Time to batten down the hatches or turn up the heat? Part 3
Well at this point you and your management team have hopefully analyzed every aspect of your business… squeezing those expenses you can control… and even more importantly, analyzing the design and operation of your business to maximize both the short and long-term ROI on the assets employed. All other things being equal, he who gets the best returns from the assets employed (be it trucks, working capital or people) will win… and of course hot brands help make everyone look smart but that’s another story.
Pricing is also an area of possible improvement. Can you squeeze a few more percent of gross profit while not negatively affecting sales? Remember that beer, wine and spirits are very much image products… in many ways they are a statement of who and what you are. Not every buyer is a price shopper. We all want value but perceived value might be paying top-dollar for a product. The price-driven consumer does exist and somewhere in your brand mix you should provide value to this person… but you don’t have to price your entire portfolio as though everyone thinks this way, they don’t. For those wholesalers who have an extensive brand portfolio, segment your brands even farther… with a “premium”, “average”, and “value” pricing option in each category. Work with those suppliers who will work with you.
Take another look at working with more supplier money. In a multi-brand house, suppliers are always fighting for share of mind from the sales and merchandising force. Well, nothing’s free. Have them compete to be included in your monthly sales rep’s incentive package. Not with some additional money for the rep, but rather the incentive that’s part of the rep’s structured compensation system. Get it? Their money, not your’s.
Perhaps revisit some past decisions. If you aren’t making any money in single serves, perhaps you should pull back in this area as part of a larger strategy. 30 packs? Draught? Remember that there will always be some friction between brewers and wholesalers. For a brewer, volume is profit. For a distributor, volume is cost. Work to ensure this remains balanced and not heavily skewed to one side or the other. But whatever you do, ensure it is done as part of a coherent, comprehensive strategy, not just a collection of single, non-connected decisions. Many suppliers could take note of this last statement.
Want to find “easy” money? Take a hard look at how much old beer you write off each year. It comes straight from the bottom-line. Ditto for shrinkage and damaged product. Take a hard look at your policies and procedures. I know many wholesalers attempt to solve the problem of over-age product by charging employees for it… “Someone will pay and it won’t be me!” This can work but often it creates more problems than it solves. Often a better attitude is we don’t charge employees for over-age product, we replace them.
Make a point to let your employees understand the economics of your business… the public school system does an abysmal job of teaching even basic economics (and reading and math and history and English and thinking but that is a rant for another day). Often employees think you pocket that $15 for a case. Remind them that you have to purchase that case first. Often a simple visual display in an employee area can effectively make this point. If your gross profit is $3 for each one of those $15 cases, then you must sell AN ADDITIONAL 5 cases to make up for every damaged case… every case of old beer… every case of “lost” beer. That’s an additional 5 cases just to be where you would have been if these other things hadn’t happened! The employees (and managers) need to understand this ratio works strongly against you. 25 cases of old beer? 125 cases of additional sales just to be where you would have been. 100 cases of end of month shrinkage (heck if I know what happened to it), 500 cases OF ADDITIONAL sales just remain in the same place.
And it goes beyond just product. A “minor” fender bender or a trailer door damaged in the warehouse… $3,000 cost equals 1,000 additional cases just to be at the same place as if the accident never happened.
And of course the employees need to understand this $3 per case gross profit doesn’t just magically flow to your bottom-line. This $3 has to cover every single expense of the organization, and hopefully some profit too. Help your people understand and you may be amazed at the change in philosophy when handling product. And think about product security. When I see beer stacked on a pallet, I don’t just see beer; I see $20 bills stacked there too. Look at your inventory control procedures. If it were $20 bills rather than beer, would your policies and procedures be the same? Why not? Perhaps it is just a statistical blip, but I am hearing of a lot more significant employee beer thefts… often with collusion between multiple departments. Make certain it doesn’t happen to you.
But at some point you will discover there is only so much you can cut… only so much you can squeeze. What if looking down the road this still isn’t enough? Obviously the easiest way to increase profitability is to run more products through your existing “machine”. As long as the cost of dealing with this new product doesn’t exceed the additional revenue, it is at least on paper a winner. But don’t forget the intangible costs. There is only so much management (and sales force) share of mind, it is not an endless supply and these additional products often do have some significant intangible costs. Brand success generally solves this problem but picking the winners from the losers is far from an easy task, and unfortunately the costs come first… the profit may or may not ever arrive.
And if you do stray into the non-alcoholic world, the greater your success often just hastens the day the brands are pulled from you. This doesn’t mean you shouldn’t enter the NA world, it is just one of many facts you will need to include in your analysis. Perhaps selling other products to new account-types? It can be done but it is generally difficult to have the profits exceed the costs. Expand into other territory with other products? This can work if you can high-spot with a product with some consumer demand. If you greatly expand your account base it is again generally difficult to have the profits exceed the costs
Since the vast majority of our business is with licensed accounts, look to products which also go to licensed accounts… wine and spirits. But in most cases, you will somehow have to provide state-wide coverage to be a real player in this world. I’ve beaten this horse, here and here and here and here and here and have tried (so far unsuccessfully) in 3 states to build a state-wide association. In each case different strategic views and/or owner pigheadedness (I really have a subtle way, eh?) have stopped these from occurring. It makes herding cats seem like a walk in the park! ;-) But some day I will get one built with the right strategy and they will then take off around the country - or so I predict ;-)
If you haven’t already done so, you need to develop a formal product addition and deletion policy. Spend some time and determine what product and supplier criteria your organization and strategy require before you accept additional brands. From a cost cutting perspective, on an annual basis review brands and packages for deletion. A simple 12 month ranking of sales by brand or package is the best place to start here. Obviously you just can’t whack all the slow movers since there are political issues you must confront… you get the 2 good brands but the supplier also wants you to carry the 5 dogs. Also there are simple market issues… is it better to keep the dogs rather than give them to your competitors and have them use the products against you? Again, it depends. There is more to this decision than just volumes but there are a lot of costs tied to these slow moving products. Take a hard look and come up with a formal policy which meets your strategic and market goals.
Selling is always an option and I’d be running towards the door in 2008 if I could get a premium price for my business. I don’t wish this to be true but facts are facts. But decide right now, am I staying for the fight (and can I?) or should I get out now. The absolutely WORST decision you could make is the crap, “oh, I think I’ll sell in a few years”. This would be the most freaking stupid choice you could make (is that a strong enough statement of my feelings?)… tremendous down-side risk with little (any?) upside. Please don’t take this path. Other than the old “I don’t want to right now”, there is generally no business justification for this decision… and since when did what any of us want have any impact of the various realities we face? If you are going to stay, then stay and plan accordingly. If you are going to go, then go now, not at some undisclosed time in the future.
Don’t want to sell, and can’t find anyone to buy? Take a hard look at a merger or shared services. Operationally they almost always make sense. There has to be a lot of trust, and compromise will be required from everyone, but 80% of something is generally better than 100% of nothing. Been there, done that. There are a lot of benefits to being larger… pulling better suppliers, more power with suppliers, economies of scale throughout the organization, many more career paths for your employees, the ability to attract and retain more skilled employees… ultimately the ability for everyone to make more money. But much like a handshake, someone has to be willing to stick their hand out first.
And of course doing nothing is also always an option. I’ve heard more than one wholesaler state, “even if it went away today, I’d be set”. That may be a true statement but it most certainly is not the way to run a business.
Next post – some warm and fuzzy thoughts on change