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« Is the consolidation wave over? | Main | Tough love from the otherside »

Plan B - Mergers and Territory Swaps

I have written that you should grab the future by the throat and make certain the future which comes is the future you desire.  I profoundly believe this but just because we can each work to shape our destinies doesn’t mean we get to select our own realities.  Facts are pesky little things which no amount of wishing will alter.  Or to put it another way… you’ve got to play the cards you were dealt. The bigger question is what strategic plan fits you?

 Strategic Plan A: Mergers & JVs.

With this in mind let’s talk a little about mergers and joint ventures.  Are they for everyone?  Of course not.  Are they easy to accomplish?  Not remotely.  Will anyone get 100% of what they desire?  Guaranteed not.  Let’s start with that last point.  In the VAST majority of situations, those considering a merger or joint venture are doing so because their first choice is not available.  Generally the first choice is to purchase the other guy and be done with it.  But if that isn’t an option, mergers and joint ventures can be a solid second choice and does keep everyone’s skin in the game they love. The trick is to learn how to play your new position successfully.

On the financial side they are tax-free (that’s always a plus) and don’t create piles and piles of long-term debt.  On the strategic side they make all parties stronger and more viable over the long haul… or worth more on a future exit.  On the operational side there are always synergies… sometimes huge, as in vertical integrations… sometimes smaller, as in horizontal integrations.  They are complete win-win scenarios except for one area… your family business no longer is a family business.  It is now a corporate entity.  This may or may not be a big deal… but remember, we started this by accepting the fact that this is the second choice since the first choice is not an option.  Those pesky little facts again ;-) 

But this is a profound change.  Mergers are an intimate act, and I mean that in all of its depths.  And you should think of them as a one-way street.  Once done, they are almost impossible to un-do.  It’s much easier getting a divorce than getting out of a merger.  Can we address this rapid evolution from a family business to a corporate entity?  Sure, I do that all the time… but it is still a profound change which requires flexibility from all involved.

And since it seems that a lot of beer wholesalers out there have decided they aren’t going to run for the exits, mergers and joint ventures are something which demand at least a modest examination.  One select group who should consider them in much more detail are those unconsolidated Miller and Coors distributors.  You can fight MillerCoors all you want but sooner or later something will be done with these markets… and mergers allow a win-win scenario which I don’t believe is likely in any of the other scenarios.

Strategic Plan B: Brand Consolidation - Territory Swaps

But of course not all folks are meant for an act as intimate as a merger.  What to do if you look at the other side and simply decide there is no way I want to be in business with them?  There is another Plan B – a territory swap which provides a win-win solution for suppliers, and wholesalers alike by consolidating all brands within a beverage category… not what everyone wants, remember those pesky facts, but still a win-win considering the cards on the table.  In a Miller and Coors territory swap one side trades their Miller (or Coors) territory for the other sides Coors (or Miller) territory… thus each side ends up as a consolidated MillerCoors distributor.

Let’s look at the positives of a territory swap:

  1. Like the merger they can be structured to be tax-free.
  2. There is minimal financial stress associated with consolidating brands. They can generally be designed to be gross profit dollar neutral – thus neither side gains or losses any gross profit.
  3. Operating efficiencies for both wholesalers improve since drop sizes (gross profit and cases per stop) go up.
  4. Territory footprints becomes smaller, thus increasing delivery efficiency and lowering fuel and variable service costs
  5. Your main supplier gets off your back and you can return to arguing about important stuff ;-)
  6. Lastly, each wholesaler gets a opportunity to improve their competitive advantage by gaining market share at retail and leveraging their resources against a smaller customer base

Add these all up and what do you get?  A financially stronger and more competitive distributor positioned for the future.

Yes there might be issues with territories not aligning perfectly and perhaps your warehouse ends up not in the ideal location… but comparing those possible problems to the upsides… sure seems like a solid Plan B to me.

For a modest investment Steve Cook and I can work with you to identify the right opportunities and discuss your workable options.  We are well versed in the business issues, the financial affects on owner’s equity, the company’s operating needs and how proposed changes could impact your current organizational design and staffing.  Or one side can hire us and the other side hire another advisor… but I believe “dueling advisors” in most situations only increase the cost and problems and decrease the odds of actually getting to a win-win for both parties.  But that’s my bias ;-)

Anyhow, whether unconsolidated MillerCoors distributors or just a couple (or more) distributors who want to take steps now to ensure their survival and viability tomorrow, mergers or territory swaps are worth at least a little consideration.  Perhaps not a Plan A… but in some situations Plan A simply isn’t an option… but a solid Plan B for many out there… a way to play the cards you’ve got for a winning hand for all.




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