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August 2018

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« Chesbay, MillerCoors, City Beverage and Freedom | Main | The power of your people, other thoughts, and legal weed »

Prepare for Opportunity

Well the election is over and it seems new tax rates (and new taxes) are coming one way or another.  I assume all distributors who wanted to leave have already done so.  Therefore if you’re still here, you’re probably in the game for at least the next 4 years.  I could be wrong (wouldn’t be the first time) but I can’t see anyone racing for the door until capital gains tax rates come down, and in all likelihood that won’t be happening under this administration.  Perhaps sanity will rule the day since every time capital gains rates decrease, revenues increase... but I wouldn’t hold my breath or bet the farm that sanity will rule the day.

So all you hoping for an acquisition, you need to change to a longer-term strategy to be well positioned once deals start happening again.  Pause and think about that… the odds are there will be few if any acquisition opportunities over the near-term, then prepare so that when the time is again ripe, you and your organization are ready.  PREPARE FOR OPPORTUNITY.

Unless something fundamentally happens to this industry, I’d have to guess values are going nowhere but up… I’ve been wrong too many times thinking values are coming down.  I’m a convert now, values are up and staying up ;-)… unless something very fundamental would happen.  What that might be, I don’t know… but want to give myself a backdoor just in case I need it ;-)

Something every distributor out there should be doing is… focusing on improving the internal operations capacity and bottom line profitability of your company. 

So start with a plan so that you and your organization are financially and organizationally prepared if and when an opportunity presents itself a few years down the line. 

  • Obviously this means dealing with whatever debt you have.  If a distributor has little to no debt (and that is an important factor), they can remain in this business almost as long as they choose.  That’s just the way it is.
  • Evaluate and restructure your management team…

 Do you have the team in place to deal with a major acquisition?  If not, start the process of changing this.

  • Retool and update your business systems and processes…

The Reyes Beverage Group are perhaps the best in this industry on this front.  They have a proven, dynamic template which they bring to every acquisition they make.  Can you do the same?  Would you even want to export what you are doing to the acquired company?  Take a very hard look and improve what you are doing now… it’s a double win.  Your present organization’s operations will improve and if/when an acquisition presents itself you will have an internal template which you can quickly and easily export to the acquired organization.

  • Improving warehouse performance (Steve Cook excels at this), you should get after it and drive more dollars to the bottom line....

Most beer distributor’s warehouses simply weren’t designed for the present world of lots of relatively low volume SKUs.  A great deal of cost (or cost savings) can be found here, in addition to greatly improving the overall flow of the business.  It has been said that “when Mom’s not happy, nobody’s happy”… well the same is true about your warehouse, “if the warehouse ain’t working well, then nothing is probably working well.”

This issue is not going anywhere anytime soon.  And even if your warehouse isn’t filled with craft beers, your major suppliers will give you plenty of SKUs, seasonal packages, new brands, etc. to make the operations of your warehouse a key factor in the operations (and profitability) of your entire company.  The warehouse is becoming THE factor in the entire performance of your company.  Make certain you have the design, processes, AND personnel to keep this important, but far too often overlooked, aspect of your business running at peak performance.

And no, this doesn’t mean you have to automate your warehouse.  In many (most?) situations Steve and I find there are much better, more effective solutions than spending millions and millions on automation.

Fifty-five percent of warehouse labor is travel time in the facility! Reconfiguring the layout typically provides a quick payback.  Think of that… a lot of bang for a little buck.  Trust me, it’s worth giving Steve Cook a call.

And speaking of peak performance… a simple but useful mantra is to do it right the first time.  Whether it’s taking a correct order or loading the right product or a million other things… transform your organization to one where it is ALWAYS done right the first time.  It is incredible the manpower, frustration, and very real cost associated with not doing it right the first time.

The age old cliché still applies: “Why is it there is never the time (and money) to do it right the first time, yet there is always the time to do it over?” (and sometime over and over and over again)

And not to toot my own horn… I’d NEVER do that ;-)  But long ago I wrote a 4 piece blog on time management from a corporate perspective.  The wisdom in these pieces amazes even me.  They were written in 2006. You can find them here and here and here and here.  The second one deals directly with the issue of why it is so important doing things right the first time… but I’d recommend you give all 4 a read.  Implement the thoughts covered in these posts and you will be a long ways further down the road towards preparing your business for whatever opportunity that may come your way.

And lastly I must call BS on the subject that you must get bigger to survive.  I was once in this camp of thinking but have since tossed it in the dustbin where it belongs.  I have witnessed the national, regional and local diversity among distributors and how they can stay in business (and live very nice) even on surprising low volumes.  One can pontificate how they must get bigger to survive but that simply is not historically correct, and I see nothing on the horizon to change this.

I appreciate the economics of consolidation as well as anyone but just because it makes financial sense on paper it does not mean that paper will someday actually reflect reality.  People like this industry and almost all of the remaining folks plan to stick around. 

Sure ABI and MillerCoors are going to harvest your profits and shift costs but for the pain to reach the level that debt-free smaller distributors are simply not financially viable?  For that level of pain to occur, the entire industry will be experiencing Armageddon… and I don’t see Armageddon coming anytime soon.

So yes I’d love to get the brokerage work by selling these smaller distributors who aren’t “financially viable” but that simply is not the case nor do I think it will be the case anytime soon.  That’s not to say that from a strictly financial perspective many of these folks shouldn’t have sold already… guess what, these are not strictly financial businesses (few if any are) and other factors outweigh the financial concerns. 

My best advice is to prepare your business so you can take advantage of an opportunity whenever it may present itself.  And in the process maximize profitability and strengthen your team for both today and tomorrow. 

And lastly, unless you are paying for my consulting advice, don’t listen to anyone telling what you must or must not do.  Now if I’m saying it… that’s another matter altogether ;-)




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Your comment that revenues increase every time capital gains rates decrease is misleading. It does not ALWAYS increase revenue in the short term and never increases revenue in the long term.

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