Consolidation It

1
ConsolidationIts Just Beginning You Aint
Seen Nothing Yet!

• Monday, October 27th, 2008
• Charlotte, North Carolina

2
Topics

• Supplier consolidation
• Distributor consolidation
• Retailer consolidation
• Other consolidation

3
Supplier Consolidation
4
Supplier Consolidation

• It will continue
• More appropriately Polarization
• Expect consolidation among larger players
• In turn, spawning lots of small players and one
  or two mega players
• Perhaps even a beer, wine and liquor mega
  player
• In total today, though, it is still very
  fragmented!!!
• Be prepared for the entry of completely new
  players
• These new players, as you will see, might well
  impact control states
• Vertical integration?
• For sure Lots of ongoing change!

5
Still Fragmented Fair Size Players
Diageo Bacardi Pernod Ricard Moet Hennessy Gruppo
Campari Remy Cointreau Edrington Group Fortune
Brands Brown-Forman SPI UB Group William
Grant Marnier Lapostolle Grupo Cuervo CC
International TCC Bols Suntory Group Hite
(Jinro) Heaven Hill CL Financial TaKaRa Mast-Jagem
eister ILLVA Saronno La Martiniquaise DeKuyper Hen
kell Sohnlein Nolet Distillery EJ
Gallo Tanduay Industrias Muller Russian Standard
Bank Nikka / Asahi Drambuie Group San
Miguel Osborne Group Oaktree Capital Barton
Brands Antiqueno Berentzen Bohae
Boisset Borco Marken Brugal Caninha Da
Roca Caninha Oncinha Capel Daesun Fratelli
Branca Glen Catrine Godo Shusei (Oenon) Halewood
Vintners Hardenberg Industrias Reunidas Independen
t Distillers JG Grant Jagajit Keumbokju Kikkoman
Kirin Kyongwoul Kyowa Hakku Mercian Corp Mohan
Meakin Muhak Nemirov Vodka Company Pitu Rhadico
Khaitan Ron Matusalem Russian Wine Spirits
Co. Santa Teresa Sanwa Satsuma Seralles Tekel Unka
i Ypioca First Ireland Mou Tai Wuliangyie Antigua
Distillers Inner Circle Highwood Distillers Soyuz
Victan Uto Nederland RC Cooymans Arcus
Mostly ignores beer and wine. In All, 215 medium
/ large players
6
Polarization Emergence Of Small Players
Gemini Spirits Wine Kobrand Corporation Infinium
Spirits Shaw Ross International Craft Distillers
(Hangar One) Phillips Distilling Castle
Brands Fifth Gen Inc (Tito's) AV Imports Luctor
International Sans Wine Spirits W.J.
Deutsch Mutual Wholesale (Monopolowa) Terlato
Spirits Admiral Imports Niche Import Company Palm
Bay Imports MHW Limited BenDistillery Crillon Nich
olas Enterprises Preiss Imports Capstone
International Jinro America LIPS Imports Chatham
Imports Drinks America International
Beverage Halby Marketing Heartland
Distributing Clear Creek Distilling Bardenay
Distilling Sovereign Brands Icon Brands Specialty
Spirits Imports 42 Other Contenders 3D Spirits
Altamar Bacmar International Belmont Farms Camus
Cognac Carnivo Unlimited Cognac Ferrand USA,
Inc. Distillery No. 209 Distillery Resources,
Inc. Duggans Distilled Products Frank Pesce
Group Frederick Wildman Gil Schy Harbrew Imports
Ltd. Hardy USA Heck Estates (Korbel) Koenig
Distillery Magic Spirits Maine Distilling Maison
JMRE Mango Bottling Marsalle Company Mystique
Brands (Royal) Natural West Oliphant USA Opici
Imports Pacific Edge Wine Spirits Parliament
Imports Pasternak Imports Philadelphia
Distilling Quadro Group, LLC Reformed Spirits
Co. RU Brands, LLC Seashore Marketing Speyside
Importing Co. Stellar Imports Terlato Total
Beverage Solution Wein-Bauer, Inc. White Gold
USA, LLC Winebow, Inc. World Contact
7
To Give You A Flavor For The Battle At The Top.
Company Mkt Cap
Anheuser Busch 42.4
Diageo 36.0
LVMH 31.5
InBev 22.6
SAB Miller 20.2
Pernod Ricard 11.8
Heineken 11.1
Foster's 10.3
Bacardi 8.0
Asahi Brewing 7.8
Brown-Forman 7.0
Fortune Brands 5.3
Carlsberg 5.0
Constellation Brands 2.9
Modelo 1.8
Campari 1.8
Remy Cointreau 1.7
Exxon 355.0 B
Excludes Debt Numbers
8
New Players To The U.S.
InBev SPI UB Group Grupo Cuervo / Proximo TCC CL
Financial Belevdere S.A. / Imperial
Brands Russian Standard Bank Oaktree Capital
9
So What?

