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« Part 2 - The Evolution of Beer Wholesaling | Main | Part 4 - The Evolution of Beer Wholesaling »

Part 3 - The Evolution of Beer Wholesaling

Part 3 – Are you a beer distributor or a beverage distributor or ???

I strongly believe that all business success (or failure) begins at the strategic level.  Without clear, focused, and well thought strategy, failure is almost guaranteed… although I am a firm believer that luck is much better than skill.  If I can only have one, give me luck anytime ;-)

And one of the first steps in developing a strategic vision is the determination of ‘who you are”.  This is not as easy as it sounds.  Even minor differences in determining “who you are” can lead to very different visions, and very different courses of action.  And of course there are two ways to look at this – “who you are” and “who do you want to be?”  Sometimes they are the same.  Sometimes they are not.

Beer wholesalers have been confronting this question of “who they are” for some time now (whether they know it or not).  Are you a beer wholesaler?  Beer and wine wholesaler?  Beer and NA wholesaler? Full-line beverage distributor?  What?  Is this where you want to be?  Is this where your future lies?  Far too many wholesalers have let this definition evolve by chance. This or that opportunity came along and they went with it – profoundly changing their “who they are”, often without them even knowing it.  This is poor corporate planning and can lead to costly failures.  And not just in the new opportunity, but in your core business as well.  There are only so many manager minutes or sales rep minutes available in any day.  Spending them on X means they can’t be spent on Y.  Lost time, lost focus, much higher costs than expected… all can and do occur. 

So, who are you?  The vast majority of beer wholesalers have already abandoned being strictly a beer wholesaler.  Whether energy drinks or waters or some other NA product, most are evolving into something different, something more complex (the same can be said of many suppliers)… and hopefully something more profitable and long-term sustainable. 

For many A-B wholesalers, tied into this entire analysis is the fundamental issue of do you stay exclusive?  If you do, the issue of “who you are” is pretty easy… it is who A-B says you are.  A-B has expanded the actions wholesalers can take and still remain officially exclusive, but in long run if you stay exclusive the vast majority of your brand/category decisions will be made for you.  I’m not saying this is necessarily wrong; it is just the way it is.  I talk to many A-B wholesalers about the issue of exclusivity and there really isn’t an easy answer, one way or the other.  For the vast, vast majority of A-B wholesalers, you have to admit they have done pretty well for themselves sticking with the big dog.  But predicting the past is easy, predicting the future is much more difficult… and only the future will determine whether decisions made today will turn out to be right or wrong.

Also, long ago in my consulting days I learned about giving “easy” advice.  Advice where you can stand on your soap box and loudly and strongly pontificate about this or that being the best decision but where all of the possible resulting pain of the action rests with someone else… kind of like sitting at a bar and telling your friend to dump his complaining wife and those bratty kids.  It’s easy for you; you don’t experience any of the pain regardless of the decision. I try to be very careful not to give easy advice.

Should you remain exclusive?  It depends.  Carefully analyze the operating implications of both courses of action, look in the mirror, take a deep breath and make a decision.  Just remember that ultimately this is all about business.  All public companies will (and should) do what is in the best long-term interests of their shareholders.  Period.  As an example, I don’t think any of the big three would like to abandon the 3-tier system, but if the day comes where it would be the best business decision for them to do so, they will (and again should) do it.  Like the mob says; “Nothing personal, just business”.  You need to attack the decision in the same manner.  Definitely not an easy decision.


I believe the future for most beer wholesalers is an evolution into a broader line beverage wholesaler – hopefully knowingly planned and executed.  As I mentioned in part one of this series, there are only a few ways a beer wholesaler can hope to grow and/or maintain their profitability – and the best one is to grow your brands and brand base in their presently served territory (and presently serviced retailers).  In some markets, just maintaining market share in territory with a growing population will provide for this growth.  But since this is beyond our ability to influence, this impact is simply what it is – remember, luck is better than skill.

For those things which you can actively influence, brand growth and brand acquisitions have the most impact on your profitability.  I won’t bother discussing beer brand acquisitions; you are all quite well versed in that game (although A-B’s recent moves have definitely changed the fight – see a recent post titled Strategy under General Consulting Wisdom. You will have to scroll down to find it). 

