STRONG RESULTS STRONGER TOGETHER 2015 ANNUAL REPORT BOARD OF DIRECTORS Barry Queen, Chairman David Ball Danny Boyle Jim Brown Roger Collins Victor Cosentino Queen’s Enterprises - Paola, KS Four B Corp Country Boy Markets Doc’s Food Stores Harp’s Foods Cosentino’s Kansas City, KS Harrah, OK Bixby, OK Springdale, AR Prairie Village, KS Don Woods, Jr., Vice-Chairman Scott Hayes Alan Larsen Jay Lawrence Alan McKeever Chuck Murfin Woods Supermarket - Bolivar, MO Albertson’s, LLC Houchens Industries Lawrence Brothers McKeever’s Ozark Supermarkets Fort Worth, TX Bowling Green, KY Sweetwater, TX Independence, MO Ozark, MO Dave Nicholas James Neumann Pat Raybould Jeff Reasor Randy Stepherson Erick Taylor Dale Trahan Nicholas Valu Market, Inc. B&R Stores Reasor’s Superlo Foods RPCS, Inc. Dale Trahan Supermarkets Louisville, KY Lincoln, NE Tahlequah, OK Memphis, TN Springfield, MO Enterprises Boonville, MO Rayne, LA DEAR SHAREHOLDERS March 20, 2016 Your Board of Directors and management are pleased for AWG and member stores. Also, resulting from the to present the audited results for our fiscal year reduced shrink, AWG is paying a one-time reclamation 2015. Consolidated company sales reached another bonus payment of 10%, which is supplemental to the all-time record of $8.94 billion. Total year-end typical reclaim rebate of 30%. patronage after retainage was $193.8 million, which AWG’s strong results for 2015, which overcame our was 2.79% of qualifying sales. Total distribution top-line sales challenges, were made possible by our including patronage, allowances and interest back members and a superior cooperative model, whereby to members was $544.4 million. Additionally, AWG independent grocers are stronger together. This theme stock trading value was increased four percent to is communicated as the title of this year’s annual report: $1,915 per share. “Strong Results – Stronger Together!” AWG achieved this strong patronage achievement AWG is proud to be a primary resource in our despite slightly lower year-over-year sales within retailers’ ongoing fight against all risks and the cooperative. Cooperative net sales were $7.58 challenges, while seeking new sources of billion, down 1.41% from the prior year, due growth, revenue and success. We are truly primarily to over 130 direct competitive impacts Stronger Together! to our member stores and a significant decline in overall average wholesale product cost by $1.44 per Sincerely, case, or 5.5%. This year marked the 20th anniversary of both our Oklahoma City Division and our subsidiary, David Smith Valu Merchandisers Company (VMC). Due to the President/CEO support and growth of our member stores and their collective business, since its first year, the Oklahoma City Division sales volume has more than tripled and VMC has increased an incredible six times. Both Barry Queen businesses are great examples of grocers achieving Chairman of much more through their combined efforts. the Board Beyond our operating results, AWG members also benefited by a new product freshness program, tracking all open-dated inventory by expiration date. This ensures acceptable product dating at receipt by AWG, proper rotation in our supply chain and significantly improved product freshness at delivery to member stores. Our product dating standards for members has improved by approximately 50%, resulting in fresher product and reduced shrink 1 FIVE-YEAR TREND Founded in 1926, Associated cated to providing service to AWG distribution centers, located in Wholesale Grocers, Inc. (AWG) was cooperative members in various re- Springfield, MO; Oklahoma City, OK; established to provide its fami- tail locations. Members are required Ft. Worth, TX; Southaven, MS; Mem- ly-owned retail member stores the to purchase and hold 15 shares of phis, TN; Pearl River, LA; Goodletts- essential building blocks needed "Class A" stock to be supplied on a ville, TN; Ft. Scott, KS and Kansas to establish strategic positions in cooperative basis. City, KS. their unique retail marketplaces. This Annual Report marks 89 years The remaining two facilities were AWG achieved sales on a consoli- of providing products, support ser- operated under the banner of Valu dated basis, after eliminations, of vices and financial returns to our Merchandisers Company, a whol- $8.94 billion. Within the cooper- member-retailers, and the collec- ly-owned subsidiary which pri- ative, net sales were $7.58 billion. tive strength of our cooperative marily provided health and beauty Operating income was $203 mil- model has provided ongoing oppor- care items, general merchandise lion, with net income of $199 mil- tunities for our members to develop and specialty foods, serving co- lion. and grow unique and sustainable operative as well as non-member businesses that have survived, as retailers. Additionally, the compa- Total patronage