• For the Xenophobes They are all Foreigners
• Not used to the 21st Amendment
• Not used to a mandated three tier system
• Not used to Control States
• No one knows what changes theymight start
  lobbying for
• Many trade associations,government lobbying
  groups,are controlled by foreign entities

InBev SPI UB Group Grupo Cuervo TCC CL
Financial Belevdere S.A. Russian Standard
Bank Oaktree Capital
10
Distributor Consolidation
11
Distributor Consolidation

• It will continue
• Will it bifurcate into sales and logistics?
• Public flotation?
• What would a distributor be worth?
• Would suppliers try to prevent it?
• Could suppliers prevent it?
• CEDC Publicly traded wholesaler, market
  capitalization of 1.0 billion
• It is possible that there may be only one
  logistics distributor in a market
• Be prepared for the entry of completely new
  players
• These new players, as you will see, may impact
  control states
• Certain major suppliers have explored the new
  player options

12
Current Paradigm

• Southern WS
• Youngs Market
• RNDC
• Glazer
• Charmer-Sunbelt
• Wirtz
• Control States

13
Tomorrows Paradigm

• Southern WS
• Youngs Market
• RNDC
• Glazer
• Charmer-Sunbelt
• Wirtz
• Control States

• Sysco
• US Foodservice
• Performance Food Group

• Reyes Holdings
• Ben E. Keith
• Crescent Crown

• DHL / Exel
• UPS
• FedEx

• Self Distribution

• Centrex, Rhode Island

• Food Brokers

14
Who is CEDC?

• Originally founded in 1990
• NASDAQ listed since 1998 with current market
  capitalisation of over US1 billion
• The leading distributor and importer of alcoholic
  beverages in Poland.
• The leading producer of vodka in Poland and the
  4th largest producer of vodka worldwide.
• 2006 forecasted sales of US931 m to US956 and
  forecasted EPS of US1.90 to US2.10

15
A battle is brewing between Anheuser-Busch and
the beermaker's sole distributor in Miami-Dade
and Monroe counties. Anheuser-Busch nixed the
planned sale of a distributor to a
rival. Byline Patrick Danner Jun. 14
2007 Distributor Eagle Brands was in line to be
sold for 62 million to rival company Gold Coast
Beverage Distributors of Miami. But
Anheuser-Busch quashed the deal, saying Gold
Coast would have a virtual monopoly on beer
distribution in the two counties. Now Eagle
Brands is demanding the 62 million from
Anheuser-Busch, the brewer says. And the St.
Louis-based father of Budweiser is asking a
federal judge to rule that its action did not
violate Florida beer-franchise law, in a
nine-page lawsuit filed Tuesday in U.S. District
Court in Miami....
16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
Food Service Distributors

• Sysco Market Cap of 14.0 billion
• U.S. Foodservice
• Performance Food Group
• As wholesale consolidation enters next phase do
  they jump in?

20
Food Brokers an oligopoly in the middleEven
more dramatic than the concentration of
supermarkets has been the concentration of food
brokers, the middlemen in the food industry.
There are now just three privately held companies
in the U.S. that dominate this field Acosta,
Advantage Sales and Marketing, and Crossmark. All
three have quadrupled in size over the past
decade. At that point there were around 2,500
regional grocery brokers. Through acquisition and
hard competition, these three dominate the
majority of the business between them. They are
now working on expanding abroad, buying up local
distributors from Europe to Australia. Broker
are in charge of selling and stocking products to
food sales outlets from supermarkets to
convenience stores to corner grocers. The
advantage they give is that they can coordinate
sales nationwide and manage warehousing and
delivery efficiently, something most food
manufacturers have traditionally not wanted to do
or couldn't afford to do.
21
Retailer Consolidation
22
Retailer Consolidation

• Comes in many shapes and sizes- Bricks and
  mortar- Internet- Grocery, Drug, Liquor,
  Hotels, Restaurants- Country by country
• Its happening all over the globe
• It will definitely impact our US market
• Significant attempts to deregulate the alcohol
  market
• Global pricing threatens large supplier margins
• Vertical integration either literal or through
  private label
• Not sure the crafters of the 21st
  Amendmentthought about the need to protect us
  from very large retailers

