I. Pace
II. “Value Bubble” ?
III. Evolving Distributor Landscape.
IV. Unique Approaches
V. Conclusion / Questions
Pain
•Supplier pressure.
•Declining profit.
•Losing brands.
•Failing to get “hot” new
products (internal or
external).
•Poor performance by
major supplier.
•Consolidation (supplier
or competitor).
•Legal, legislative, tax
changes.
•Anxiety of change.
Pleasure
•Premium price.
•Continued employment.
•Confidentiality.
•Better ROI elsewhere.
•Ease of process.
•Sell everything.
•Quality of life..
Top
3
Top
5
Top
5
Top
10
Top
4
Top
25
A-B branches counted as one distributor.
Average rate of consolidation 1990 – 2005 = 71.
IBG’s forecasted average rate of consolidation 2005 – 2010 = 191.
By the end of 2008 IBG estimates 80% of MillerCoors volume will be
consolidated.
Rank
Distributor
2007
Volume
1
2
3
4
5
6
7
8
9
10
Anheuser Busch Branches
Reyes
Goldring / Moffett
Ben E. Keith
Silver Eagle
Manhattan Beer
Topa Equities (John Anderson)
JJ Taylor
L. Knife
Hensley
92.0
57.4
41.2
38.0
35.3
28.6
27.0
23.7
23.0
22.8
Activity
What will InBev do?
San Diego ?
Non Exclusive
San Antonio
Coors LA
Minneapolis?, Ft. Lauderdale.
Craft Beer Company Formed
President??
Rank
11
12
13
14
15
16
17
18
19
20
Distributor
Gold Coast
Andrews Distributing
Soave Distributing
Banko
United Distributors
Monarch
Glazer's
Shenck
Standard Sales
Heidelberg Distributing
Volume
22.0
20.9
20.2
16.8
16.0
15.2
15.0
13.9
13.8
13.5
Activity
Ft. Lauderdale (tried to buy A-B)
Miller Ft. Worth
A-B partnerships
Buying in Indiana
Merged with Southern Wine & Spirits
Selling
Ohio?
Rank
Distributor
21
22
23
24
25
Frank Fuhrer
House of LaRose
Clare Rose
Premier Distributing
Houston Distributing
2007
Volume
13.4
11.5
11.2
10.9
10.9 Part of Keg 1
Activity
At least 90% of volume will be done by Mega distributors.
•
•
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•
•
Average # of cases A-B / Other Mega: 6,602,276
Average # of cases A-B / Other small:
825,284
Average # of cases M/C/O Mega:
4,649,082
Average # of cases M/C/O small:
1,074,455
Average # of cases No big 2:
95,796
Based on Industry volume of 218.25M Bbls. Assumes in next 5 years A-B will have
30% of All Other volume, MillerCoors will have 68% of All Other volume and those
with No Big 2supplier will have 2%.
•
Mega distributors are picking up steam.
– Reyes, Silver Eagle, JJ Taylor, Ingram, COHO, Ben E. Keith.
– Regional or national emphasis?
• Regional: Ingram, Silver Eagle, COHO.
• National: Southern Wine & Spirits, Reyes.
•
Miller/Coors JV impact on consolidation.
– State franchise laws and contracts will have huge impact on
emphasis.
– No more status quo survivors (no profit, no pressure, no problem
attitude is no longer acceptable).
– JV is being aggressive in seeking to accomplish synergies.
•
Will A-B accelerate consolidation?
•
•
Buyers pushing back on sharing synergies.
Sellers (and Brokers) are getting very aggressive.
• Punitive damages sought from buyers.
•
•
Banks are requiring more equity and credit markets
are forecasted to tighten.
Approval process is expensive.
– Suppliers use approval process to gain financial
commitments.
– Some distributors major in minors.
– Brand flight increasing.
•
Different types of Valuation Methods:
– Stand Alone: Outside party purchases your business. No synergies
exist and the value is determined by the ability of the company to
generate future cash flows.
– Horizontal Value – Some synergies can be expected when a wholesaler
purchases his neighbor.
– Vertical Value – One wholesaler buying another in the same market.
Savings are created through closing of warehouse(s), number of
people and equipment needed.
The value of any business is determined by its ability to generate cash
flow.
NOT Gross Profit Multiple and NOT Per Case!!
Weighted Average For 2007 Is 3.02, up 20% in 22 months!
Brands and businesses – asset sale.
1995-2005 +3.8% per year / 22 months +20%.
Recent trends






A-B
MillerCoors
Other domestics
Crafts
Imports
National Avg.
3.30
1.90
1.20
2.83
3.25
3.02
=
=
?
Sources: IBG transactions, Litigation, Verified Trade Publications
through 2007.







