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« More on delivery and drivers | Main | Why Management Makes Bad Decisions »

Can beer distributors handle wine and spirits?

Many wholesalers around the country are re-examining the issue of “who they are.”  Are they beer distributors?  Beverage alcohol distributors?  Beverage distributors?  Generic sales and distribution companies?

The analysis of “who you are” is of vital strategic importance.  Wrong decisions can be costly.  We all know of the costly disasters some have had when they moved into a new area without proper analysis and then followed it up with poor execution – a recipe for failure.  But if you truly desire your business to be around in 30 years, you may have to expand your vision.

As someone who has worked with beer, wine, and liquor distributors around the country, I find a disturbing trend – especially from a beer wholesaler’s perspective.  Many wine and spirits distributors are aggressively entering the beer world, generally with crafts and imports.  And I think this blurring of the lines between beverage alcohol will only continue – it is already quite prevalent at the supplier level and there is no reason to believe it won’t continue to flow into the distribution level – so don’t just sit on the sidelines and let it pass you by.

I think a more natural and operationally superior evolution is for beer wholesalers to enter the wine and spirits world.  There are many high-end products (with GREAT margins) looking for some place to go and beer wholesalers are often the best choice.  Beer wholesalers have a much better frequency of account contact than their wine and spirits competitors.  Most wine and spirits people can’t come close to the relationships the beer folks have at retail – nor your ability to execute.

Every market and state is different but this is an area I recommend investigating.  Leverage your superior sales and distribution system.  You are already calling on these accounts – and in those states where you aren’t, in 95% of the situations the new account is in the same parking lot as an account you presently service – and you are experts in the warehousing, sales, and distribution of beverage products. 

You can probably enter this new arena with only minor changes and investments.  With the types of products you will most likely be distributing, single bottle pick will be a must.  This is not a tremendous operational challenge and shouldn’t consume too much warehousing space (you probably won’t be starting with 500 SKUs).

Both mentally and physically (i.e. often different people), you need to separate the selling function from the order replenishment function (this is true for your beer operations too.)  Therefore you will probably need to add a small, specialized selling force – to begin with this may only be one or two people.  Once the product is placed, your normal sales and merchandising personnel should be able to handle order replenishment and basic pull-thru assistance.

Delivery is simple - regardless of your delivery method there should be NO additional cost in the delivery end.  Remember, your most likely first products will be, from a retailer’s perspective, “nice to have”, not “need to have”.   The exception here would be if A-B purchases Absolut – in most retail accounts this is more of a “need to have” product.  Of course having a “need to have” product makes the selling of your other products much easier, but at least to begin with this probably won’t be the case.  Therefore you will hear a lot of no’s and will have to kiss quite a few frogs before you find your princes.  Accept it.  You’re the new kid on the block.

In the beginning you most likely won’t be putting a hundred cases of wine and spirits a day on each and every delivery route (and if you are, you should be dancing around your warehouse.)  Build your organization accordingly.  Don’t spend too much time worrying about delivery and warehousing problems – they are way down the line.

Look at it this way; how many cases per truck per day could you put on your present delivery system before you believe problems would occur?  40? 50?  If you’re loading your trucks by the order, there probably isn’t any problem level since these wine and spirits cases are simply another layer on the order.  But let’s assume you think the break-point is about 40 cases per truck (a bay or so.)  And let’s assume you run 20 daily delivery routes.  That’s 40 cases times 20 routes for 800 daily wine and spirits cases.  Assume 255 delivery days per year and that’s annual wine and spirits volume of 204,000 cases.  Assume a selling price of $80/case.  That’s revenue of $16,320,000!  At a 25% margin, that’s $4,080,000!  And you’ll probably drive 50% to 80% of that to the bottom line!  As you can see, if you’re concerned about the impact wine and spirits will have on the operational side of your business you’re focusing on the wrong end of the stick.  By the time it becomes an operational problem, the volumes and profits will more than justify whatever changes you will need to make.  No, at this time your more likely problem will be obtaining brands and building volumes – your warehousing and delivery systems can EASILY handle the volume.  At some point in time this volume may slow the driver while checking in product at retail, but that too is probably a problem way down the line.