23
Large Supermarkets
WalMart 204.0
Tesco 38.4
Carrefour 25.7
Costco 22.0
Kroger 17.2
Royal Ahold 11.2
Safeway 9.0
Sainsbury 7.0
Supervalu 3.0
Publix 0.0
Coles Myers 0.0
Woolworths 0.0
Aldi 0.0
Delhaize 0.0
24
Supermarket Consolidations
FTC Approves Sale of Albertson's BOISE, Idaho
-- The Federal Trade Commission on Tuesday
approved the 9.7 billion saleof Albertson's
Inc., the nation's second-largest grocery store
chain, toa consortium led by Minnesota-based
grocer Supervalu Inc. and drugstorechain CVS
Corp, reported the Associated Press.
Arnault looks to increase Carrefour
StakeSource Financial TimesBy Scheherazade
Daneshkhu in ParisPublished Jul 19, 2008
Billionnaire Bernard Arnault is intent on
increasing his stake in Carrefour with Colony
Capital, his joint venture partner, but does not
seek to take control of the French retailer,
according to a regulatory filing.Blue Capital,
the investment vehicle held equally by Colony and
Mr Arnault, who is also chairman of LVMH, the
luxury goods group, has taken advantage of
Carrefour's weak share price to increase its
stake over recent days.
25
How stores pile alcohol high and sell it
cheap Last updated at 0052am on 15th February
2008 Supermarkets are selling alcohol at a
loss to pull in customers. They are offering
shoppers savings worth millions, particularly
around the time of sporting events and national
holidays. Evidence supplied to a Competition
Commission inquiry suggests the big four - Tesco,
Asda (WalMart), Sainsbury's and Morrisons - sold
an estimated 100 million worth of beer, wines
and spirits below cost at the time of the World
Cup in 2006. Recent promotions of cheap lager
and cider have brought down the cost of alcohol
to below the prices charged for some bottled
water.
26
Australia Battle of the booze February 5,
2006 Retail giants Coles Myer and Woolworths
have a new battleground - booze. Or, more
specifically, discount booze sold in
warehouse-style facilities what they call,
unglamorously, their "big-box liquor offer". And
as in most of their colossal battles over the
years, there will be winners - the two retailers
and probably consumers - and losers - anyone in
the industry who gets in the way of these market
titans or can't adapt to serve them.
The report says the increased size and buying
power of the big four supermarkets will lead to a
"collapse" in the supply chain as independent
wholesalers - who sell goods to small stores -
are edged out of the market. As a result,
thousands of small shops could disappear "overnigh
t". Knock-on effects will include a "small to
medium reduction" in the number of people
employed in Britain and a "sharp reduction" in
the number of individuals opening small shops.
The supermarkets' move into selling a limited
range of glossy magazines could also lead to
3,800 niche publications being axed for lack of
a distribution network. Tesco and Asda (WalMart
owned) will start a price war this week
by cutting millions of pounds from the cost of
hundreds of food and non-food items. Tesco is
dropping the prices of hundreds of lines by up to
50 per cent, while Asda will make 40m worth of
cuts.
A ROAD TO RUIN? Ross Honeywill, retail analyst
and founder of corporate advisory concern Neo
Group, is adamant that what the two retailers are
doing in the liquor industry will eventually end
in tears for the wine industry and possibly even
for them. "These huge retail corporations are
taking the wine industry down a disastrous
one-way street," he said. "It's going to result
in cheaper prices for consumers in the short term
but in any battle like this, I refuse to believe
that either Woolworths or Coles will be losing
any profits. The winemakers will get crunched and
it'll erode an already fragile wine industry."
WHAT DOES IT MEAN? Basically wine has become
commodified, according to Shaw's Mr
Marshall. "The mystique of wine at this level has
gone and they are selling it like any other
grocery item," he said. "They have increased the
pressure at the different price points and that's
going to lead to a consolidation in the wine
sector. We are going to see brands change, price
strategies change and much more of the
two-for-one type offers." Mr Marshall predicted
the consolidation in the wine industry that
was already occurring would be accelerated. The
major wine producers would find it cheaper to
work with a bigger Woolworths and Coles, he
said, because both had excellent inventory
systems, but it would be the wine industry rather
than the retail giants that would lose
profitability. "Overall, it's going to squeeze
