We have Evolved! Now What? NBWA 76 th Convention and Trade Show Caesars Palace Las Vegas, NV Oct 1, 2013

We have Evolved! Now What?

NBWA 76th Convention and Trade ShowCaesars PalaceLas Vegas, NVOct 1, 2013

We Have Evolved!

Now What?I.Macro Issues

II.Mega Distributors

III.“Stuck In The Middle With You”

IV.IBG’s Distribution System Of The Future - Model 2020

V.How Will Industry And Consumers Re-act?

VI. Summary

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I. Macro Issues

A. Declining Beer Industry

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I. Macro Issues

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I. Macro Issues Total Beer Industry Volume Declining

2020 Est based on

1% per year Decline

2014 - 2020

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I. Macro Issues

Beer losing drinkersand less consumption

…6.9% decrease…-2.1 gal

Per Capita Consumption (Gal) – Beer Declining (In Gal)

% of Absolute Alcohol

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I. Macro Issues

Distilled Spirits Council

Beer

Spirits

Wine

12 oz. drink

1.5 oz. drink

5 oz. drink

Declining Disposable Income

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Source: US Bureau Of Economic. Updated 4/22/13

Percent Change

I. Macro Issues

Distributor Gross Profit Increase Slowing

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Source: NBWA Productivity Report

I. Macro Issues

Distributor Operating Profit Slowing

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Source: NBWA Productivity Report

I. Macro Issues

B. Franchise Laws Are Getting More Attention

1. Distributors influence being challenged (See next slide)

2. Original intent of 3-tier system erodinga. Brewers now distributors and retailers

b. Distributors now brewers and retailers

c. Retailers now brewers and distributors

1). BWW privileged label (Draft – Game Change)

2). CostCo private label (Kirkland)

3. Franchise laws harder to defend

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I. Macro Issues

C. Distributors Influence being Challenged 1. Distributor Number Equals 90% of Industry Volume 2. Several Hundred “Other” Distributors equal 10% of Industry

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Brewers 2020

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I. Macro Issues

D. “Dis-unity” Of Distributors

1. Multiple state associations

2. Split on “carve out” laws

3. Distributors litigating against each other

4. “Foot print” issues

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I. Macro Issues

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Profits +++

Volume ---

I. Macro Issues E. “Big Two” Global Strategy

II. Mega Distributors

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II. Mega DistributorsA. Distributors Influence being Challenged 1. Distributor Number Equals 90% of Industry Volume 2. Several Hundred “Other” Distributors equal 10% of Industry

B. Characteristics

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1. Plus 10M - 15M cases plus

2. Multiple locations

3. Strong financially, often another source of wealth

4. Desire to grow

5. Reasonable good supplier relations

6. Management depth and sophistication

7. Normally in population centers

C. Mega Distributors Numbers

1. 2010 – 25 Mega distributors – 26% of 2010 industry volume.a. ABI. 11 Mega (Counting branches as 1)

1). 338M Ce’s (Total house. Avg 30.7M Ce’s)

2). 297M Ce’s to complete footprint

a). Completed: 635M Ce’s. Avg. 57.7M Ce’s)

b. MC. 14 Mega (MC volume 60% of total house)

1). 424M Ce’s (Total house . Avg. 30.3M CE)

2). 143M Ce’s to complete footprint

a). (Completed: 567M Ce’s. Avg. 40.5M Ce’s)

c. IBG estimates most “footprints” completed by 2020

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325 Mid level distributors 59% industry vol. and 600 “other” distributors 15% industry vol.

C. Mega Distributors Numbers

1. 2020 – IBG estimates 650 a. 30 Mega distributors – 54% of industry volume.

1). ABI. 14 Mega (Counting branches as 1) (Est. Ce’s: 808M)

2). MC. 16 Mega (Est. Ce’s: 648M)

3). Total 30 Mega Distributors = Est. 1.5B Ce’s

b. Pace of consolidation will vary based on interest rates

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Note: In 2020 IBG estimate 5 more Mega distributors - 3 ABI and 2 MC. CE/SOM projections used completed “footprint” avg Ce’s and projected industry vol. declining 1% per year 2014 - 2020220 Mid level distributors 37% industry vol. and 400 “other” distributors 9% of industry vol .

D. Economics

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1. Lower cost due to stronger management and horizontal shared services (14% - 16% Operating Cost as % of Sales)

2. Gross profit is higher (26% - 28%)

3. Profits rise rapidly with improved scalea. 2005 AB Dallas convention - $.55

1). Currently range of $1.25 - $2.00 for Mega

2). 2010 MC Mega @ $1.58

a). $670M profit

3). 2010 ABI Mega @ $1.58 (Est)

a). $534M profit

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ABI

ABI Hensley

ABI

ABI Hand

ABI

Ben E. Keith

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Lamantia

ABI Mega Distributors

ABI

ABI

Dobbs

Jefferies

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Stokes

Keith & Don

Dormity

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Ingram

Reyes Goldring / Moffat

MC

Reyes

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Gold Coast

Goldring / Moffat

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MC Mega Distributors

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Andrews

Reyes

GlazerReyes

Reyes

Glazer

Taylor

MonarchClay

Clay

Clay

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Craft Mega Distributors

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Sheehan

Sheehan

Sheehan

Sheehan

Sheehan

Sheehan

Sheehan

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III. “Stuck In The Middle With You”

A. 15% Operating Cost as a % of Sales

1. IBG at Beer Marketers Insights conference 2005

2. ABI/MC cost cutting gave distributors window to reduce costs

3. Rapid growth of SKU’s and brands now adding costs

4. Wine and Spirits/soft drinks and waters/energy drinks now being added to

distributors portfoliosa. Distributor attitude - easy way to add

revenue 1). Survival tactic for declining

distributors

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B. Are “Value Added” Benefits Being Provided?