Increased profit caused by organic growth in volume and
margin with aggressive cost containment by
distributors.
A-B distributors began aggressively buying non A-B
brands.
Economics of consolidation works.
Low cost of money.
Panic.
MillerCoors JV.
A-B - InBev

You decide. Different for every market.


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


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
Credit crisis.
Slowing of high-end brands (price increase?).
Growth of low-end brands (price increases?).
Tax increases on beer
Beverage industry growth vs. other industries (global).
Franchise laws being tested.
Impact of litigation.
Industry of turtles, not rabbits.

Past (1996) – mostly dominated by single
system at supplier / distributor level.
 IBG’s definition of dominance is any share advantage
of more than 2 to 1.




A-B = 45.4% SOM
Miller = 21.9 SOM
Coors = 10.0% SOM
Others = 22.7% SOM
•
Supplier Landscape
–
–
–
–
–
•
Current (2008) – Supplier / distributor landscape
becoming more competitive.
–
–
–
–
–
•
MillerCoors
A-B / InBev
Crown consolidated.
Heineken / Femsa / Scottish & Newcastle.
Pyramid & Magic Hat.
Consumers changing attitudes.
Wine & spirits growth.
Marketing shift (macro to micro).
Non-A-B distributor consolidation.
A-B consolidation?
Industry now more competitive.
1996
AZ
GA
FL
NM
A-B
57.9%
54.0%
54.7%
52.1%
Miller
17.1%
22.6%
21.7%
13.2%
Coors
13.1%
6.1%
5.0%
17.7%
Others
11.9%
17.2%
18.6%
16.8%
AZ
GA
FL
2006
A-B
Miller / Coors
57.4%
42.6%
Tucson
55.0%
45.0%
57.9%
42.1%
Orlando, Ft. Lauderdale
MA
OR
MT
2006
Miller / Coors /
A-B
Others
47.6%
52.4%
31.2%
68.8%
COHO
48.0%
52.0%
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New York
Philadelphia
Charlotte
Birmingham
San Diego
Sacramento
Seattle
Portland
Salt Lake City
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•
•
•
•
•
•
•
•
Omaha
Memphis
Austin
Denver
Las Vegas
Reno
Minneapolis
Milwaukee
Raleigh
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•
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New York
Philadelphia
Charlotte
Birmingham
San Diego
Sacramento
Seattle
Portland
Salt Lake City
•
•
•
•
•
•
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•
Omaha
Memphis
Austin
Denver
Las Vegas
Reno
Minneapolis
Milwaukee
Raleigh
Consolidation approved. IBG is aware of 9 others.
Should all brands be treated the same?
•
•
Are Mega Distributors better equipped to become
value-added marketers?
Not all suppliers, retailers, consumers, distributors or
brands are the same.
– Logistics Distributor .
•
•
•
•
•
Minimum drop size.
Heavy tel-sell.
Limited retail promotion or local marketing.
Work high volume accounts / handle the rest.
Push mentality at retail.
Logistics Distributor vs.
Brand Builder
•
Not all suppliers, retailers, consumers, distributors or
brands are the same.
 Brand Building Distributor.
•
•
•
•
•
Total market service
Strong in-outlet merchandising.
On / Off premise promotions.
Community involvement.
Pull mentality at retail.
– Problem: How to reduce operating costs to 15% and still
provide brand building services. (Focus).
– To be brand builders you must have time to sell.
– Assume:
• 50 hour work week, 75 stops per week, 10 minute drive
time between accounts, 30 brands, 300 SKU’s.
3,000
750
2,250
75
30
60
1,800
30
60
300
6
Min. per week
Drive time per week
Min. for service per week
Stops per week
Min. for service per stop
Seconds / minute
Seconds for service per stop
Brands
Seconds for service per brand per stop
SKU's
Seconds for service per SKU per stop
•
•
•
•
•
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Emotions of one distributor per market will
never fly!
Eliminates redundant cost thus allowing more
focus on selling functions (15% operating cost
target).
Distributor retains intangible value.
Vertical and horizontal potential.
One major supplier is 0 for 17.
IBG is 1 for forever.
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Status quo is gone
Biggest change moving forward will be A-B’s
reaction to new MillerCoors configuration.
Economics begin to overtake emotions.
Overall pace has picked up.
Mega distributors are gaining steam.
Are prices of brands and businesses peaking?
Are distributors logistics providers , brand builders,
or both ?
Shared Services is a way to reallocate focus and
reduce cost! – but…
Landscape has changed at all levels.
•
Consumer, retailer, distributor, supplier.