Franchise protection is always an issue and many wholesalers will find no franchise law for wine and spirits in their states.  Don’t look at this as a negative, look at it as a positive.  For once, lack of franchise protection is actually good for you since you’re the new comer.  You WANT to pick up brands.  You want suppliers to come to you, happily bringing their product with them.  Many suppliers, especially the smaller ones are not happy with the performance they get from the huge wine and spirits distributors.  These distributors have product books that go on for pages and pages.  If you’re a small spirits supplier, you get almost no share of mind from anyone in the entire organization – and unless your product gets hot, you never will.  (Of course how can a product get hot if no one is selling it?)

Contrast that with what they would find in your house.  A dedicated sales force leveraging your superior sales and distribution system – much higher frequency of account contact and a much smaller product line where each supplier is guaranteed a focused and energetic selling and merchandising effort.  Once the word gets out, I think you’ll find quality products flocking to your door.  And let me repeat – there are tremendous margins in many of these products and the incremental cost to you can be relatively small. 

Whether you’re an A-B distributor or the Coors/Miller/multi-brand house, you should investigate this (and yes, this is one of the management consulting services I provide.)  A-B is already testing the water in the spirits world – if they would enter this market and not use the A-B distribution network they would be certifiably crazy.  So if you’re an A-B wholesaler, do you want to stay with exclusivity?  We all know how well that’s worked for you in the beer world.  Bring on additional products to help cover the incremental costs of this new market entry and to help improve the bang on the street with a more robust product line.

If you’re the Coors/Miller/multi-brand house, do you want to let your A-B competitor have this market to themselves?  The odds sure look like sooner rather than later A-B will enter the spirits market.  Do either of you want to let the wine and spirits guys further invade your turf?  Patting you on the head as they attempt to take your businesses.  Not if you truly want to be around in 30 years.

There is one problem with beer wholesalers from a wine and spirits viewpoint – coverage.  Most of these suppliers are used to dealing with state-wide or multi-state distributors.  They often don’t have the time nor people to attempt to cover a state with multiple wholesalers.  This issue can be addressed in a couple of ways.  In many cases as long as they have the major population centers covered they can live with multiple wholesalers – not ideal but livable.

Or better yet, how about if we expand our thinking and we create a network of wholesalers who can give complete state coverage (this can be a formal organization or a more informal agreement between wholesalers.)  This gives the supplier “instant” state-wide coverage and a single point of contact for the state.  I recommend the network hire an experienced hand from the wine and/or spirits world to run this (kind of like a state association exec but this person only represents the interests and goals of the network’s wholesaler members.)  The exec’s goal is to identify and obtain hot brands – the wholesalers are completely relieved of this duty – the exec targets the type of brands based on consensus agreement of the network members.  This network also provides easier and better product ordering – larger orders and the savings associated with them flow to the network members.

Supplement the exec with a good office manager, throw them in an executive suite and you’ve got your organization.  This should be more than break-even within a year at the most.  A win-win for everyone.  It really doesn’t take that much time to build this network (and yes again, this is also one of the management consulting services I provide.) 

We’ve all heard of business synergies, where 1 + 1 doesn’t equal 2 but instead equals 3 or 4 or 5.  For a little up front effort we can build this network and take the synergies through the roof.  We take the strengths of each of your individual markets (and each of you generally out performs your wine and spirits competitors), combine these in a low-cost network of wholesaler partners, thereby leveraging your present sales and delivery system.  We don’t integrate your businesses, each wholesaler remains completely independent – this is simply a means to expand our product line and offer suppliers instant state wide distribution  1+1=6  But you have to take the first step.  This may be the next big thing in beer wholesaling. 

If up-front we spend the time and effort to build this network, we will now have a sales and distribution system for wine and spirits that exceeds anything the present wine and spirits folks bring to the table.  And once built, if desired, this network can use these same strengths to expand into other products too.  Seems to be worth a little analysis to me.

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