1. THE EVOLVING DISTRIBUTOR LANDSCAPE! Independent Beverage Group independentbeveragegroup.com Joe Thompson 843 384-0828 ibg@hargray.com Jeanette Foley Corporate 125 Old Plantation Way Fayetteville, GA 30214 770 487-0277 ibg@hargray.com Todd Arnold 4370 Crestone Cir. Broomfield, CO 80023 303 410-7748 toddarnold88@msn.com

2. THE EVOLVING DISTRIBUTOR LANDSCAPE! I.Overview II.Suppliers III.Distributors IV.Consolidation V.Mega Distributors VI.Risk VII.Conclusion 2

3. I. Overview Volume Per Capita Consumption – Beer Per Capita Consumption – Absolute Alcohol 3

4. Per Capita Consumption - Beer In Gallons 4 2005 – 2011 Actual 2005 - 2011 = 6.9% decrease

5. Per Capita Consumption – Absolute Alcohol In Gallons 5 Alcohol Industry Problem? Beer (-5.1%) Spirits (+20.8%) Wine (+30.0%)

6. I. Overview Profitability Historic high. Spread between highest/lowest profit has never been wider. Mega distributor $2.00 per c/e + Traditional low SOM (>35%) $.50 per c/e and lower. Margin Above premium growth. Aggressive price increases. Margin enhancement/maximization. Conclusion: We are losing drinkers “but” profits are great. 6

7. II. Suppliers “Big 2” Global view. Financially driven. No longer family owned (Pete Coors is exception). 2 tier experience. Reduced competitive behavior. Less innovative. Changing lately. Great at cost cutting. Selling built up equity in Mega Brands. 7

8. II. Suppliers “Big 2” Already accessing distributor margins. Aggressive branch acquisitions. Slowly eroding margins at distributor level (new packages, new brands, discounting). Somewhat hidden by other factors. Pass along cost to middle tier (POS, sports venues, truck paints, $ per case). Acquire or develop craft brands. Be aggressive in below craft, above premium category. Hurts craft suppliers, helps their margin, offsets volume losses. 8

9. II. Suppliers Imports. Solid marketing. Crown consistent, Dos Equis creative. Good price gap management. Crown is king maker on many transactions. Increasing marketing funds. Stella vs. Heineken. Crafts. Survivors will be solid. Must continually reinvent themselves. Boston Beer. Aggressive legislative influence/agenda. Other (PAB’s, pouches, malt liquors, private labels). Playing on the edges. 9

10. III. Distributors Fewer distributors. Lowering cost. Consolidation. Changing service levels. Improving technology. Vertique. Routing software. GPS tracking. Higher revenue. Less discounting. Pushing back more on supplier’s suggestions. Selling consumers on trading up. Mega distributors beginning to use logistics skill set to improve sales. Good at finding pennies/nickels. 10

11. III. Distributors Expanding portfolios. Enormous increase in SKU’s (MC network – 250 to 550 in last 5 years). New categories. Energy drinks, pouches, cider. New brands, flavors, packages. Becoming beverage distributors vs. beer distributors. Columbia vs. Reyes. More and more suppliers express their discontent. Are distributors earning the margin they receive? No fear of termination at distributor level. Slows elimination of underperformers. Suppliers sales people hesitant to cite poor performance. Suppliers more aggressive during consolidation. Resentment/anger/jealously/envy. 11

12. IV. Consolidation Accelerating pace. Prices are higher than ever. Interest rates as low as they can go. Capital gains taxes lower than ever. 15 year depreciation of distribution rights available. Availability of Big Money. Meritage influence (Private Equity). 5.5 to 6.25 times cash flow. Buy off balance sheet. 12

13. IV. Consolidation Future value determined by: Profit. Interest rates. Taxes. Footprint strategies (competition for your brands or business). Mega. Brewery influenced (ownership/partner/bank). ABI. MC/HOBO. Legislative/legal challenge. 13

14. Number of Distributors 14 By end of 2012 IBG estimates ABI will have 2 more branches. ABI branches centralizing functions (horizontal shared services). IBG predicts that by 2020, 200 to 225 will do 90% of volume.

15. Macro Brands vs. Micro Brands (Logistics distributor vs. brand builder) 15 Macro (-8.8%), Micro (+8.0%). Mike Mazzoni is right. Mega brands are old. We can’t get younger, neither can they!

16. 16

17. 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 ABI Hensley ABI Hand ABI Ben E. Keith Nau Lamantia ABI Mega Distributors ABI Dobbs Jefferies 17

18. 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 VA WV OH MI NY PA MD DE NJ CT RI MA ME VT NH Ingram Reyes Goldring / Moffat MC Reyes United Keg 1 Andrews Gold Coast Goldring / Moffat HoBo Taylor MC Mega Distributors HoBo Andrew s Reyes Glazer Reyes Glazer Taylor Monarch Cla y 18

19. MONTANA WYOMING IDAHO WASHINGTON OREGON NEVADA UTAH CALIFORNIA ARIZONA NORTH DAKOTA SOUTH DAKOTA NEBRASKA COLORADO NEW MEXICO TEXAS OKLAHOMA KANSAS ARKANSAS LOUISIANA MISSOURI IOWA MINNESOTA WISCONSIN ILLINOIS INDIANA KENTUCKY TENNESSEE MISS ALABAMA GEORGIA FLORIDA SOUTH CAROLINA NORTH CAROLINA VIRGINIA WV OHIO MICHIGAN NEW YORK PENN MARYLAND DELAWARE NEW JERSEY CONN RI MASS MAINE VT NH ALASKA HAWAII IBG Transactions 19

