Who's Your Daddy?
A conflict of paradigms, or to put it in my usual professional manner… who’s your daddy? For all you ABI distributors, that question has been answered… or at least ABI corporate is trying to answer it for you… THEY ARE. Do you see the Slaughterhouse doors right there in front of you? ‘Cause if you don’t, you aren’t looking.
It is truly amazing the paradigm that has been established here. For those in need of a refresher, the Free Dictionary describes paradigm as:
A set of assumptions, concepts, values, and practices that constitutes a way of viewing reality for the community that shares them
It’s basically a framework through which you view the world. As an example, one paradigm was once the world is flat. It of course was replaced by the reality-based paradigm, the earth is round. This is an important point… paradigms can and do change. New facts change paradigms… Newtonian physics to relativity. Personal growth and observation can change paradigms… one’s political beliefs might have at one time been big government socialism but based on real-world feedback they evolve to small government libertarianism.
So what is the specific paradigm I am discussing? The paradigm that independent businesses which distribute ABI (and in the past AB) products are by definition THEIR distributors. Miller and Coors never really had this paradigm.
Let us take a mental field trip and think about the evolution of the beer wholesaling industry. Anheuser Busch wasn’t always dominant. There are more than a few distributors who long ago decided to go with Stroh or MisterBrau (or someone) and dumped AB. But over time AB did gain dominance and in this process it created the paradigm… AB distributors were part and parcel THEIRS. Ownership was separate but that was about it. Remember that paradigms are mental frameworks… for all non-science based paradigms; they exist because we allow them to exist… and over time this paradigm took hold, pushed aggressively by AB corporate. Miller and Coors would have probably also liked to create this paradigm but their market situation was much different than AB’s.
In all honesty more than a few AB wholesalers actually enjoyed this paradigm. They didn’t have to think about their businesses… they didn’t have to plan too much… they just sat back and let good ol’ AB tell them what to do and it worked out pretty well for them. Well if you haven’t noticed, good ol’ AB has been put out to pasture and the new sheriff in town has very different plans for you… to say nothing of a rapidly changing consumer market which doesn’t necessarily favor the offerings of ABI.
But don’t feel too bad, AB corporate and more importantly Three Sticks, were very good at creating and propagating their desired paradigm. They did it “upstream” too. Although the extended Busch family owned only a fraction of the shares of Anheuser Busch, the stock market allowed them to run the thing as their own private family business. It was incredible to behold.
Note the concept of creating and propagating their paradigm. Well as time went by and the marketplace changed…
- Miller and Coors distributors became one in most markets, thereby increasing their financial strength and impact at retail. For years AB distributors laughed all the way to the bank as the Miller and Coors guys fought over “their” remaining share. Being a 60 share distributor competing against 25 share and 15 share wholesalers is MUCH different than competing against a single 40 share distributor.
- A lot of very high profit product within a more diverse portfolio was also included in this 40 share… over time this made the MillerCoors distributor the gross profit dollar leader in many markets. To top it off in many markets the AB distributor sold A LOT of less profitable sub-premium product.
- The MillerCoors distributor continued to get A LOT better and became much more competitive. The net result was in many markets the MillerCoors distributor organization was much better at being a true multi-brand distributor than their AB competitor. As I remind both, it’s not that the MillerCoors people were inherently superior… they simply faced a reality of becoming better or dying… and this has a tendency to focus one’s mind ;-)
- The growth of imports and even more importantly, the craft beer segment continued year after year… by now I hope it has ended any confused thinking that this is some sort of short-term fad. And with AB’s paradigm, the vast majority of this product went to the MillerCoors distributor. Thereby increasing their power at retail in the only really “hot” segment of the beer category… and greatly increasing their bottom-line.
- And expanding beyond beer, the energy drink category (and others) was also putting down pretty good roots during this time… again feeding the MillerCoors distributors.
These and other factors slowly challenged the validity of the AB desired paradigm… that “they are your daddy” and know best. Over time many AB wholesalers broke from this paradigm and guess what? The sky didn’t fall. The world didn’t collapse. They got a little grief from AB (in some cases more than a little) but they went about their business and many became more competitive, great multi-brand distributors. And this momentum gained. It made tremendous strategic sense from the AB distributor’s perspective… leverage your already impressive power at retail to gain the best brands available. Some leveraged this even further, using the power of an entire state’s AB distributor network to pick up brands. The paradigm that AB distributors were THEIRS for the simple fact of distributing their product was quickly being put to rest.
Ahhh, but not so fast. Along comes InBev and now we have ABI. Whether they are a bunch of “foreign corporate raiders” or not, they are much different from the past. From various ABI corporate statements, it becomes clear they would like to take over a fair amount of their distribution.
They also don’t really like this new evolving distributor paradigm and much prefer the old, who’s your daddy paradigm. Thus the recent meeting in Dallas where they yanked pretty hard on the ol’ leash. As thousands have learned over thousands years, once you allow someone to be your daddy, they don’t easily relinquish this power. Especially those who come from a very power-centric culture.
