1 Enhancing Value Through Growth

2 Independent Beverage GroupJoe Thompson Bobby Jarrell 2591 US Hwy 17 S, Suite 302, Richmond Hill, GA 31324 Tera Fisher 2591 US Hwy 17 S, Suite 302, Richmond Hill, GA 31324

3 Past Change

4 Present Change happens

5 Change happens – Like it or Not!FUTURE Change happens – Like it or Not!

6 Todays Discussion: History Consolidation Industry NumbersDistributor Numbers Summary Conclusion

7 We’d Like to Thank the Following:Beer Marketers Insights Brewers Association - Bart Watson Bump Williams Consulting Greg Owsley - The Storied Brand Marc E. Sorini - MWE LLP Michael Homeyer - Wells Fargo Mike Mazzoni NBWA - Lester Jones Neilsen Pints LLC - Kimberly Clements Several Breweries Several Distributors US Bureau of Labor Statistics

8 No Supplier, ever gets enough time and attention!Whether exclusive or non-exclusive No Supplier, ever gets enough time and attention!

9 Today’s consumer has a large acceptable set of brandsA significant number of Boomer Generation consumers have a much smaller preferred set of brands Occasions, Economics and Individual circumstances significantly influence consumer choice 70% of the purchase decision is made in the store

10 IBG is passionate about the 3 tier system:The best method of getting a beverage product to the total market Potentially Best system to develop brand equity Today’s environment offers a great opportunity for the 3 tier system to prosper and prove its value

11 History

12 Beer Industry in the 1970’s Single Brewer distributors meant they needed Franchise protection. Television Advertising began to impact sales of beer in 1976 Price increase started being originated by the brewers at a 2/3 to 1/3 split. Previously 50/50 originated by distributors. Distributor margins were 23%. Distributors had basic push/pull responsibility Distributors in fear of Brewery Termination Stop every week at every account, service on premise and community involvement were key Very loyal consumers A few National and several Regional Brewers ( Brewers)

13 Beer industry in the 1980’s A/B beginning to dominate, several brewers fail, Coors Expands (non-exclusive) Many Distributors had cash flow issues. Several distributors went bankrupt In 1988 IBG managed our first consolidation project with Origlio Bev Television influencing beer drinkers at Brewers expense Retail chains coming into their own Suppliers assume National Account responsibility at their expense Distributor Value begins to increase Loyal Consumers creating Equity Value

14 Beer Industry in the 1990’s Loyal consumers but beginning of “acceptable set of brands” AB Still dominates, but Bud began declining 1992 Federal tax increase hurts volume Service model beginning to change – replaced driver-sell and installed presell, tell sell AB and Miller push exclusivity but consolidation grows 1 + 1 = 3 starting to be understood by non-AB distributors Boston Beer emerging, and AB notices “Pleasure /Pain Concept introduced” Distributor Value Increases but slowly AB and “all other” distributor attitude completely different

15 Beer industry in the 2000’s Millenial generation less brand loyalPrice war erupted in 2005, driving A/B Distributors to $0.55 profit per case equivalent “Triangle of Terror” – consolidation process was terrible for buyers and brewers IBG (at Insights Conference): “distributors must reduce costs to 15% of sales from current 22% in order to compete with Costco/WalMart at 12 – 15%. AB Management agreed Norm Adami told large audience not to “do business with IBG” because Miller didn’t want Coors in its distributors In 2006, Interest rates dropped and stayed down 2008 AB sells to InBev and Miller/Coors merge

16 2000’s continued…… Maris litigation removes fear of termination from Distributors After 2006 the craft category, brands and SKU’s exploded Distributors margins improving. Developing change in attitude and focus. Taking on new product entries, e.g.- craft, non-alcs, W/S Distributors view Brewery role as providing all pull while Distributors provide logistic - Push/Pull debate heated up Brewer and distributor values increase dramatically from Consolidation accelerates for everyone except AB distributors AB Distribution system loses its execution advantage

