By Maureen Flanagan
Supreme Corq, Inc. manufactures synthetic corks for the wine and spirits industry. Founded in 1992 by entrepreneur and inventor Dennis Burns, Supreme Corq pioneered the development and marketing of synthetic cork. It has since grown to become a leading manufacturer for the global wine and distilled spirits industry. Based in Kent, Washington, the company sells to over 1,000 wineries in more than 30 countries, supplying 70% of its corks to the international market.
In a June 2004 buyout, Supreme Corq was acquired by Graham Partners, a Philadelphia-area private equity fund with $227 million of committed capital. Graham is known for its expertise in the plastics and packaging industries, and a number of its portfolio investments are in plastics-related businesses.
American Capital Strategies, Ltd. (Nasdaq: ACAS) provided $17 million of debt financing in support of the transaction.
"The popularity of synthetic corks has grown over the past ten years because of their advantages over natural corks," said Robert Anderson, Supreme Corq's President and CEO. "As the cork market expands, Supreme Corq looks forward to pursuing growth opportunities and building market share."
The company's "corqs" are precision injection molded closures made from a specialized thermoplastic compound that eliminates the limitations of natural cork while preserving its benefits. Supreme Corq's products are available in 45mm and 38mm wine closures in addition to T-Tops, a unique one-piece pull-top closure suitable for sealing wines, distilled spirits and foods such as olive oils and syrups. T-tops are one of the company's fastest growing segments.
Like other synthetic corking materials, Supreme Corq's products eliminate the risk of TCA, a naturally occurring mold found in tree bark cork that taints wine and creates an unpleasant taste. TCA has plagued the wine industry for years and is estimated to affect up to 12% of all cork-sealed wine.
Synthetic corks also eliminate cork crumbling and breaking, problems that occur on the bottling line as well as when the cork is removed for consumption. With an outer skin that completely seals the closure, synthetic corks eliminate leakage and cork dust penetration and prevent wine absorption. At the same time, the synthetic corks preserve the traditional cork removing "pop" ritual. They also use the same bottling line equipment as does natural cork and offer the ability to store and ship wine bottles upright, making shipping and handling easier. In addition, the production of synthetic materials is not seasonal or subject to limited harvesting times as tree bark cork production is. The company's T-Top enclosure enables easy extraction without the need for a corkscrew and eliminates the glue tainting that sometimes occurs with tree-bark pull-tops. Supreme Corq currently holds 23 patents in 15 countries and 22 trademarks in 14 countries.
"SupremeCorqs" are decorated with any design or logo using the Company's proprietary printing process. Currently, over 60% of corqs are printed, and this percentage has been steadily increasing.
Supreme Corq's customer base is predominantly "New World wineries" in North and South America, South Africa, New Zealand and Australia. These wine producing regions are not as tradition-bound as wineries in Europe, and their production and utilization of alternative closures is growing at a faster rate as they invest in their brands and expand globally.
In April 2003, American Capital also partnered with Graham to support the buyout financing of Nailite International, a manufacturer of molded polypropylene siding products. Since 1997, American Capital has invested more than $2.7 billion in the middle market and now has an investment portfolio of more than 90 companies. For more information about American Capital's portfolio click here.
As vintners come to appreciate the benefits of synthetic cork, industry segments have begun shifting away from natural cork. Analysts estimate that worldwide, synthetic cork's penetration will increase to 14% over the next five years, representing approximately a 20% annual growth rate. The conversion to synthetic closures has occurred mostly in the United States and other New World regions. These regions offer high-quality, immediate consumption wines that benefit most from synthetic closures, and vintners in these regions more commonly implement new technologies. The conversion to synthetic corks is also driven by a shift in the wine supply chain. Worldwide, wine is increasingly sold through mass market retail chains and less often through independent shops. The mass chains utilize a high-volume, low-profit-per-item strategy that leaves little room for wine returned by customers due to TCA. These retailers also value the ability to ship and store the wine bottles upright, which is not advisable for bottles sealed with natural cork. For these reasons, many larger retail chains, especially in the UK, require its vendors to use of synthetic closures.
As one of the leaders in the synthetic cork market, Supreme Corq is positioned to take advantage of these market trends and dynamics. Moreover, the company sells its corks into the highest growth segment of the wine industry, the $5-$10 per bottle retail niche that currently represents about 20% of all wine consumed.
In order to increase its penetration in Europe, the largest wine market in the world, Supreme Corq recently established a manufacturing and distribution facility in Belgium. The company also improved its formulation and leveraged supply-chain partners to maximize its critical mass and economic efficiencies.
With its leading market position, strong management team and unique technical capabilities, Supreme Corq is poised to toast the new age of the corq.
