Bitch slapped in Dallas
“Nothing like getting bitch slapped on a Monday morning.” That’s how one ABI distributor described the start of their recent national distributor sales meeting… another, “My great granddad started this business and I’ll be damned it I’m going to let a bunch of foreign corporate raiders tell me how to run it.” Whee-doggie, sounds like a grand time in Dallas! “Never saw so many pissed off people in one place before.” And another, “I’ve never walked out of a meeting before feeling true fear of my supplier”.
Trust me… Benj and Harry kind of sugar-coated the degree of anger at that Monday meeting… they have to sometimes walk softly as to keep their sources… but I have no such limits so full speed ahead.
5 years ago who would have thought AB distributors would be where they are today?! MillerCoors distributors have had a pretty good run over the past few years, in many markets becoming the gross profit dollar leaders. With the new ABI directive back towards exclusivity (which certainly helped the MC climb), the MillerCoors folks will be dancing around their desks… tomorrow and for years to come. The value of these folks just went up.
When I first heard this was coming down the pike I thought… “this is jaw droppingly stupid”… but of course I view the world through a distributor’s eyes… and for the ABI distributor it is “jaw droppingly stupid”… but for ABI corporate maybe not.
For those who are unaware, ABI doesn’t believe it is getting adequate focus on their brands from their wholesaler network… I guess in their view the reason Bud and Bud Light are down is because their wholesalers aren’t performing… they’re losing focus as they chase other brands and suppliers. Sorry corporate guys, you’re barking up the wrong tree if you believe that. Look at Coors Light… it is sold and distributed by wholesalers with MANY other brands but somehow it is growing.
Therefore ABI wants to head back to the “100% share of mind” ranch for their distribs. They use other words but that’s the gist of their desires. And anyone audacious enough to compete against an ABI branch operation with non-ABI brands is an insidious swine or some such thing ;-) Ditto for selling products outside your territory against other ABI distribs. For those who have forgotten or missed it the first time, please read my little ditty called “The Slaughterhouse… a Modern Fable” which you can find by clicking here to get a better understanding of how this game is played… and if you are not careful, your role in the game. Right now I think they are trying to line you all up in the loading chute ;-) I certainly wouldn’t voluntarily walk onto the killing floor… metaphorically speaking of course.
So where to start? Let’s just jump in and see what floats to the surface. First, I don’t know of any ABI distributors who are planning on selling off brands… but there will probably be a few – give me a call and Steve Cook and I can help you maximize the price.
But for most that ship has already sailed. For those who are willing to sell brands, they will most likely find a willing buyer in their MC competitor… who will laugh all the way to the bank.
How about Yuengling? Whether corporate likes it or not, Yuengling gets AT LEAST 50% of their volume out of ABI’s hide. Now if that’s going to happen regardless, the ABI distrib is MUCH better off with it in their house rather than MC – sorry all my MC clients, just talking strategy. If it’s in the ABI house they will trade 50% of the Yuengling volume from their other brands and gain 50% from their competition. If Yuengling “only” gains 5 share, the ABI house gains 2.5 share… not too shabby. But if it goes to the MC guy, the ABI distributor losses 2.5 share… a 5 share difference in the two outcomes. What if Yuengling gains 8 share? And guess what… the Bud handle is generally the most vulnerable handle out there (if you work the streets you know this to be true)… I know the wholesaler’s sales reps would much rather be able to keep that handle in their house rather than losing it to the competition. But from ABI’s perspective maybe this will make the distributor work that much harder in an attempt to regain this lost share.
And what of providing state-wide coverage for a supplier? This has been shown time and time again a better strategy for obtaining quality brands than a market-by-market approach. In the ABI network the Tennessee folks were the first to pull this off with none other than Yuengling. The strength of state-wide coverage is indisputable… it is much more in line with what many smaller suppliers desire. But here’s where the ABI corporate strategy becomes genius… insidious perhaps, but genius none the less.