So now the question to the ABI distributor is what paradigm do you choose to live by? Is the world flat or round? Are you an independent business or is ABI your daddy? Remember, YOU choose to allow this paradigm to exist. You allowed it to exist in the past and you allow it to exist today. It might have made sense in the past but the past is just that, the past. It might have made sense when 1 out of 4 beers consumed in the country was a Budweiser… there will never be a brand like that again. The consumer has profoundly changed since then. The rear view mirror isn’t where you need to be looking; you need to be looking at what is coming at you from the future. InBev’s (and now ABI’s) history of growing brands is rather poor to say the least. Sure they can lower the price of Stella but can they build a brand?
ABI corporate’s goals are clear… the paradigm remains the same - you wholesalers are THEIRS. They are your daddy… they control you… and the new ABI corporate sure looks like it intends to make that point very clear… for some reason an old country song just popped into my head as I write this… “I owe my soul to the company store.”
But does this make sense from a distributor, or more importantly from a market place perspective? As markets continue to change, the businesses which serve them evolve (whether one likes it or not)… the net result being something better for our consumer goods industry. Better systems, more consumer choices all designed to capture market share by “giving the consumer what they want when they want it.” Unfortunately, the progress made during the ABI transition and what appeared to be a very positive paradigm shift for the once stagnant AB wholesaler network (which didn’t know how to sell high-end products and was finally gaining steam and becoming true multi-brand distributors) might be for naught. Unless, unless you stay the course.
For the ABI distributor network we believe it is the time to continue your paradigm change.
Today’s beverage wholesalers are smarter, stronger and know their business. Why? They needed to do so to stay competitive. What was a WIN/WIN paradigm for the previous generations has become a WIN/LOSE narcissistic supplier driven paradigm for the current ABI network.
Perhaps the more rational paradigm is that you are independent businesses which distribute beer and beverage products… and yes, ABI is a significant part of that business (in some cases the only part) but that still doesn’t mean you are THEIRS. You are YOURS and you should act accordingly. Of course you should do a great job for ABI products… you should do that for all your suppliers… I wrote in the last post that Carlos and company come from a “big man” culture… one big boss and almost everyone else waits for the next command; no independent consult with those who are affected the most… I think in many ways that’s the definition of a “who’s your daddy” culture. You are not an equal partner, but rather an entity subservient to your daddy’s wishes.
- Do you really want to voluntarily put that leash back on?
- Will you stay the course or will you chase the Golden Ring of being the Anchor Wholesaler? An “Anchor” wholesaler who ABI won’t identify… thus giving everyone the “chance” to chase the Golden Ring. Insidious genius ;-)
- Will you sell off brands and ignore new ones as your MillcrCoor competitor dances to the bank?
- Will you in effect force the wine and spirits houses to become a permanent big-time player in the beer distribution world?
Most of you are in this for the long haul… the folks who want to be your daddy now probably won’t be around in 10 years… you’d better think long and hard about the long-term strategic implications of what you are doing. And you are discovering… once you allow that someone to be your daddy, they don’t easily relinquish this control over you. To continue my use of offensive metaphors, it’s getting to nut cutting time and you had better decide which side of that fence you want to be on.
This quote is perhaps overused but it does capture the reality one sometimes faces…
First they came for the Socialists, and I did not speak out --
Because I was not a Socialist.
Then they came for the Trade Unionists, and I did not speak out --
Because I was not a Trade Unionist.
Then they came for the Jews, and I did not speak out --
Because I was not a Jew.
Then they came for me -- and there was no one left to speak for me.
-Pastor Martin Niemöller-
Currying favor in the hope that you can position yourself to be the last one to walk up the chute in the Slaughterhouse is simply a flawed strategy… as many have discovered.
And what of consolidation? For those looking to sell, there is good news on that front… at least a little. Since the Dallas meeting I know of a couple of unsolicited offers… these unsolicited offers weren’t “let’s start talking” offers but “I want to purchase you now” offers. These offers were based on strategy… and from a strictly financial viewpoint these offers were absolute no brainers, it would take a couple decades to earn from operations the after-tax proceeds that the seller could pocket upon sale. I tip my hat to those making the offers… they stepped to the plate and did what is necessary to ensure their vision of the future is the one that occurs.
For the rest who plan to stay I have a couple suggestions…
- Work to strengthen state franchise laws on many fronts. The more corporate can limit who can purchase, the more they depress the market price. And they more they control your lives. Work to cut these strings which they use to make you THEIR distributor. Outlaw branch operations… they are the camel’s nose under the tent… they are long-term assaults on the entire industry. And to any ABI corporate folks reading this… don’t worry about those “unprofitable” territories which “require” a branch operation… I can have willing and qualified buyers lined up today to purchase any you care to sell… so stop with the bull.
- Don’t forget your true long-term partners are your fellow distributors, even the competitor down the street. I’ve quoted it before and I’ll repeat it again, Benjamin Franklin’s famous admonition during the signing of the Declaration of Independence…
We must all hang together, or assuredly we shall all hang separately.
Follow the example of Three Sticks and create the paradigm you desire… or let a bunch of bankers who have no interest in you or the US beer distribution industry become your daddy and see how that works out. I know which choice I would make.