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« Compensation Drives Behavior | Main | The Price Wars of 2010 »

Changing View of Competition

There is a changing view of competition in the beer distribution industry… and this is a good thing.  I was recently talking to an ABI distributor friend and client of mine and he had some interesting things to say about his marketplace.   Like a lot of wholesalers he has a fair amount of debt from various acquisitions.  He is also extremely competitive and his organization does a heck of a good job on the street… I wish I could take credit but he has simply built a high-performance organization.


So I was somewhat pleasantly surprised when he talked about his MillerCoors competitor in a positive light… still as a competitor but also from a bigger viewpoint as a partner in the beer distribution industry.  They both feel pressure from their suppliers to make sacrifices that neither wants to make.  They have independently discovered that in some areas they had both better stick together, for if either falters the other is most likely soon to follow.   


I hear similar things from distributors across the country.  This changing view of competition is occurring throughout the beer distribution industry… driven by debt loads … fear… a changing competitive landscape… and common sense.   And what is this changing view of competition?  Just what my buddy and his fellow distributor noted, they might fight like hell on the street (and should), but ultimately they are partners in this industry, not enemies.  Let me repeat, they are not enemies.


If you have studied economics you know that the number of competitors in a marketplace can have a significant impact on how competition occurs.  It really wasn’t that long ago when most markets had five or more beer distributors… and sales were driven far more by the local market, not national marketing for national brands.  In this situation the competition was fierce and often even self-defeating...  each distributor had much more of an impact on local sales… when the last man standing got the tap handle, you fought like hell for everything.  These competitive dynamics set the landscape for years to come.


But now the vast majority of markets have two significant beer distributors, the ABI distrib and the MillerCoors distrib.  And this is probably the landscape for as far as the eye can see… sorry Mike but we won’t be seeing any significant single distributor markets.  The way competition occurs is different when there are five or seven competitors than when there are only two.  This is not to imply that street-level competition is any less… an oligopoly (the economic term for a marketplace with only a couple competitors), can be and usually is fiercely competitive… why?  In general because each competitor’s actions can and does directly influence the other competitor(s).  In addition, each competitor knows fairly intimately what the other guy is doing and can thus take immediate steps to address these moves.


But since each one’s actions directly influence the other, it also becomes true that “crazy” competition doesn’t lead to the demise of any single competitor but to the demise of the entire industry.  In the past the Stroh or Heileman or Hamm’s or Pabst wholesaler (or a whole lot of others) could perhaps be put out of business.   That’s not the case with a two distributor market and attempting to do so only damages the entire industry.  I often note that pain is a good teacher… many wholesalers around the country have discovered this is a class they only want to take once.


Also in the past 40 – 50 years, the power of the supplier and retailer has only grown (although as I note in an older post here , the power of the distributor might be gaining some steam… especially if we play our cards right).  Like my friend and his MillerCoors competitor have discovered, they had better stick together or both their suppliers will be taking their lunch money… in addition to a whole lot of other things.  This is the fear factor.  Do you fear your local beer distributor competitor more than your supplier? If so you are wrong… you local competitor doesn’t have the ability to put you out of business or to take your business away or to shrink your profitability by 80% or a whole lot of other bad things.  The new view of competition is the realization that you are ultimately partners in this industry, not blood enemies.


As a side note, read the recent press… it sure seems ABI is testing the waters on taking over the distribution side of their business.  Some have predicted they could go direct in at least 50% of the country.  Talk about changing the competitive landscape!  And in the rest of the country?  Don’t think state laws can be changed rather quickly?  Think again.  And if you’re a MillerCoors distrib and think this is good for you… you must be smoking something.


And of course there is debt.  As a good buddy distributor of mine who has a lot of acquisition-related debt likes to say… “I LOVE a competitor who is in debt”… and as consolidation progresses, more rather than less will be operating with some level of debt.  When you are dancing to bank covenants, you often find profitability is much more important than trying to kick the other guy in the groin.  Even if you have no debt I still find this to be true ;-)


And lastly this changing view of competition is coalescing around all of this… forming a common sense view of your competitor as a partner, not an enemy and making your business decisions accordingly.  We can fight like hell on the street and we should each and every day for each and every one of our suppliers.  That’s what we should do.  That’s a big part of the value we bring.  But just like a sporting event where both sides give it all to win on the field… at the end of the day we shake hands on the good effort and go have a cold one or two with our partner distributor… and perhaps even friend!  What a concept. 


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