Cage Match and Happy Couple... Inbev A-B and Miller/Coors
Following are some random thoughts for this time of significant change in the beer distribution business.
First, other than cheering from the sidelines there is little you can do regarding the InBev move. Whichever side wins, and I know who you are all cheering for, A-B will exit the process as a different company. Please note that different does not necessarily mean weaker… it means different. Significant cost-cutting is going to occur no matter who is running the show. This too isn’t necessarily good or bad, it depends on how it is done. I have re-organized many, many companies and in almost every case we build better, more effective and efficient organizations which operate at a much lower cost. Stronger sales organizations, delivery, warehouse, office… everything. It can be done.
And if the 4th and his team do fend off InBev,
they will have a relatively short window of opportunity. It’s going to be all about stock price – as
it is with all public companies – and this is going to be a difficult
game. Facing a very down stock market,
high energy costs, and the prospect of a significant world-wide economic slow
down, the 4th and his team most definitely have their work cut out
for them. This cost cutting is a major piece
of their strategy to increase the value of A-B.
From my far removed perspective, A-B has always retained what I would
describe as an old, successful, wealthy business culture. Most large, successful companies in this country
Since there isn’t a dang thing you or I can do about this A-B versus InBev cage match, what should you do?
· In almost every A-B distributor I’ve ever been in, there is a some degree of organizational fat. Use the upcoming supplier-level cost cutting as cover and do the same to your organization. Now. Not some day, but now. Far too many A-B distributors have also historically thrown people at problems. Far too many A-B distributors pay $60K plus employees to do $30K work. It might make it easier to run an organization in this fashion but it is awfully expensive. Step back and look at your organization anew – of course with my expert assistance – how would it be designed and operated if it just became yours today? A completely new organization… the roads are where the road are, the retailers are where the retailers are… how would you design your organization to face the reality which confronts you? I’ll bet you it wouldn’t look like the organization you’ve got today. With the cost cutting that is coming, regardless of who wins, use it as cover and remake your organization… stronger, better, more efficient and for less cost. It can be done. Call me and let me help… the payback for my services is generally measured in the months.
· Don’t over-react. Now is not the time to panic and make unwise financial moves. Now is not the time to make decisions based on emotions. I have no idea what an InBev win means to the A-B distribution network, and neither do you. One can guess but that’s all it is, a guess. They aren’t going to pay almost $50 billion only to actively work to hurt what they just paid a boatload to acquire. I have no idea what an A-B win means to the A-B distribution network, and neither do you. The status quo is out the door regardless. The old A-B simply doesn’t exist anymore. In times of great change clear thinking, good strategy, and flawless execution are what is required. Park your emotions at the door and think and plan.
· That said, the A-B distribution network is quite ready for serious consolidation. Since that requires both a buyer and a seller, perhaps now is a good time to take the money and run. Start with a simple analysis with your financial advisor (or me)… compare the financial benefits you (and your family) are presently receiving with the expected after-tax proceeds from a possible sale. Why would you sell a financial asset if the sale of that asset results in less $$ over both the short- and long-term? Of course you have to factor risk into this analysis but it shouldn’t be too difficult to arrive at a broad brush range. In fact you can use this analysis to “back into” a floor for a possible exit price. On the buying side, dynasties are going to be built as this consolidation occurs. And exits will happen because some folks are going to want to leave, whether InBev wins or not. Learn from the Miller Coors folks… consolidation is a big, long-term chess match and passing on opportunities today most certainly will bite you tomorrow. These choices have extreme long-term impact. Not wanting to pay the price has positioned many MillerCoors distributors as exiting the business at some point in the future… whether they are aware of it or not. It is a sad day when they finally open their eyes and see that they are screwed. Don’t let it happen to you.
You too have little to no say in the Miller Coors joint venture. Although A-B is hyping the upcoming disruptions, I don’t see why there will be any. In any significant change there will always be some problems… you are dealing with complicated systems and people. There is bound to be a hiccup or two along the way. But significant disruptions? Unless someone really screws up there shouldn’t be any. Of course the contract is a big issue. I’m asked what my guesses are all the time. If I was writing the thing it would be very one sided in my favor. ;-) Step out of being a wholesaler and put yourself in their shoes… wouldn’t you write it in the same way? And if any of the terms are just too much for you to take, I’m certain they can find a willing buyer to relive you of your contractual obligations ;-) Such is life.
But overall one has to believe this new entity is going to be a significant net plus for Miller Coors distributors – other than of course those unconsolidated markets where somebody is going to be shown the door. Who knows, they might even try to force some additional consolidation in other markets too. Supplier level on- and off-premise chain performance has got to improve. Just as a passive observer, A-B has kicked butt in chain sets for quite some time now. Marketing dollars will probably go up as MillerCoors puts some of those savings back into marketing. Might even be a few good employee opportunities as they shed excess bodies. Of course merging cultures will take some time… imagine shooting at an enemy for years and years and then overnight being told the enemy is now part of the team. It takes awhile to adjust for all sides. Most of you have experienced this before with past brand acquisitions. It takes some time and there will be dust-ups and hurt feelings but as time rolls along, these things too shall fade.
Other than the contract which is still an unknown, the MillerCoors JV should be a strong plus for the Miller Coors distribution network. So what to do?
· For most of you it won’t be a major change. But now might be a good time to step back and re-examine your organization. Over the past few years many of you have had some great profits, mainly due to an increase in GP % driven by imports and crafts. Too often organizations also expand as their gross profit pool grows. This puts them in a precarious position if and when gross profits decrease… a slight decrease in gross profit % can cause an immediate and significant decrease in profitability. Some of you have far too much specialization… see above about throwing bodies at problems. All specialization comes with additional costs… make certain these benefits exceed the costs.
· Regardless of your gross profit, strive to run a lean organization. There are many benefits, both tangible and intangible in molding a lean, efficient culture.
· If you have any acquisition plans at all, pay down debt. Opportunities generally just appear. You don’t have years and years of lead time to prepare… so you have to have an organization (and financial capabilities) that are ready to take advantage of whatever comes your way. You might only get one chance and being burdened with debt takes away a great deal of flexibility. How do you pay down debt quicker? See the first two points above.
· Examine the changes the JV will bring to your organization… take the time to consciously examine every area which changes in your organization... ensure the time savings are put to some new use, not just absorbed into normal day-to-day work flow. If you don’t, most of these time savings will simply disappear. I doubt if most of you can save any bodies, but perhaps.
Lots of change in the beer business and if history is a guide, there are probably more shoes to drop. Once these consolidation dances start, often almost everybody becomes involved in one way or another. But as distributors there is only so much you can do. Focus on what you can control… ultimately it always come down to the same thing… running an efficient and effective organization.