1. “Distributors are just order takers”2. “All distributors do is deliver beer –

3. “Are we getting what we pay for?”4. “I keep getting new brands and packages but

there are not any more hours in my work day”

5. “My market is different…they don’t understand”

6. “They are not the only supplier I have and besides, they get more time than they deserve”

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C. What are “Value Added” Benefits?

Selling multiple displays – multiple locations – out of section…… Cross merchandising programs/POS placement –

custom localized POS, stimulate senses – sight, sound, smell…… Develop in-store relationships – “mini” business

reviews, local industry updates, pitches for incremental cooler space, in-store price features…… “Hand sell” –

develop in-store sampling programs

Etc, Etc, Etc!!!

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D. Challenge:

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How To Add Complexity, Contain Costs And Provide “Value Added”

Benefits Effectively?

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Work Hours Per Week 50Work Minutes Per Week 3,000Retail Minutes Per Week (75%) 2,250Suppliers 45 (220 Brands)Number of Sku’s 650Number of Stops Per Week 50Number of Stops Per Day 10Minutes Per Stop 45Minutes Per Supplier 1.0

Current structure does not allow sufficient time forselling “value added” benefits efficiently and effectively

E. Complexity May Effect Efficiency 1. Time at Retail 2. Dealing With Added Complexity


F. IBG’s Conclusion:

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Current Distributor Model Must Be Changed

• Suppliers Question Value Added Benefits• Retailers giving Wine and Spirits More Attention• Consumers Drinking Less Beer!

32IV. IBG’s Distribution System Of The Future – Model 2020

33IV. IBG’s Distribution System Of The Future – Model 2020A. Multi-Category – Add Revenue Per Stop

1. Suppliers, retailers and consumers constantly evolvinga. The pace of change is accelerating

2. Distributors will diversify portfoliosa. Beer – energy drinks – water – soft drinks -wine –

spirits health drinks

3. Adds significant complexity

B. More Effective (E-Commerce)

1. Replenishment function (order taking) must change.

Transition “order taking” from pre-sales person to retailers thru technology

a. Web basedb. Tell-sellc. Twitter/e-mail/fax, etc

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(IBG puts order replenishments at 50 – 60% of pre-sales time in the account)

IV. IBG’s Distribution System Of The Future – Model 2020

C. More Efficient

1. 48 hour delivery2. Automated warehouse functions

a. Computerized “picking system”


D. “Gigantic” Attitude Adjustment1. Current attitude for most is “Our job (distributor) is to get the product on the shelf. Your job (supplier) is to get it off the shelf”2. New model focuses on “retailization”. In-outlet marketing of a consumer product.

a. New account manager is responsible for creating a dynamic purchase environment that

emphasizes brand development… including “pull”! 1). Extensive time and training 2). Most current pre-sales people will not

make the cut!3. Account managers become exclusively “value

added”


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V. How Will Industry and Consumers Re-act

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V. How Will Industry and Consumers Re-actA. Suppliers

1. Initially, most will be apprehensive and cynical 2. Will slowly begin to embrace change as they see results3. Will need to adjust their model to succeed in a

more dynamic, fast paced, sophisticated distributor network4. May have to subsidize distributors willing to

change but with insufficient resources – manpower, facilities, “back room” systems, etc. – to handle the change

5. Will have to patiently work with distributors that are reluctant to change

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B. Distributors1. 75% of distributors (by vol) will embrace

change2. Mega distributors will lead the charge. Will

set “best practice” benchmarksa. “Best in class” managementb. Strong financial commitment

3. Some Distributors will embrace the change but face resource obstacles

a. Management limitationsb. Financial limitations

4. Some distributors will do nothing but complain. “It’s not the way we used to do it!”

5. Some distributors will sell


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C. Retailers

1. Retailers will prefer new method of ordering, selling and delivery (After adjustment period)

a. Retailers believe distributors sell too much, too little or the wrong itemb. Retailers look at current pre-sale people as “over paid” laborc. Retailers will respect account managers that enhance their customers shopping

experienceD. Increased respect = increased confidence =

increased “share of store” (increased brands/sku’s/space/programs) =

increased sales


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D. Consumers

1. Consumers will re-act positively to an enhanced shopping experience2. Consumers will be attracted to “localized” in-store activities created by a local rep with

knowledge of local events and other social (beer drinking) occasions

3. Consumers will respond to invitations to try products delivered in an interesting, creative, informative and interactive way

4. Beer will once again be an exciting, creative, cool , cutting edge, fun beverage of moderation!


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VI. Summary: We have Evolved! Now What?

NBWACraft Brewers Assoc.

State Associations

Steve HindyJim Koch

Dave CasinelliTom CardellaBill Hackett

Don Johnson

Associations Suppliers

MeritageBen E. Keith

ReyesGoldring

HonickmanByron Trott

David Ingram

Bump WilliamsGuest Metrics

Mega Distributors Retail Consultants

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VI. Summary We Will Become What We

Overcome

Aging Mega Brands

Tax Increases

Ineffective Marketing

FocusOn CostCutting

LessDisposable

Income

ReducedCompetition = Complacency

Consolidation Wine and Spirits

Growing

Weather

Stop bitching about the weather and do something “different”!

Documents

We have Evolved! Now What? NBWA 76 th Convention and Trade Show Caesars Palace Las Vegas, NV Oct 1, 2013