their margins," Mr Marshall said. Consumers
would benefit at first as they took advantage of
the reduced prices but the longer term outlook
was not so clear, he said.
27
Large Drug Chains
CVS 39.0
Walgreen's 21.9
Rite Aid 0.5
28
Drug Chain Consolidations
Rite Aid To Buy Two Rival Chains HARRISBURG,
Pa., Aug. 24, 2006
(AP) Rite Aid Corp., the nation's third-largest
drugstore chain, said Thursday it will purchase
the U.S. Eckerd and Brooks operations of Canada's
Jean Coutu Group Inc. for about 2.55 billion in
cash and stock. The deal, Rite Aid's first
major acquisition since a turnaround team arrived
to bring the company back from the brink of
bankruptcy six years ago, will make it the
largest drugstore chain operator on the East
Coast, Rite Aid said. However, it will still
trail Walgreen and CVS nationally.
CVS, Longs merger in sight Source Retailing
Today Oct 22nd After a three-month battle with
Walgreens, CVS Caremark's bid for Longs has
prevailed. The company announced this week that
its tender offer for shares of common stock of
Longs Drug Stores at a price of 71.50 per share
has been successful.
29
Large Restaurant Chains
Darden 2.8
Brinker 1.0
IHOP 1.0
Buffalo Wild Wings 0.6
Texas Roadhouse 0.5
Cheesecake Factory 0.5
Red Robin 0.2
Ruby Tuesday 0.1
Carlson 0.0
Outback Steakhouse 0.0
Hooters 0.0
30
Restaurant Consolidations
Darden Acquires RARE Hospitality Publication
Foodservice Equipment and Supplies Date
Saturday, September 1 2007 Darden Restaurants
Inc. signed an agreement to purchase RARE
Hospitality International Inc., an operator of
317 restaurants, including 287 LongHorn
Steakhouse and 28 Capital Grille restaurants. The
total purchase price is approximated at 1.4
billion. The offer is expected to close in
October. Headquartered in Orlando, Fla., Darden
owns and operates nearly 1,400 Red Lobster, Olive
Garden, Bahama Breeze, Smokey Bones and Seasons
52 restaurants with annual sales of 5.6 billion.
RAREs annual sales average around 1 billion.
31
Large Hotel Chains
Marriott 6.5
Starwood 3.7
Intercontinental 2.2
Hilton 0.0
Accor 0.0
Carlson 0.0
Hyatt 0.0
Cendant 0.0
32
Hotel Consolidations
33
Liquor Store Chains
Liquor Stores Income Fund Announces the
Planned Acquisition of 12 Liquor Stores in
Calgary EDMONTON, May 31, 2006 - Liquor Stores
Income Fund announced today the planned
acquisition of 12 additional stores in Alberta.
The Fund will be acquiring 12 of the 14 stores
operated by Willow Park Group in Calgary. Willow
Park Group is the 6th largest independent chain
of liquor stores in Alberta.
EDMONTON, ALBERTA, April 10, 2007 Liquor Stores
Income Fund (Liquor Stores)(TSXLIQ.UN)
announced today that it has made an offer to
acquire all of the outstanding trust units of
Liquor Barn Income Fund (Liquor Barn) (TSX
LBN.UN). The two businesses provide an excellent
strategic fit and together will create the
leading independent liquor retailer in Alberta
and B.C. with 176 liquor stores, providing a
strong platform for future growth
34
Liquor Store Chains
Liquor Stores Income Fund Enters U.S. Market (In
Anchorage, Alaska) With the Strategic Acquisition
of 19 Liquor Stores From Brown Jug Inc. Tuesday,
July 22, 2008 503 PM Liquor Stores Income Fund
(the "Fund") (TSXLIQ.UN) announced today that
the Fund has signed a definitive agreement for
the acquisition of 19 liquor stores in greater
Anchorage by a wholly-owned subsidiary of the
Fund. Irving Kipnes, CEO of the Fund, stated,
"We are very pleased with the planned acquisition
of the Brown Jug stores as our initial entry into
the U.S. market, as well as the addition of our
new Canadian stores.
35
Liquor Store Chain Players

• ABC - Florida
• Specs
• Centennial
• Twin Liquor
• Total
• Bevmo
• PLCB
• NHSLC
• 50 / 60 Others

36
Other Consolidation
37
Other Consolidation

• Raw Material consolidations- Paraxylene- Glass
  bottles
• Shipping consolidations- Truck lines- Rail
  lines
• All of the above can impact service / cost!
• Control State consolidations?
• Trade association consolidations (NABCA acquires
  DISCUS)

38
Exit Questions

• How does this overall landscape potentially
  affect your operations?
• Will you be under more pressure or less in the
  future?
• How do you maintain a level playing field?
• What, if anything, can you do about it?
• Does it help or endanger the future of the
  control states?
• What impact might this have on the concept of the
  three tier system?
• What impact does this have on alcohols status as
  something different
• What impact might all this have on responsible
  consumption?

39
Questions?
40
Thank You!