TWO CENTS: Jimmy Pattison Buys Everything Wine

August 10, 2011 § 2 Comments

Here is my two cents about why the deal was done and what it means to the industry in BC as a whole.

For starters I see this as a total vertical integration play. Everything Wine has what is called a Private Wine Shop (PWS) license which gives them a 30% discount from LDB retail prices on imports and a 15% discount on domestics. The limitation is that they can not carry beer or spirits. The real value for Jimmy however is in what is not being talked about; the ability to act as their own importer.

Save On Foods has its own bonded warehouse, in-house freight forwarding and customs brokerage. They also have hundreds of containers a week coming in from all over the world including all wine regions. The costly portion of transportation is when you can not fill out a full container. If you wait to fill a container you often are left out of stock on the shelf and that means lost sales. They could easily add a palate or two of wine to fill a container and drop their transportation costs by 25%. Add in the savings of having in-house freight forwarding, warehousing and customs brokerage and you have saved yourself 35% on your shipping cost. That 35% just turned your base retail margin into 50% vs 30%. That is a significant jump.

You may be saying ‘why would a supplier sign to them being their own importer? Isn’t that limiting?” Not really. Add in their Alberta retail segment and all of a sudden you are negotiating thousands of cases with a supplier and not just 10’s or hundreds.

As for any changes in the industry, I think they more than anyone now, want stability and certainty and therefore I believe that if they lobby the BC government it will only be to keep things the way they are.

Cheers

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§ 2 Responses to TWO CENTS: Jimmy Pattison Buys Everything Wine

  • Ken says:

    Not sure I agree. If Jimmy wanted to import wine why would he buy a retail chain to do it? In BC all that wine would have to pass from his bonded warehouse to the LDB warehouse then back to the Everything Wine stores with the freight charge included. In otherwords there was nothing beneficial to having a retail chain to import wine.
    No I think the real reason for the purchase (having insider information) is the fact that grocery chains are not permitted to sell wine. But there’s nothing that says you can’t put a liquor store right next to a grocery store. And that makes sense, especially if you own the land and the grocery store.

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    • dorkuncorked says:

      Ken – There are no more PWS licenses so there would only be limited opportunity to place stores beside Save-On-Foods. I sticking to my guns here. There is no additional cost to the importer once the wine hits the LDB Warehouse. The PWS license carries with it an agents lisence so it gives him the ability to make a margin before it enters the LDB and, of course, make a margin once he sells it through Everything Wine. It also allows him to sell to all other licensees including the LDB via his agents license. He rarely buys a business for any other reason that it insulates other businesses of his. I don’t think this deal would be big enough or attractive enough for him to break that mould.
      I understand that he paid a 9.2 multiplier which means, assuming all things remain the same, that it will take 9.2 years for him to make his money back. That is a long way out. I suggest that the savings within the system are what make this work. I also suggest that he stands to save himself millions by filling out containers of grocery items that otherwise would be shipped in less than container loads. The savings to Save-On-Foods would reduce that multiplier by half at least.
      Thanks for the comment.
      I agree that putting a wine shop on property that you already own that happens to be on the same property as your grocery store would be very attractive, but building a building would extend the multiplier out at least a few years.

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