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June 2017

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« A Political Rant | Main | Is Change a Threat or Opportunity? »

Now for something completely Positive!

I guess my Johnny Sunshine reputation is getting the best of me… because for some reason I’ve had a couple responses which generally state “can’t you say something positive for a change!”

 

And my reply is… Yes I can!  Years ago a friend was attempting to categorize my twisted mind and she finally nailed it… she said I was “positive in a negative sort of way”.  I think she got it right on the mark.  And I am positive… I am thankful for every breath I take… if I’m still kicking, I’m a happy camper.

 

First and foremost, the beer/beverage distribution business is a great, great business.  Yeah we all hear how it’s not as fun as it used to be, but it’s still pretty dang fun… and more importantly, pretty dang profitable and stable.

 

And as we all know, people are going to continue to drink beer… and someone is going to have to warehouse, sell, deliver, and merchandise the product to all those licensed accounts out there.  Until we get to the Star Trek world where matter can be transported from here to there, someone is going to have to do this.  In addition, the feds and the states are never going to tire of the tax benefits of beer… thus guaranteeing a fairly firm hand on the movement and sale of this product.  They like their tax dollars and they are not going to let anyone else in on their pot of money.

 

I often hear from wholesalers grousing about critical mass… and I can understand their frustration.  It’s like chasing a moving finish line.  You have to be at least a 1 million case distributor to be sustainable… then 2 million… then 3 million… and it seems on and on it goes.

 

But let’s get real.  I was recently talking to a high market share distributor who does around 5 million cases per year and he was concerned about his future.  My response was it would take the freaking Armageddon to create a situation where a distributor like that wasn’t viable.  In effect the entire beer distribution business would have to almost cease to exist for him to become a non-viable entity.  This is true for almost any distributor of size with an adequate share of the gross profit pool.

 

Heck, there are A LOT of small distributors out there who have no debt (that’s a huge plus) and who are very profitable… and will likely remain so for as far as the eye can see… and many more who might not be that profitable but who are still earning a pretty good living for themselves and their family.  Now might everyone’s profitability decrease?  Sure.  Might this also drive a corresponding decrease in values?  It theoretically should BUT, and this is a big but, these are very strategic assets.  This is a very long-term chess match and passing on almost any move can have serious repercussions down the road… thus it sure looks like values for most distributors will remain high… or counter-intuitively, actually increase in value… especially where there is more than one player for the strategic asset. 

 

I would have thought they would have come down some time ago but I have to admit I underestimated the strategic value each distributor has… imagine a giant and very fluid jigsaw puzzle… each piece is very important and if you pass on one, the odds are you will never get another chance at it… and the entire shape of the puzzle changes, permanently.  If you want to grow, you have to play.  Will there probably be fewer beer distributors tomorrow than there are today?  Sure.  But this is neither good nor bad, it simply is.

 

In addition, beer distributors have an incredible distribution machine whose frequency of contact at licensed retail exceeds any one else… and you already have the cost structure in place to support this.  Maybe, and this is a big maybe, in some markets someone else might match your service to large grocery chains (most likely only bottlers) but in smaller chains, c-stores and on-premise, you are the undisputed king.  This is a tremendous asset which can be leveraged in many directions.  Toss in your investment in fixed assets, technology, working capital, market knowledge, and your people, and you have a freaking astounding and powerful beast.  People are looking in every direction to leverage this asset… and many non-beer manufacturers are opening their eyes to the power of the beer distributor.  Truly who knows what the future holds?

 

Will all of this lead to change?  Of course!! Change is the only constant.  It occurs all the time, whether we know it or like it.  What is the “right” course?  That depends on the future that comes.  If the future goes one direction, a decision you made might make you look like the smartest guy on the planet.  If the future goes in another, the exact same decision will now make you look like a fool.  Don’t lose sleep over it… make you best call and move on. 

 

My goal as a professional advisor is to help analyze these possible changes and ensure you move forward with your eyes wide open… whether it is the sale of your business, a merger, an acquisition, or just a re-organization... ahem, all of which I can help you with ;-)… yes, a shameless plug for my services. 

 

Whether I agree with your decisions is not important… what is important is that you are knowingly making these decisions… not just letting things happen to you… preparing for our best bet of the future before it gets here… and having contingency plans just in case another future shows up on our door steps one day.

 

Also, please remember the nature of what I am paid to do.  When I used to do an analysis of a distributor (I generally don’t any more since I find them of little value for my clients… other than as a tool to sell additional consulting services… that’s a fact, Jack!)… Anyhow, when I’d present my report my client and their management team would often get rather gloomy… “geeze, it seems we aren’t doing anything well”.  I would remind them that they are paying me to come in and focus on problems… on areas of potential improvement.  Therefore the tone of the report is generally negative… not necessarily as a reflection of their performance… but as a reflection of the focus of the effort.  If you’re kicking butt and taking names in area X, I’ll note it.  But the bulk of my discussions will be on where you are getting your butt kick or missing the ball… thus skewing the “negativity” of the report unless you realize this up front.  As I remind them, if you want me to spend a week cruising the market, drinking beer, and telling you how great you are, I’m your man!  But generally people baulk at paying me to do this.  Guess I need to work on my sales skills.

 

The same is somewhat true on my blog.  I paint with a very broad brush and attempt to get people to think about the future… not just next week but next year and 10 years beyond that.  What information do we have today which can help us prepare for whatever comes down the pike?  How can we use this to our advantage, today and tomorrow?  And very importantly, I refuse to let people hide behind happy thoughts like that can’t happen to me or that will never happen.  I don’t know what will or won’t happen… all I can do is be as prepared as is possible for every possible future that might come my way.

 

There… are you happy?  Now can I get back to my curmudgeonly self?  ;-)

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