Part 2 - The Evolution of Beer Wholesaling

Part 2 – The Power of Connectivity…. Distributed distribution

As mentioned in part one of this series – the one action that is guaranteed to have the maximum impact on any wholesaler’s profitability is to grow and expand their brand base in their present territory.  In your present territory you have tremendous operating efficiencies – you’re already there and you’re already providing superior service.  But how do you make yourself even more attractive to suppliers?  How do you enter markets (like wine and spirits) where state-wide distribution is a requirement if you truly desire to be a significant player?  How do you make yourself more attractive to other beers?

If you read the business press these days, you will find article after article on the power of connectivity.  From the explosion of the Internet to YouTube, businesses in all areas are racing to obtain the incredible impact of this connectivity.  Beer wholesalers can also take their businesses to another level by capitalizing on the concept of connectivity and permanently change the strategic advantage to their side.

Using the concept of distributed computing as a model, wholesalers can leverage their present operational advantages in a way that makes competitive response very difficult.  Let us for a moment enter the high tech world and describe distributed computing:

“Distributed computing is a programming paradigm focusing on the process of aggregating the power of several computing entities to collaboratively run a single computational task in a transparent and coherent way, so that they appear as a single, centralized system”.  Say what?!  “The main goal of a distributed computing system is to connect users and resources in a transparent, open, and scalable way. Ideally this arrangement is drastically more fault tolerant and more powerful than many combinations of stand-alone computer systems”.  It is “a system where tasks are divided among several computers rather than having all processes originating from one central computer” and “distributed computing breaks centralized computing into many, semi-autonomous computers that may not be (and usually aren't) functionally equal”. 

The incredible success and power of the Internet is an example of distributing computing.  Think of what your computer can do when connected to literally hundreds of millions of other computers on the Internet.  Think of the information available… the communication… the reach… the entertainment… the raw power.  Now think about how much it would cost you to obtain even a fraction of that capability for a single, stand-alone computer.  Even a cursory analysis of this shows the incredible power that can be unleashed using the power of connectivity. 

How can beer wholesalers use this same concept for their advantage?  By the simple act of joining hands and forming a state-wide operating association comprised of like-minded, non-competing wholesalers.  What I call distributed distribution.  In effect, each one of the association’s members is like a free-standing computer – it is self-contained and needs no other to accomplish its tasks.  But by taking the time and effort to connect each member (via the state-wide association), the network becomes much more powerful than any single member.  And this process opens beer wholesalers to very quickly become significant players in the wine and spirits, NAs, and water markets while further strengthening their appeal to craft brewers.  All it takes is for the prospective members to reach out and grasp hands with the other members – that’s all there is to it – when this is done, magic!  An incredibly powerful network leaps into existence where before there was none – and each member remains completely in control of their entire business operation.

This association has only one goal: to act as a funnel to identify and bring brands (which meet some agreed upon criteria) to its members.  Period.  By forming the alliance, each member’s attractiveness to suppliers increases by orders of magnitude – thus gaining each member better brands and more brands than any one would likely be able to obtain as an individual operating entity. 

We’ve all heard of business synergies, where 1 + 1 doesn’t equal 2 but instead equals 3 or 4 or 5.  For a little up front effort, this network can be built and take the synergies through the roof.  Take the strengths of each of your individual markets (and each of you generally out performs your wine and spirits competitors), combine these in a low-cost network of wholesaler partners, thereby leveraging your present sales and delivery system.  You don’t integrate your businesses, each wholesaler remains completely independent – this is simply a means to expand your product line and offer suppliers instant state wide distribution.  1+1=6  But you have to take the first step.   

Use the power of connectivity to create a commanding synergy and change the strategic balance in the marketplace.  What ever state in the nation you are in, spend a minute and think about the size of this state-wide entity…

·                    How many delivery trucks does it put on the street every day?

·                    How many refrigerated delivery trucks does it put on the street every day?

·                    How many sales reps?

·                    How many merchandisers?

·                    How many square feet of temperature controlled warehouse space?

·                    How many square feet of refrigerated warehouse space?

·                    What is the size of the financial assets this monster brings to the table?

·                    100% of all licensed accounts in the entire state are serviced – the vast majority at least once per week.  Multiple times per week for those accounts which constitute the bulk of the volume.  Who compares?

Do you think you will get suppliers to take notice?  You bet they will.  Do you think it gives each member more power with suppliers?  Of course.  For those wholesalers “enjoying” the dictates of Red Bull, what if you had obtained the brand via the state-wide association.  What if instead of taking on one wholesaler at a time, Red Bull had to deal with a state-wide entity.  Do you think they could do what they’re doing today?  I don’t think so… this creates a significant change in who has the power – all by using the simple power of connectivity.

Even retailers gain by the formation of this association.  Because of the far superior frequency of account service by beer wholesaler, retailers can significantly reduce their product inventories; thus freeing a substantial amount of their working capital - for retailers it is truly the equivalent of finding money on the street – and it can be substantial.  Retailers will clamor for this association to service them – and will demand your wine and spirits competitors attempt to match your service levels – something they will not be able to do, and something that will prove to be extremely expensive for them to try.  A permanent shift in the strategic balance.

But first the wholesalers must create the connectivity by forming the association… and the good news is that the challenge is not operational – that is relatively easy – the challenge is for each potential member wholesaler in the state to put whatever issues they may have aside, and to join hands and create this monster.  Far too many wholesalers act as though their adjacent wholesaler is their competitor, even though they don’t compete at all at retail.  You must put this thinking to rest.  All those computers in distributed computing aren’t competitors, they are partners – whether they like the others or not!

And once this monster is created, it becomes a powerful tool to funnel wine and spirits products, craft beers and imports, and even NAs and waters to the member wholesalers.  With a good operational strategy (see Conlin Beverage Consulting), each wholesaler will be able to drive a substantial portion of this additional gross profit to the bottom-line… in most cases providing bottom-line increases which are a significant increase.  Almost assuredly the largest bottom-line impact of any strategic or operational choice you confront or will confront in the near future. 

Nothing else even comes close.  Instead of ignoring almost half the market for beverage alcohol products, the beer wholesaler can become a significant player in the wine and spirits space in a relatively short period of time (to say nothing of greatly increasing your desirability to suppliers of NAs, waters, and even craft beers) – you just need to join hands and set this monster loose. 

Next piece – Are you a beer distributor or a beverage distributor or ???