17 Consolidation Eliminated several hundred millions of redundant costsFacilitated MEGA Distributors which significantly improved scale Enhanced technology that helped manage todays’ complexity Market demographics and distributor portfolios are increasing in importance and driving value

18 IBG Has Completed transactions in 44 of 50 states:Open States: Delaware Vermont Maine Indiana Kansas North Dakota

19 Relative Values in Consolidation

20 Example of Profit Per Case 2003

21 Retail Performance improved with ConsolidationIBG’s Retail Audit “Retailization” In-Outlet Marketing of a consumer product 1988 Low share wholesaler retail performance was 51%. High share wholesaler = 74% 2002 average retail performance was 77%. 2003 MBC’s Extensive Outside Survey Same Basic Results: A-B #1, MBC #2, CBC #3 Around , the retail performance gap begins to close Currently, the distribution systems have the resources necessary to perform effectively

22 Competitive Shifts 1996 - 2016 1996 Location AB Miller Coors Others AZ57.9 17.1 13.1 11.9 GA 54.0 22.6 6.1 17.2 FL 54.7 21.7 5.0 18.6 NM 52.1 13.2 17.7 16.8 2006 MillerCoors 56.5 37.5 6.0 53.0 42.0 55.9 41.9 2.2 56.7 43.3 0.0 2016 50.0 48.0 2.0 46.0 1.0 45.0 55.0

23 Values will Remain at Current Levels as Long as:EBITDA’s remain high Interest rates stay low Buyers are willing to share savings with Sellers Franchise laws don’t change dramatically Demographics/Portfolio are key Brewers/Distributors work together to build more long-term equity value for brands 15 year depreciation of Distributor rights remains Buyers continue strategy of utilizing excess EBITA to buy

24 Industry Observations

25 3-Tier Growth StrategiesBrewer Distributor Retailer 1. Quality 1. Pick Up New Brands 1. Improve Margins 2. Local Roots 2. Expand Footprint/Territory 2. Market Basket $ 3. Strong Flagship 3. Restructure Compensation 3. Shopper Loyalty 4. Flanker Brands 4. Identify Profitable Brands 4. Differentiation 5. Innovation 5. Add New Categories 6. Strong On Premise 6. Focus on High Volume Accts 6. Foot Traffic 7. Pick Great Partners 7. Reduce Service Levels 7. Customer Service 8. Share of Mind 8. Invest in People 8. Variety 9. Execution 9. Invest in Training 9. Local 10. Deeper Distribution 10. Invest in Specialty Team Disconnect?

26 Industry Harvesting Equity Value?Brewers and Distributors Reduce costs, Raise prices, trade consumer up. less effective marketing, less brand loyalty Volume --- Profits +++ Profits Volume

27 Gross Profit Multiples vs. Volume TrendsEVERY transaction is unique.

28 IBG Buy/Sell Transactions 2003 vs. currentSuppliers 2003 GP Multiple 2015/16 GP Multiple A-B 2.41 3.6 Miller 1.64 3.4 CBC 1.88 PBC 0.96 1.9 Crown 4.87 6.3 Heineken 3.29 5.0 NAB 2.13 2.5 Other Beer 1.56 4.8 N/A’s 0.82 1.0 Wines 1.13 1.2 Totals 2.14 3.85 1993 – 1.73 All figures are after-the-fact calculations and include all types of transactions

29 AB and MC Lost 24 Mil Bbls in 7 yrs} 11 bbls lost 13 bbls lost

30 Impact of Evolving InfluenceThree tier principle of “Separation of Tiers” no longer exist Carve out laws Brew Pubs (2%-5% of industry volume?) Growler sales Self Distribution

31 Price Increase Compared to Craft CapacityIBG estimates non-craft brewing excess capacity is million barrels (after MC closes Eden, NC) Beer consistently above CPI since 2007

32 U.S Beer, Wine & Spirits Price at Home BLS Consumer Price Index: Connect!

33 Per Capita Beer, Wine & Spirits Consumption: Change in Share of Absolute AlcoholIf Beer industry had same per cap as 1991, it would be selling 40M more BBls

34 % of Absolute Alcohol W/S winning at – Availability Price MarketingBeer Spirits Wine On an absolute alcohol basis, total per capita consumption has not varied

35 Per Capita Consumption - Beer In GallonsIf per capita beer consumption were 24 gallons per person in 2015, as it was in 1990,  that translates to 41 mil more bbls per year at current population level.

