presentation available online at independentbeveragegroup

Independent Beverage Groupindependentbeveragegroup.com

Joe Thompson

2591 US Hwy. 17 S.Suite 302

Richmond Hill, GA 31324

843 384-0828

[email protected]

Todd Arnold

4370 Crestone Cir.Broomfield, CO 80023

303 410-7748

[email protected]

Jerry McNabb

VP, Shared Services8766 Charel Rd

Blaine, WA 98230

(o) 360-933-1440(p) 360-961-2164

[email protected]

Corporate Office

2591 US Hwy. 17 S.Suite 302

Richmond Hill, GA 31324

843 681-6333

[email protected]

Presentation available online at independentbeveragegroup.com

Volume• Moving Forward

• Industry volume will be down (-1.0% through 2020).• ABI and MC will each be down.

• All Others will be up.

2

2014 2015 2016 2017 2018 2019 20200.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0 148.5143.3

138.1132.6

127.1121.4

115.5

61.1 64.1 67.3 70.7 74.2 78.0 81.9

ABI / MC

3

Assumes overall industry will be down 1.0% during each of the forecast years.

ABI & MC vs. All Others Forecast

All Others

% of Absolute Alcohol

2001 2003 2005 2007 2009 2011 2013 2015 (est.)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

59.6% 58.5% 57.0% 56.3% 55.2% 53.2% 52.0% 50.9%

27.6% 27.9% 29.0% 29.5% 30.4% 31.8% 32.5% 33.3%

12.8% 13.6% 14.0% 14.2% 14.4% 15.0% 15.5% 15.8%

4

Distilled Spirits Council

Beer

Spirits

Wine

Per Capita Consumption - BeerIn Gallons

5

2005 2007 2009 2011 201326.0

26.5

27.0

27.5

28.0

28.5

29.0

29.5

30.0

30.5

31.0

30.330.6

29.5

28.2

27.6

6

• IBG estimates:• 2010 – 950 = 90% of volume.• 2020 – 650 = 85% of industry volume.• Self distribution, sort drink, specialty = 1,000 – 2,500.

Distributors Declining – Craft Brewers Increasing

1970 1990 1995 2000 2005 2010 2013 20200

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,5004,000

2,9752,615

2,2671,905

950 900650

Brewers 2020???????????

42

3,200

Beer Brands by Segment -TUS Multi Outlet + Convenience

2011 2012 2013 YTD

57 60 63 63116 113 102 92

748 801 801 765

2669

3109

3451 3493

125 130 134 122215 220

231 216

101 144 193 197

Premium Sub Premium Import Craft Super Premium PAB Cider

As of mid-year, craft brands and cider brands have already surpassed their numbers in 2013 (based on brands selling more than 1 case).

Total Brands4,031

Total Brands4,577

Total Brands4,975

Total Brands4,948

Source: Bump Williams Consulting

7

Beer SKUs by Segment 2010-2013TUS Multi Outlet + Convenience + RMA Sum of Total Liquor Stores


2010 2011 2012 2013

469 499 528 551501 519 535 555

1523 16261781 1891

3229

3772

4421

5156

314 347 399 460264 365

447 519

116 128 176 315

Premium Sub Prem Import Craft Sup Prem PAB Cider

The net number of beer SKUs increased by 4,031 or 62.8% over these four years (based on SKUs selling more than 1 case).

Total SKUs5,416

Total SKUs7,256

Total SKUs8,287

Total SKUs9,447

8

2008 2009 2010 2011 YTD 20120

100

200

300

400

500

600

700

800

900

217 228 239 254 271

113 115 117 120 12694 89 76 67 69

586647

693760 767

TOTAL U.S. FOOD TOTAL U.S. CONV TOTAL U.S. DRUG Sum of Total Liquor Stores

Avg Items Carried Per Store - 2008 – 2012 Time Series by Channel

Avg. Items Per Store 1,010

2008 – 2012 Increase In Avg Item Per Store 224 or

+22%






9

10

Volume• Distributors and retailers are very focused on above premium

category. • Industry is losing heavy beer drinkers due to aggressive pricing. Millennials

enjoy craft, FMB’s and cider and drink less than past consumers. • Is our industry spending enough time and attention on premium, premium

light and sub premiums?• Currently All Others sell 61M bbls while ABI and MC combined sell over

148M bbls.• Are you spending twice as much time on premium, premium light and sub

premium as you spend on All Others?• How many presales people did you have in 2008? How many do you have

now?• Is retail taking space from ABI / MC and giving it to specialty, craft, FMB’s,

etc.?

• We are not saying to diminish effort on All Others, only increase effort on premium, premium light and sub premiums.

11

Margin

• Margins will be up but will increase slower.• Return to normal at CPI– 2.5% to 3.0%.

12

Distributor Gross Profit Slowing

2005 2007 2009 2011 2013 2014 (est.)0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

1.1%

4.5%

5.9%

8.1%

4.5%

2.3%

13

Cost• Labor costs will increase.

• Number of people.• Particularly ABI/MC sales people.

• Wages per person.

• Capital expenditures will increase faster than before.• Many distributors have used up excess capacity.

• Size matters.• Mega distributors.

• 16% cost / 26% margin / $1.75 ++ profit per c/e.• 30 distributors = 30% of volume.

• Traditional distributors.• 21 % cost / 25% margin / less than $1.00 profit.• 920 = 60% of volume.

