquisition will provide us with a solid platform for potentially acquiring other similar high quality wholesale distributors.”
Horizon has followed within seven months, suggesting Buffett, with his estimated personal fortune of US$47bn, is in drinks distribution to stay.
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By GlobalDataAnalyst group Stifel Nicolaus said that Buffett may be attracted by potential profit margins in the sector. “The presumed rationale is that McLane knows best-practices and beverage alcohol distribution offers superior margins and growth to McLane’s base business,” Stifel said in a note following the Beer Marketers Insights annual conference this week.
Boston Beer’s Koch, who spoke at the conference, has repeatedly said that US drinks distributors could improve margins by cutting billions of dollars in costs. “I believe there is about a dollar-a-case of efficiencies to be gained from the US beer distribution network, even in its current configuration, so that’s about $3bn,” Koch told analysts in September.
Buffett’s McLane Co is no stranger to distribution. It already has a US-wide grocery and foodservice supply chain business, as well as a restaurant arm, valued at $30bn. It has 38 distribution centres and one of the largest private transport fleets in the US.
The group signalled following its takeover of Horizon Wine & Spirits that it would look to expand the distributor’s reach beyond Tennessee. “We look forward to providing Tommy [Bernard, Horizon chief] our full support and resources to continue Horizon’s leadership in the market and to position ourselves for further growth in Tennessee and beyond,” said McLane.
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