Buffett buys alcohol distributor
The 79-year-old Mr Buffett, known as the “Sage of Omaha” for his investing skills, had praised McLane in February in his annual letter to shareholders, in which he singled it out as the only big company Berkshire Hathaway owned in the sector that did not suffer in the recession.
Berkshire Hathaway, which started as a paper mill before Mr Buffett built it into a USD 200 billion (EUR 148 billion) conglomerate over 40 years, owns companies ranging from Geico, the insurer, to See’s Candies and Fruit of the Loom, the clothing manufacturer.
The U.S. alcohol industry is viewing Mr Buffett’s acquisition with interest. It is the first time in the U.S. that a stockmarket-listed company has entered the alcohol distribution industry, which is protected by elaborate regulatory schemes, including complex pricing requirements and franchise laws (the three tier system). This has worked to the benefit to alcohol distributors, which tend to be privately owned and third or fourth-generation run companies.
Empire is a family operation lead by Michael and David Kahn. It has been in business since 1940 and employs over 650 people. Its revenue is estimated in excess of USD 300 million (EUR 220 million).
Although Empire is not among the ten largest spirits and wine distributors in the U.S. (it is said to be ranking 15th), it should enjoy a decent profit margin. According to market observers, the most profitable spirits wholesalers show profit margins of 6 percent to 8 percent. In these troubled economic times, margins to that order are not to be sneered at. Moreover, in 2009 spirits wholesalers in the U.S. managed to raise sales by 2.3 percent to over USD 44.5 billion (EUR 33 billion) year-on-year according to Impact, a market research company.
