More on Strategy
With the recent announcement of the sale of Thies Distributing inFlorida to the Reyes Beverage Group, many wholesalers are shaking their heads… just how do they do it?
Let us use this as an exhibit in strategy. Although I have no inside knowledge of the Reyes’ plans, what can we deduce by simple observation and analysis? First, strategy is a long-term plan of action designed to achieve a particular goal(s). Emphasize long-term.
Many wholesalers are looking at the Reyes success and wanting to get in on that action. Well the Reyes success didn’t just happen yesterday, they have been executing a plan in the beer business for at least the last 32 years.
That’s when they purchased their first distributorship, a small Schlitz distributor. Today they are the largest beer distributor in country, selling over 72 million cases per year (including the Thies volume). Not a bad growth rate, eh? And they haven’t just been focused on beer; they also have two other divisions focusing on food service. Combined, Reyes Holding is the 24th largest private company in the entire country with combined annual sales of over $9 billion. This is the result of strategy.
It might have started as a plan as simple as “a beer distributorship for each son”, but it has clearly evolved. Strategies do that. Some confuse long-term strategy with a static, never changing plan… nothing could be further from the truth. Strategies evolve as circumstances change, as feedback is obtained, as the future becomes the present.
And when good strategy is executed, you find that there often are few choices remaining, much like the end of a chess match where the final outcome was determined very early on, it is just that one side didn’t know it was happening until the checkmate moment. These types of plans often have been executed for decades, you will find it very difficult to respond in kind unless you’ve been doing the same. By the time you are aware of someone executing a strategy, quite often many options have already been taken away. Southern Wine and Spirits is another example. They too have been executing their strategy for decades. And by the time many of the smaller wine and spirits houses around the country woke up, their future was already set.
And strategy is also multi-faceted, not everything is “hard” business. In Harry’s newsletter he quotes Dennis Thies…
“… we sold to Reyes Holdings because they have a great reputation for getting deals done in a fair and equitable way,"
This might just be because of the type of people the Reyes brothers are, or it could be a cold, hard calculated business decision, or it could just be good PR ;-) … either way it becomes a part of an effective acquisition strategy. Do you want to sell – probably the biggest business/family decision you will ever make – to someone who has a “great reputation for getting deals done in a fair and equitable way", or do you want to sell to someone who you don’t trust and has a reputation for being a pain in the rear? Who would you choose? Again, whether calculated or not, everything matters, especially in strategy.
And a note about negotiations and buying and selling. Far too many people focus all their efforts on “winning”. It seems the Reyes’ focus on getting deals done. If “winning” is your only goal, you will find that you generally lose. The goal is to get the deal done, not stroking egos.
For those who want to get in on the big-time action… do you have multiple distributorships (I’m guessing many debt free) which throw off annually a hundred million plus in free cash flow – probably more? You can afford a longer payback period in this scenario rather than owning one (not debt free) distributor and trying to buy another. Your financial situation will not remotely be the same.
Is it too late to become a big player in this arena? Probably not but you had better have a clear, workable strategy that you can actually execute. And you won’t be playing alone; lots of folks are just as hungry as you. It certainly seems that the Reyes’ are executing, what I will call for lack of a better name, a Southern Wine and Spirits strategy. As consolidation continues, they plan to be the last big player standing. But the game is far from over for the MillerCoors network, there is a lot of opportunity for those willing to step to the plate. Great opportunities for consolidation, especially in smaller markets… and especially those with good demographic and population trends.
There are also a lot of strategic bonuses to being a mega-distributor. Because of the large footprint, many new suppliers/products will almost automatically come your way. Not every wine and spirits supplier wants to go with Southern in every single market, but is the incremental value of going with someone else in a specific market worth the possible wrath of Southern in all those other markets? You can also attract and retain better employees. A mega-distributor offers many more career paths than a family owned, single market distributor. In most distributors you don’t have to go very high up the organization chart to find all future progress blocked by either family members or seasoned executives who aren’t going anywhere until retirement. Much more financial strength equals better financing terms. Purchasing power, the list is long.
Or how about just the power which comes with size? I can’t imagine any MillerCoors wholesaler of almost any size, NOT considering the Reyes’ as a possible acquirer. Who needs brokers? Think about that… they’ll probably get a look at almost every major sale… if not that, at least a disproportionate number. That’s potentially a significant strategic advantage.
Here’s a thought for those smaller players who might be considering an exit… perhaps a better plan is to do the heavy lifting up-front and put together a syndicate of adjacent wholesalers and sell them all as one… Two or three 1 – 2 million case operations (or larger) sold as one are much more attractive to those big acquisition players. It really is as simple as coming up with an acceptable exit price which all players agree upon. It someone will pay the number, everyone leaves happy. If not, what was the harm?
The A-B network is even riper for this strategy… it is just waiting for its “Reyes” to come along. Ton’s of opportunities… from the big markets to the small ones. Yes I know about supplier approval… you collectively are going to have to face this dog sooner or later.
Or have you wanted to make an acquisition for the past 30 years if you could find one that works and “is for the right price”? Deals done to date… zero? Guess what? Probably not going to happen. Perhaps you need to re-think what you are doing. Remember Einstein’s definition of insanity… doing the same thing over and over again and expecting different results. Wishful thinking is not strategy. I’ll buy one when I can steal it is a waste of thinking (or perhaps better stated a lack of thinking).
Now not everyone is going to grow to a Reyes Beverage Group. But there are still a lot of acquisition options… lots and lots for the smaller market distributor. What is your strategy to make it happen? How exactly do you plan to achieve your goals? Mergers? Shared services? Lots of options.
Maybe what you’ve got is what you’ve got. Don’t cry in your beer that you’ll never be a $9 billion dollar (and growing) operation like Reyes Holdings… instead have a strategy to maximize what you have. You have an incredible sales and distribution machine… what else can you do with it? More products? Different products? Different customers? Different territory?
If what you’ve got is what you’ve got, then use the cash flow to fund other things. Diversify. Perhaps you can’t grow your beer business but that doesn’t mean you can’t grow other business and financial assets. There are lots of businesses out there; there is more to the world than beer wholesaling. Plan and execute. If you don’t plan, when an opportunity presents itself you will not be ready to move since none of the groundwork will have been done.
But also don’t forget, you may not like where strategic analysis points. So what?! … I’m not overjoyed my hair is falling out. What does either point have to do with reality? It is what it is.
For those employees reading this, remember that consolidating industries throw off “excess” employees. This is where a lot of the cost savings come from… fewer people. If you combine 2 distribs, you don’t need 2 General Managers or 2 Sales Managers, etc. etc. Have your own personal strategy. Again you must plan ahead. If you find yourself in a position where an MBA or advanced training would help, you have to already have those skills. When the demand is there, you must already be prepared to meet this demand. Planning. Strategy.
Make use of all the training provided by your suppliers. It’s free! Take it to heart. Practice it. Consciously work to be better at your job. Consciously work to expand your scope of knowledge. I know no one has the time, but the dedication to get a BS in business (or operations or finance) or an MBA or whatever is well worth it over a lifetime. Start a program and take a class or two at night, every semester and you will be amazed at how quickly that degree arrives in your hand. Then when the opportunity arrives you will be ready for it.
Remember whether in business or your personal lives… ultimately you may or may not achieve your goals – this is often ultimately beyond our power to control… but without strategy it is highly unlikely you will end up where you desire.