• “All Other” distributors will increase but will be more expensive to operate. • 1,000 to 2,500 = 10% of volume.

• Plenty of access to market.

14

Profitability

2005 2007 2009 2011 2013$3.25

$3.45

$3.65

$3.85

$4.05

$4.25

$4.45

$4.65

$4.85

$5.05

$3.55$3.71

$3.94

$4.25

$4.51

$3.55

$3.75

$4.15

$4.60

$4.91

NBWA Productivity Report IBG

15

Distributor Gross Profit Per Case

16

Distributor Operating Profit Per Case

2005 2007 2009 2011 2013$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$0.53$0.59

$0.67

$0.75$0.80

$0.60

$0.75

$1.00

$1.10

$1.25

17

Consolidation• Pace of consolidation will increase.

• Value will depend on location, portfolio depth and diversity, strategic potential, number of people interested.

• Access to market will be expanded.• Self distribution, Specialty Distributors, Wine / Spirits, Distributors, Soft Drink Bottlers.

• Industry will be less stable.• Legislative changes escalating. • On-going violations of 3-tier principles.

• Supplier self distribution.• Distributors with more diverse portfolios makes it harder to defend beer’s

protection.

• Mega distributors, supplier distribution and specialty distributors will grow while traditional distributors will get squeezed from both ends.

• Value of distributorships has grown significantly.• Less desirable markets will be difficult to sell.• Growth markets with good portfolios can name their price.

MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NMTX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD

DE

NJ

CTRI

MA

ME

VT

NH

ABI

ABI Hensley

ABI

ABI Hand

ABI

Ben E. Keith

Nau

Lamantia

ABI Mega Distributors

ABI

ABI

Dobbs

Jefferies

18

Stokes

Keith & Don

DormityX

X

X

X

XX Hand

CoHo MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD

DE

NJ

CTRI

MA

ME

VT

NH

Ingram

Reyes Goldring / Moffat

MC

Reyes

Keg 1

Andrews

Gold Coast

Goldring / Moffat

?

Taylor

MC Mega Distributors

Andrews

Reyes

GlazerReyes

ReyesGlazer

Taylor

MonarchClay

Clay

Clay

19

X

X

X X

X X

X

North Coast

X

MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD

DE

NJ

CTRI

MA

ME

VT

NH

Craft Mega Distributors

20

Sheehan

Sheehan

Sheehan

Sheehan

Sheehan

Sheehan

Sheehan

X

Click

Saccani

Brown

Ben E. KeithLamantia

NackardClement

X

XX

XSW&S

SW&S

Young

Self

Wirtz

Major Brands

Maletis

Stone

X – W/S with significant beer.

Rucker

Positives• Craft category’s creativity, intellect and entrepreneurial spirit

creates excitement in industry.• Beer distributors retail penetration is superior to wine and

spirits / specialty and self-distribution (structural advantage).• Soft drink?

• ABI distributors Monster performance vs. Coke Bottlers.

• Marketing potential.• Import / craft marketing is fabulous. • Major brewers marketing potential.

• Growing Hispanic demographic.• Potential to expand consumer base with sweeter, flavored

products to women and young adults.• Increasing competition.

• Gold system (Crown) is a 3rd competitor to ABI / MC.

21

Major Points• IBG believes volume will be negative for several years.• We get a new generation of consumers in 2020 to 2025.• Wine and spirits will try to take share of stomach and will

not stop until someone stops them.• Beer distributors will become beverage distributors.

• Beer distributors make less per case but sell more cases and could make more money.

• Beer distributors will have less franchise protection in some states.

• Beer Distributors will need to allocate more resources to mega brands.• Mega brands will not continue to pay the freight for others.

22

INDEPENDENT BEVERAGE GROUP

MODEL 2020

24

Model - 2020

• Challenge:• How to add complexity, contain costs and provide “brand building” benefits.

25

Model – 2020• “Gigantic” attitude adjustment.

• ABI’s Impact Selling System was fantastic push system.

• Distributors need to focus on marketing to consumers at retail (pull, not push).

• Do you believe beer distributors can significantly influence consumer purchase at retail?

• Account managers should be responsible for creating a dynamic purchase environment that emphasizes brand development – “pull” marketing.

• More time to sell at store level.• More presales people.• More E-commerce.• Transition replenishment from presales person to retailers through

technology.• More inside selling in a professional manner.

26

Model - 2020

• Volume.• Need to be beverage / DSD distributors.• Will have a larger geographical footprint.• Will have different territorial descriptions for different

categories.• Will have unique accounts.

• Operating Costs.• 12% - 30% average Operating Cost as a % of sales depending on

scale and performance requirements.• Mega – 12%, traditional – 18%, others – 30%.• ABI / MC and many distributors have recently cut costs and raised

prices but have been ineffective at marketing.• Many brewers are slowly taking margin from distributors and we expect this to

escalate.

27

Model - 2020

• Margin.• 18% to 35%.• Average will tend to be lower than today.

• Profit.• More total profitability but less per case.

INDEPENDENT BEVERAGE GROUP

3 THINGS TO REMEMBER

29

3 Things To Remember

• Distribution system needs to focus more time, people and money at improving retail performance (pull, not push).

• Distribution system will be more complex and less protected in the future.

• Consolidation will be much more difficult and time consuming due to the number of suppliers and categories involved.

presentation available online at independentbeveragegroup

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