36 Demographic trends : Millennials will represent 37% of the drinking population (Millennials were born ) Millennials are not brand loyal or even category loyal The population is aging and per capita consumption tends to decline with age Hispanic population growth exploding at four times the rate of total population growth The next generation has less people than the Baby Boomers or Millennials

37 Household Income: Nielsen studied a number of trends in household consumer spending. From 2020 through 2050 they predict spending will decrease due to retiring boomers; the decline of the middle class and the rapid growth rate of low income households. Beer price growth historically rarely exceeded CPI and has averaged about 75 % of CPI since Not lately. If we assume history as our guide, and a long-term CPI averaging 3.22% since 1913 and 2.3% since 1990, we could expect beer price growth to remain around 2% over the long term. Industry will adjust back to historical levels.

38 10 year drop to stay down

39 Distributor ObservationsA good distributor can influence volume by at least 2-4%

40 ABI Mega Distributors By 2025, 125 distributors will doMT WY ID WA OR NV UT 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 VA WV OH MI NY PA MD DE NJ CT RI MA ME VT NH ABI Hensley Hand Ben E. Keith Nau Lamantia Dobbs Jefferies Stokes Don K X Sheehan HDL By 2025, 125 distributors will do 80-85% of ABI volume Adams Gene Dormity

41 MC Mega Distributors By 2025, 75 distributors will doMT 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 VA WV OH MI NY PA MD DE NJ CT RI MA ME VT NH DBI Reyes Goldring Moffat MC Capitol Wright Andrews HoBo Taylor Glazer Clay X Columbia Monarch Columbia Manhattan Beverage By 2025, 75 distributors will do 80-85% of MC volume

42 Craft Mega DistributorsX 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 VA WV OH MI NY PA MD DE NJ CT RI MA ME VT NH Sheehan Brown Click Saccani Ben E. Keith Nackard SW&S Young Self Wirtx Major Brands Maletis Stone Wirtz Lamantia Johnson Brothers X – W/S with significant beer.

43 Distributor Margin Trend and GP/Operating expense TrendConnect!

44 Average of all Distributors Average of Top 50 Owner GroupsDespite SKU Proliferation, Presales Representatives Manage the Same Number of Accounts Average of all Distributors Average of Top 50 Owner Groups 5 Year CAGR: -0.1% Average Number of Presale Accounts per Presale Representative, 44

45 Distributor Dollar Profit and Operating Profit (Per Case)Connect!

46 Summary

47 Distributors Strive to always “Add Value” by constantly working to improve the equity value of the brands you represent More sales people (Push) Better SKU management Accept more marketing responsibility (Pull) Digital marketing RetailizationTM – 70% of consumers make the purchase decision in the store Expand drinking occasions Should understand that brewers now have other options. You must remain the most effective commercially viable access to market for brewers Your margins reflect performance in Selling, Marketing, and Logistics Learn to say no to bad ideas One pallet of “Strawberry, lemon, apple flavored Bock Beer with a touch of Garlic” affects 5-15 people in your organization. ABI/MC are as aggressive as craft

48 Brewers Start interacting instead of interfering with distributorsYou enable poor performance if you do the distributors job for them. Enhanced focus on Brand Equity Work within your Distribution System to develop a more effective brand building model. Brew Pubs should not sell their product exclusively Raise your expectation of distributor performance

49 Industry Embrace Competition (examples:) Distributors need to support carve out laws Brew Pubs need to be non-exclusive Target wine and spirits drinkers (examples:) availability/occasions pricing more competitively more effective marketing Set measurable targets (examples:) 19 and under - if per cap consumption is the same as 1990 (24 gallons) it would equal 41 Mil bbls of volume growth by 2025 In New York, returning to 1990 per cap consumption would equal 2mil bbls

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