Before we look at the various other beverage categories, a couple of observations:

·                    When you enter a new market you don’t get to dictate the market structure or how things are done.  Many beer wholesalers have failed in the past when entering new categories because they want to do things the “beer way” and want others to change for them – this is not going to happen.  Often this is the result of moving on an opportunity but not really committing to it – remember you are either in or out, there generally isn’t some half-way position. No one is only a little pregnant.

·                    You are in the distribution business.  Remember that volume = cost.  All other things being equal, 10,000 cases at $40/case gross profit ($400,000 net gross profit) is MUCH better than 100,000 cases at $4/case gross profit ($400,000 net gross profit).  Of course seldom are all other things equal, so you also must analyze the upside… if those 10,000 cases might grow to 12,000 but the 100,000 might realistically grow to 3,000,000 cases – this might alter your strategy.  Otherwise, all other things being equal – fewer boxes but more gross profit $ is always better. 

·                    Because of the above, when entering new markets/categories it is almost always best to focus solely on premium and super-premium products.  If you are organizationally only going to provide a limited amount of effort to these new categories (which of course you are), it makes sense to spend these organizational resources to obtain the most net gross profit dollars at the lowest additional cost.  In the past, far too many wholesalers entered a new category with a low cost product line and found they lost many, many dollars fighting the present full-line distributors.  Most low-end business is based primarily on price (you want the liquors on the on-premise gun?  Have the cheapest brands).  Why would you want to compete here?  Remember what I said about strategy driving success?  Entering new categories at the bottom is generally a strategic mistake and your past failures might have nothing to do with the category or your organization’s ability to execute but rather with the simple fact you chose your entry wrong.

·                    Not to be crude, but as you all know it is very easy to pick up crap brands.  Stay away from them – high risk brands generally only make sense if you are already well entrenched in the category.  They most certainly are not the correct products to initially enter a category.  You might miss a hot one… but many, many more times you’ll end up with a dog and a lot of wasted organizational time.  And very importantly, it hurts your reputation at retail, thus hindering future product success.

·                    As you enter new markets, the present players in that market aren’t simply going to slink off and give up their business.  Expect competitive response – again a reason to go after the high-end products.  You may evolve into a full-line distributor in this category but start at the top and work your way down until sound business strategy says stop.  Just like in the beer business, at some point it makes sense to play in the price-driven products, but would you start distributing in the beer business with only price products?  Then why do it in others?

·                    Don’t try to re-invent the wheel.  Go out and hire people with experience in the new categories.  Take the time to learn from them, and give them time to learn your world too.  If you are serious about the category, start with a fairly senior person and let them build the team – often it can be surprisingly small yet still very effective.  Steal top people from your new competitors.  Everyone has a “street reputation” and generally it is on the mark.  Talk to those retailers who you know and trust (and of course your employees), and ask them their opinions of people – who is kicking butt and who is a slug are all known on the street.

·                    Don’t let past failures automatically rule out new opportunities.  The statement ‘we tried that before and it didn’t work” is meaningless.  What exactly did you try?  And more importantly, WHY didn’t it work?  Analyze the failure with brutal honesty.  Learn.  As an analogy, every marketing program has at least 2 goals… one of which can always be accomplished. 

o       First, to ultimately increase sales.  This may or may not be achieved.

o       Second, to learn.  This goal can always be accomplished.  The only question is if we will take the time and effort to analyze the results (regardless of what they were) and increase our knowledge.  And then of course with this new understanding, future programs should only get more and more successful.  This same thinking should permeate your organization – whether compensation systems, or information reporting, or simple management techniques.  Learn from every action you take.

·                    Although I rail against the unthinking evolution of strategy and corporate mission, don’t pass up an unexpected opportunity that lands in your lap.  Just make certain prior to grabbing it and running, you know exactly what you are grabbing and where it will lead you, both today and tomorrow.  Many wholesalers are extremely successful in this or that market niche simply because of some happenstance event.  Nothing wrong with that.  Just remember that old adage, “Look before you leap”.

Since this article is getting rather long (and some of my wholesaler friends have graciously noted that in their opinion I am rather long winded ;-), I’ll leave the analysis of wine and spirits, and NAs and waters for the next article.

Next piece – a further look at other beverages


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