With this one move ABI corporate has made the possibility of a state-wide ABI distributor network push for a supplier very, very unlikely. Why? In all likelihood there will be AT LEAST one wholesaler who won’t want to buck ABI… for whatever reason. They may be chasing that carrot that they will be the chosen anchor wholesaler who will be approved as the chosen consolidator. I think a metaphor for this dream is captured by the cartoon strip Peanuts where Lucy continually pulls the football away from Charlie Brown’s attempted kick… only to have Charlie Brown attempt it again and again. But of course someone will be this consolidator… perhaps this one time you will be the one to get the carrot. Talk about betting on the come. This course of action will require a lot of trust from the wholesaler… and sadly, trust of ABI corporate at this point in time is very low. That’s true for wholesalers AND the bulk of ABI employees.
Others won’t join a state-wide push simply out of fear of retaliation. Whatever their reasons for not participating, it will be very difficult to put together a state-wide ABI distributor coalition in any of the continental states. The MC network will be dancing to the bank. That’s just the way it will be. If the remainder of the ABI distributors in a state want to forge ahead, they will have to be creative in filling the hole left by the non-participating distrib. And of course ABI has already stated their feelings on distributors who go into other’s territory… it will take some gutsy adjacent ABI wholesalers to do this. Or the ABI folks will have to consider having the MC distributor (or someone) fill this hole. Add these all up and in one single move, ABI has just fundamentally changed the landscape for attracting new brands… in my opinion to the severe detriment of ABI wholesalers and to the extreme benefit of MC wholesalers. But as I noted above, this may be jaw droppingly stupid from a distributor’s viewpoint, it is insidious genius from corporate. You ABI folks WILL focus on ABI brands since corporate’s actions have severely limited your ability to attract other suppliers. You’ll have few other choices. Freaking genius.
And of course any state where ABI has a branch operation is similarly screwed. How do you fill this hole from a potential supplier’s viewpoint? Anyone audacious enough to compete against a branch operation is an insidious swine, or some such thing ;-) Looks like my MC clients will be pocketing a lot more gross profit dollars as suppliers will again find they have few other places to go. I think the wine and spirits guys will also win as they find more and more desirable beer brands coming their way. Is this good for the beer business? Does ABI corporate give a damn? Why should they? Their motto has changed from “we’re in the business of making friends” and creating a Win/Win with our business partners to “we’re in the business of making money” and we Win even if you Lose.
Although it won’t change a thing, I’d like to recount my early experiences in consulting to the beer distribution business. ABI corporate is concerned about FOCUS, let me tell you about focus. When I first started in this business in the mid-80’s a lot of my first jobs were working with Stroh, Pabst, Heileman, etc. distributors who were fighting for their lives. I remember one owner who noted he was afraid to bring me in since he didn’t want to scare his employees with how bad things might be. As I told him, your employees knew you were in trouble probably before you did. Your folks aren’t stupid… a driver used to put off 500 cases and now he’s putting off 250… he, and everyone in the company knew. They had EXTREME focus… every employee knew everyone’s jobs were on the line. Although it was very difficult to keep morale up, every employee had extreme focus. Yet where are these distributors today? They were sold. There is a hell of a lot more to it than focus. And anyone who doesn’t believe that an AB distributor bleeds Bud doesn’t know distributors. Or at least they used to bleed Bud. But ultimately the consumer must want to purchase what you distribute… as a wise beerman once told me, the last 12 inches are the consumers. THEY have to be the ones who reach into the cold box (or across the bar) and grab the product.
As I freely note, I am a mercenary who works for whoever is paying me for that week or to complete a transaction. So in the beer world I’ve worked with Miller folks, Coors folks, MillerCoors folks, and of course ABI folks. And from an unbiased, don’t have a dog in this fight, perspective… AB had the most loyal, dedicated network of wholesalers in the entire country. This loyalty was an amazing thing to behold. THIS LOYALTY WAS BASED ON TRUST; a trust that both parties would do what’s right to succeed. AB distribs would do things that were clearly not in their short-term interests simply because they trusted AB (and AB make most of them rich). I think the entire beer industry used to stand back in awe at this loyalty… and strength. AB wants 100% distribution? The wholesalers would click their heels, salute, and go get it done. Simple as that. In a short period of time ABI corporate has thrown this trust in the trash can… or are in the process of making the throw ;-) I believe it is a profound mistake... but again, I view things from a distributor’s perspective. And once loyalty is lost, it will not be easy to re-earn wholesaler’s trust. But what if loyalty is over-rated?