returned to share- well as thrived, in an ever-changing ny operated Always Fresh, Inc., a holders was $193.8 million, distrib- retail environment. wholly-owned military supply sub- uted on a 60/40 basis (the payout sidiary, providing products to com- consisting of 60% cash and 40% Operating nine distribution centers missaries and base exchanges on a certificates). As a percent to quali- during the 2015 fiscal year, AWG non-member basis. fying sales, the patronage payout delivered grocery and related prod- was 2.79%, AWG stock trading val- ucts to active retailers throughout Headquartered in Kansas City, Kan- ue was increased by four percent to the midwestern and southeastern sas, the AWG corporate support $1,915 per share. Total members’ United States. Seven of the nine fa- team provided operational and investment and equity ended the cilities are full-line divisions, dedi- administrative support to all nine year valued at $477.7 million. CONSOLIDATED RESULTS (thousands) 2011 2012 2013 2014 2015 Net Sales $ 7,766,807 $ 7,852,006 $ 8,380,214 $ 8,934,239 $ 8,935,915 Operating Income 180,059 176,513 201,406 231,622 202,620 Net Income 169,527 175,949 192,490 226,920 198,919 Weeks 53 52 52 52 52 COOPERATIVE OPERATIONS (before eliminations)* Net Sales $ 6,711,570 $ 6,713,047 $ 7,148,757 $ 7,685,985 $ 7,579,129 Distribution to Members Interest 3,002 1,522 227 223 406 Promotional Allowances 314,979 311,201 338,828 351,820 350,155 Year-End Patronage 163,791 172,872 182,576 194,675 193,815 Total Distribution to Members $ 481,772 $ 485,595 $ 521,631 $ 546,718 $ 544,376 Members’ Investments $ 54,346 $ 9,308 $ 10,846 $ 9,411 $ 22,105 Members’ Equity 304,406 386,850 422,979 439,632 455,610 Total Members’ Investments & Equity $ 358,752 $ 396,158 $ 433,825 $ 449,043 $ 477,715 *Includes the accounts of members/subsidiaries. 2 NET SALES Consolidated (after eliminations) $8.94 BILLION $8.38 $8.93 BILLION BILLION $7.85 $7.77 BILLION BILLION 2011 2012 2013 2014 2015 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS $195.0 Patronage Dollars 6.0% Total Gross Profit (Millions) $194.7 $193.8 (Co-op only, includes cash discount) $185.0 5.9% $182.6 *As percent of total net sales $175.0 5.90% 5.8% 5.83% $172.9 5.81% $165.0 5.71% 5.7% $163.8 $155.0 5.69% 5.6% $145.0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2.90% Co-op Patronage (Percentage to qualifying sales) 3.5% Selling, General & 2.81% 2.77% 2.79% Administrative Expense 2.80% 2.76% 3.4% (Co-op only) 2.71% 3.30% 3.32% *As percent of total net sales 2.70% 3.3% 3.22% 2.60% 3.2% 3.12% 3.13% 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 3 RETIREMENT JERRY GARLAND to outsource wholesale supply his right hand and Vice-President of for the company. During this Marketing. After leaving the high- process, Jerry was evaluating AWG volume business in Springfield, and other for-profit voluntary both Mike and Jerry were surprised Jerry Garland has been a wholesalers within the area. His and underwhelmed when their first- leader with an undeniable most memorable takeaways from week sales were tallied and were a drive for delivering strong the process were not only that small fraction of Springfield’s sales. results since joining AWG in 1991. AWG had an unquestionable cost He was born in 1950 in the small advantaged model as compared to In only two years, they successfully town of Nocona, Texas; as the son of other wholesalers, but that dealing led the new Oklahoma City Division a homemaker and an oil field worker, with AWG was an open book – all to a strong sales base exceeding he learned his strong work ethic retailers pay the same along with $900 million annually. Due to this early in life. In 1970 he enlisted with complete transparency in the cost successful start-up and operation, the U.S. Army, ultimately becoming of goods and services. Jerry was called upon again in 1997 a tank commander, which no doubt to accept another challenge: move strengthened his “never give up” Jerry’s introduction to AWG during back to Kansas City and lead AWG’s attitude and helped establish an his wholesaler evaluation process largest division. Jerry made the extraordinary discipline that Jerry opened an important door to his move and successfully operated the carried forward into his successful future and ultimately, for AWG. division until 1999 when another subsequent business career. Subsequent to the meetings with door of advancement opened for AWG and its leadership team, in him: lead all of the merchandising After graduating from North Texas 1991 Mike DeFabis, President and and marketing of AWG. For the University in Denton, Texas in 1973, CEO, recruited Jerry to join AWG as next ten years Jerry flourished, he married Melinda Runyon, his the Vice-President of Marketing at serving as Executive Vice-President high school sweetheart and began the Springfield, Missouri division.