U.S. beverage distributor upping market share

Consolidation likely as competition increases U.S.-based Central European Distribution Company (CEDC), Poland's largest beverage distributor, last week signed a letter of intent to buy 100% of local distributor Agis through a cash and stock transaction as the company looks to control a bigger share of the country's vodka market. The concentration of capital in the Polish beverage industry means that further consolidation is unavoidable in both distribution and production, industry officials said. The proposed acquisition of Agis, which recorded sales of about $76 million and forecasts net profits of $1.3 million for 2001, is scheduled to close by the end of April. Agis will expand the CEDC distribution network by 13 regional centers in the vicinity of Toruń, northwest of Warsaw. It would be CEDC's second acquisition this year following the proposal to buy Łańcut-based distributor Damianex, which is set for completion in March. "We are looking to control upward of 30% of the vodka market by the end of 2003," said William Carey, chief executive officer of CEDC. "I believe this will give us substantial leverage with our suppliers and in the retail trade." Since its initial public offering on the U.S.-based Nasdaq in 1998, CEDC has acquired four regional distributors: Multi Trade Company (MTC), Polskie Hurtownie Alkoholu (PHA), Piwnica Wybornych Win and Astor. According to Carey, increasing the scale of CEDC operations is crucial to protecting profit margins as the poor state of the country's infrastructure means that distributors face higher operating costs compared to other European countries. "It's difficult to establish a real national network sales organization with such poor road infrastructure," Carey said. "We expect the proposed acquisitions of Agis and Damianex, which are scheduled to close on April 30, 2002, and March 31, 2002, respectively, to drive earnings for 2002 from the projected $0.71-$0.75 per fully diluted share to $1.10-$1.15 per share in the same period, with projected net sales of the combined CEDC group at $305 million-$315 million, said Neil Crook, chief financial officer of CEDC, in a statement. More consolidation coming "The huge concerns on the Polish market control so much capital that mergers of this type are the only way for distributors to remain competitive," said Józef Kapela, president of distillery Polmos Bielsko Biała and chairman of the National Spirit Industry Council (KRPS). "… I am trying to convince my colleagues in the industry to do the same," Kapela said. The expansion of CEDC anticipates an increase in demand for imported beverages in the medium term, which will follow a reduction in import taxes on alcohol as Poland nears European Union accession. "In the U.S. or Europe, beer imports typically represent 5-10% of the total beer market, compared to 1% in Poland so there's a lot of potential for growth as Poland comes in line with EU regulations and imports approach normal European levels, the company said." CEDC started in 1997 and runs 20 regional distribution centers in major urban areas throughout the country.