20. V. Mega Distributors (Big part of the future) Macro numbers. Economic trends of mega distributor consolidation. Mega distributors have lower cost (14% - 18% of sales). Gross profit is higher due to pricing power (24% - 28%). Profits have risen from an historical level of $.50-$1.00 to $1.50-$2.25 profit per CE 2012. AB distributors at $.55 at the 2005 Dallas convention. Mega distributors are more efficient, may or may not be more effective. Size / scale does matter in lowering cost and raising margins. Mega distributors get traditional 3-tier model margins with logistics cost. 20

21. V. Mega Distributors Performance. Mega distributors have changed traditional 3-tier model. No local ownership, management that can be fired, more profitable, more logistics oriented, different brand building process, outside resources/skills. Reduce cost by centralizing functions (horizontal shared services). Tel-sell, payroll, inventory management, H.R., payables, receivables, routing. Different service to lower volume accounts, minimum drop size, aggressive tel-sell, better technology. 90/10 rule, not 80/20 is new reality at retail/supplier. W/S and soft drinks system very consolidated. Historical beer distribution system unique. Mega distributors can help middle tier improve 21

22. V. Mega Distributors Performance. Effective service to high volume / chains. Merchandising, headquarter calls, entertainment, ipads. Different service to very low accounts. Example: 2,400 accounts; 500 do 96% of volume, 1,900 do 4% of volume. 1%-2% underperformance? Do the math – 200 x 2% = 4M bbls. Has this hurt industry volume? Image? Do suppliers do the same thing? Urban markets vs. other markets. 22

23. V. Mega Distributors Are Mega distributors good partners? Take cost out of the traditional 3-tier system. Tough negotiators with suppliers because of other options. Push back attitude. Changing balance of power Professional management. Increased influence on pricing. What happens when financial times get tough? (Price wars, fuel cost escalates, volume loses, etc.). Diverse background with different skill sets. 23

24. V. Mega Distributors Middle tier neighborhood image difficult to maintain. New underdogs are craft brewers. Energetic, risk takers, creative, growing, represent change. Hiring people locally gives them more influence. Fewer distributors due to consolidation. More craft suppliers due to expansion. 24

25. V. Mega Distributors Strained relationships, “but” are they to blame?. Overall distributor performance is different not necessarily worse. Less time to sell. More efficient, more options, less dependent. 25% margins are for brand building. 15% margins are for logistics. Many suppliers feel they are paying more, getting less. Opportunity to change model for the better. Use current financial performance to improve overall system. 25

26. V. Mega Distributors Strained relationships, “but” are they to blame?. Are suppliers losing control? What is too big? Crafts getting aggressive. Carve out laws. Self distribution. Work together to solve “small” retailer service. Internet orders, separate sales forces, allocate more resources to selling, unique upcharged delivery. Improve local consumer marketing to offset difference. 26

27. IV. Mega Distributors Impact on Value. How does this affect value of non-mega distributors within footprint? Mega distributor/supplier branch may be only buyer. Skilled negotiators. Can wait for distributors within their footprint circumstances to change. You could bring contiguous value. What if outside footprint? No real need to worry or rush. Mini Mega distributors evolving. 27

28. IV. Mega Distributors Impact on Value. Significantly affect day to day decisions of smaller distributors within footprint. Sell in your territory. Get new brands / sub-distribute. Influence pricing. Influence marketing (stadiums, arenas, $ per case). Significant influence with supplier / retailer. Small distributors lose independence/control. 28

29. V. Mega Distributors Reduced competition, no fear of repercussion and protective state laws lead to finger pointing and conflict. Resentment is growing. More cost conscience. Changing historic beer service behavior. We need to use Mega Distributor skills to adjust selling and marketing capacity of 3 tier system. Continue to be logistics oriented. 15% operating cost as a % of sales target. Need for leadership focused on building a better model. 29

30. V. Mega Distributors FOLLOW THE MONEY Distributor Money. AB Branches. Big Family Money (Reyes, Ben E. Keith, Ingram, Dobbs) ABI Chicago/MC – HOBO Meritage. Next??? 30

31. VI. Middle Tier Risk Could lose legislative influence as, Craft influence increasing in legislative. More aggressive legal challenges. Internal division among distributors increasing. Challenges to franchise protection at state level increasing. Cash laws. Carve out laws. Self distribution. 31

32. VI. Middle Tier Risk State tax increases. WA state increase (1.10 per c/e Big 2, nothing craft). Wine and spirits attacking. Availability, price, marketing. Lose equivalency argument. Now $18/bbl., if passed, $49/bbl. Beers with ABV from 3% to 55%. Craft Brewers with distilleries on site. Growing division between suppliers and distributors on expectations. 32

33. VII. Conclusion The “Traditional” 3-tier model has changed as Mega Distributors have grown. Should utilize Mega Distributors unique skills to improve distributor performance. Doing nothing to implement solutions and address differences is hurting everyone. Great time to buy, great time to sell. We are growing profits but losing drinkers. Consolidation is accelerating. Prices are higher. 33