I. PaceII. “Value Bubble” ?III. Evolving Landscape. IV. Unique ApproachesV. Conclusion

Beverage Consolidation

A-B branches counted as one.

3 5 10 10 5

25

Number of Distributors

Average rate of consolidation 1990 – 2005 = 69.IBG’s forecasted average rate of consolidation 2005 – 2010 = 126.Does not include approximately 500 insignificant distributorships.

Supplier Concentration – IBG’s 5 Year Forecast

At least 80% of volume will be done by Mega distributors.

Average Size Mega / Small 5 Year Forecast CalculationAverage # of cases A-B / Other Mega: 6,501,893Average # of cases A-B / Other small: 1,390,203Average # of cases M/C/O Mega: 8,393,602Average # of cases M/C/O small: 1,008,846Average # of cases No big 3: 35,222

Based on Industry volume of 214M Bbls. In next 5 years A-B will have 30% of All Other volume, Miller/Coors will have 68% of All Other volume and those with No Big 3 supplier will have 2%.

Pace is DeceptiveConversation is greater than actual.Mega distributors are picking up steam.

Regional roll-ups emphasis.Miller/Coors JV impact on consolidation.

Couldn’t stop, can’t start . State franchise laws and contracts will have huge impact on

emphasis.Remaining distributors are status quo survivors (no profit, no

pressure, no problem attitude).JV must be aggressive to accomplish synergies.

How does A-B react?

Pace is DeceptivePrices are escalating – buyers and financial institutions

expressing concern.Approval process is slow and getting more difficult.

Suppliers use process to gain financial commitments.Some distributors major in minors.

What Alters Pace?Combination of:Pain Pleasure

•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.

•Premium price.•Continued employment.•Confidentiality.•Better ROI elsewhere.•Ease of process.•Sell everything.•Quality of life.

Gross Profit Multiples (Synergistic Transactions through Oct., 2007)

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%.

Gross Profit Multiples(Supplier Breakdown)

A-B 3.30 =Miller 1.83 =Coors 1.96 Other domestics 1.20 Crafts 2.83 =Imports 3.25 National Avg. 3.02 ?

Sources: 117 IBG transactions, IBG valuation work, Litigation, Verified Trade Publications.

Recent trends

EBITDA Multiples (Enterprise Value Through Oct. 2007)

EBITDA weighted average is 8.65, up over 15% in 22 months!2000-2005 +1% per year / 2005-2007 +7.4% per year.

Asset sale.

Some Major CausesIncreased profit caused by growth (volume and margin)

with aggressive cost containment by distributors.A-B (distributors and corporate) began aggressively

buying. Consolidation works.Low cost of money.Panic.

Does The Value Bubble “Pop”?Probably not.

Franchise laws, families and fears won’t change.Industry of turtles, not rabbits.

Evolving LandscapePast (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

Evolving LandscapeCurrent (2006) – Supplier / distributors becoming

balanced primarily caused by perfect storm of events.Consumers trading up.Wine & spirits growth.Marketing shift (macro to micro).Non-A-B distributor consolidation. Exclusivity incentive program.

A-B = 48.1% SOM Miller / Coors = 28.7% SOM Others = 23.2% SOM.

Industry now more competitive.

Competitive ShiftsA-B Miller Coors Others

AZ 57.9% 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%

A-B Miller / CoorsAZ 57.4% 42.6%GA 55.0% 45.0%FL 57.9% 42.1%NM 56.7% 43.3%

1996

2006

Competitive Shifts

A-BMiller / Coors /

OthersMA 47.6% 52.4%OR 31.2% 68.8%MT 48.0% 52.0%

2006

Markets To Watch That Could Alter Competitive SituationNew YorkPhiladelphiaCharlotteBirminghamSan DiegoSacramentoSeattlePortlandSalt Lake City

OmahaMemphisAustinDenverLas VegasRenoMinneapolisMilwaukeeRaliegh

IBG has direct knowledge of conversations in 10 markets above.

Macro Brands vs. Micro Brands(Logistics distributor vs. brand builder)

Should all brands be treated the same?

Logistics Distributor vs. Brand BuilderNot 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 BuilderNot 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 Min. per week750 Drive time per week

2,250 Min. for service per week75 Stops per week30 Min. for service per stop60 Seconds / minute

1,800 Seconds for service per stop30 Brands60 Seconds for service per brand per stop300 SKU's6 Seconds for service per SKU per stop

Is Shared Services A New Solution?

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.

ConclusionPace and concentration will pick up. 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. Competitive landscape has changed.

ObservationsWe must continue to eliminate redundant cost.

Target 15% operating cost as a % of sales.Reason: Consumer and retail pressure.

Traditional system could evolve to various combination of:Two distributors per market consolidationSharing resources (vertical and horizontal)Hybrid system: Macro brands or certain packages of macro brands

could be sold and delivered to mega retailers by suppliers but serviced by distributors for a fee

Micro brands sold, delivered and serviced by traditional three-tier system.

In all scenarios the distributor could retain distribution rights.