Loyalty (trust) or fear (lack of trust)? Both can be used to motivate someone over the short-term but only loyalty will work for the long-haul. ABI corporate clearly thinks fear is a better choice. I think this is a reflection of culture. In a past business I traveled extensively in Mexico focusing on high-tech businesses. It was an amazing, eye-opening experience. I’d walk into a company with 100, 200 professional employees and only the boss would have Internet connectivity! This was the norm. NO ONE else would have it. In the rare occurrence where employees had some access, there would be a communal table (much like a library but with less privacy) where a few computers set offering Internet access. It is a reflection of their culture… note to us, everyone doesn’t think like we do. It is not a collaborative, warm and fuzzy management style… it is a “big man” culture where there is one big boss and almost everyone else is a peon. You can see it clearly in Latin American companies, in their politics, in most areas of life. Carlos and company come from the “big man” culture. And they treat their employees (and their distributors) from this cultural perspective. This isn’t a moral thing, it’s just the way it is.
As I understand it, few ABI employees below Peacock knew of this new push toward exclusivity and the planned tone of this meeting until the actual distributor meeting! Obviously these folk’s opinions were neither asked nor desired. I find that shocking but this is clearly not an American-type culture. ABI corporate is an international company run by a few Brazilians. Guess what? That ain’t going to change, whether you or I like it or not. And to top it off… the very, very top of this company is awaiting a tremendous payoff (is it $1 billion or $2 billion?)… I’d guess walk away money for all of them. Their idea of long-term (if it even exists) is MUCH different than a distributor’s idea of long-term. Their great granddaddy didn’t start their company and they frankly don’t give a damn about your granddaddy.
And the insidious genius of their plan follows this culture… they don’t have to convince the majority of you… they only have to co-op a few with dreams of being the chosen distributor… or a few with fear… or a branch here and there… and it accomplishes their goals regardless of what the majority of the ABI distributors want. Jaw droppingly stupid or genius… depends on which end of the stick you are holding. And what are you distributors going to do about it? You have very little power in this game… “here’s where the line forms for those who want to sell… otherwise shut the hell up and do what we tell you.” ABI is dismantling the strongest, most loyal distributor network the country has probably ever seen (sorry MC folks but you know it has been the truth… note the past tense). And once that toothpaste is out of the tube, it is impossible to put it back. The ABI distribution network is going to be left tattered and torn while a handful of corporate big dogs pocket an amazing amount of money. I can guarantee you your granddaddy is rolling in his grave. Amazing times.
My gosh, think of markets where craft beers have a 30 share. Under the new ABI push, the ABI distributor will get what, maybe 5 share?! Maybe. That leaves 25 share for their MillerCoors competitor! 25 share of VERY high margin product. That is a HUGE profit pool. But I guess it will force the ABI distributor to focus on ABI products… what other choice will they have?
What about Yuengling as they continue their expansion? Are they going to be comfortable going with ABI distribs when they know the strong feelings of their major supplier… and if push comes to shove, is the wholesaler going to go with a supplier who is perhaps 5% of their business… or the supplier who is 95% of their business? Not a tough call.
The same is true with all new brands as they examine their distribution choices… it just got A LOT harder for ABI distributors to make their case for new brands and suppliers. And the genius of the ABI corporate move is that it ultimately doesn’t matter what an individual ABI distributor says… the damage is done… their actions will limit distributor choices regardless. Jaw droppingly stupid or insidious genius?
I’ll write more of this in a future post (or hire Steve Cook or me to help you design and build it) but my advice to the MillerCoors folks is to prepare your companies for this new future… you’ll have to develop an organizational structure which allows you to fully sell and support ALL of these new brands and suppliers. It sure looks like many will be coming your way. Don’t give them any excuses and force them into a wine and spirit house. Grab the opportunity that insidious genius provides you. State-wide associations? Get them up and running NOW. The next year or two is going to shape the beer distribution world like never before… as I’ve said before, grab the future by the throat and ensure the future that comes is the one you desire.
And for ABI distributors… yikes! Yikes indeed.
This thing is getting a little long so we’ll end it now and continue in the next post… a Morgan Stanley analyst thinks ABI corporate can “source” $1 billion from wholesalers in what he calls a “win-win” for both corporate and distributors. He is missing one thing… culture. Why in the world would he just assume ABI corporate desires a win-win? He’s putting his cultural bias on top of a culture which doesn’t think like he does. A fatal mistake…