the evolving distributor landscape! independent beverage group independentbeveragegroup.com joe...
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THE EVOLVING DISTRIBUTOR LANDSCAPE!
Independent Beverage Groupindependentbeveragegroup.com
Joe Thompson843 384-0828
Jeanette FoleyCorporate
125 Old Plantation Way
Fayetteville, GA 30214770 487-0277
Todd Arnold4370 Crestone Cir.
Broomfield, CO 80023303 410-7748
THE EVOLVING DISTRIBUTOR LANDSCAPE!
I.Overview
II.Suppliers
III.Distributors
IV.Consolidation
V.Mega Distributors
VI.Risk
VII.Conclusion
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I. Overview
VolumePer Capita Consumption – BeerPer Capita Consumption – Absolute Alcohol
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Per Capita Consumption - BeerIn Gallons
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2005 – 2011 Actual 2005 - 2011 = 6.9% decrease
Per Capita Consumption – Absolute AlcoholIn Gallons
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Alcohol Industry Problem?
Beer (-5.1%)
Spirits (+20.8%)
Wine (+30.0%)
I. Overview
Profitability Historic high. Spread between highest/lowest profit has never been
wider. Mega distributor $2.00 per c/e + Traditional low SOM (>35%) $.50 per c/e and lower.
Margin Above premium growth. Aggressive price increases. Margin enhancement/maximization.
Conclusion: We are losing drinkers “but” profits are great.
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II. Suppliers
“Big 2”Global view.
Financially driven. No longer family owned (Pete Coors is exception).
2 tier experience.
Reduced competitive behavior. Less innovative.
Changing lately. Great at cost cutting. Selling built up equity in Mega Brands.
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II. Suppliers
“Big 2”Already accessing distributor margins.
Aggressive branch acquisitions. Slowly eroding margins at distributor level (new
packages, new brands, discounting). Somewhat hidden by other factors.
Pass along cost to middle tier (POS, sports venues, truck paints, $ per case).
Acquire or develop craft brands. Be aggressive in below craft, above premium category.
Hurts craft suppliers, helps their margin, offsets volume losses.
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II. Suppliers
Imports. Solid marketing.
Crown consistent, Dos Equis creative. Good price gap management. Crown is king maker on many transactions.
Increasing marketing funds. Stella vs. Heineken.
Crafts. Survivors will be solid. Must continually reinvent themselves.
Boston Beer. Aggressive legislative influence/agenda.
Other (PAB’s, pouches, malt liquors, private labels). Playing on the edges.
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III. Distributors
Fewer distributors. Lowering cost.
Consolidation. Changing service levels. Improving technology.
Vertique. Routing software. GPS tracking.
Higher revenue. Less discounting.
Pushing back more on supplier’s suggestions. Selling consumers on trading up. Mega distributors beginning to use logistics skill set to improve
sales. Good at finding pennies/nickels.
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III. Distributors
Expanding portfolios. Enormous increase in SKU’s (MC network – 250 to 550 in last 5
years). New categories.
Energy drinks, pouches, cider. New brands, flavors, packages. Becoming beverage distributors vs. beer distributors.
Columbia vs. Reyes. More and more suppliers express their discontent.
Are distributors earning the margin they receive? No fear of termination at distributor level.
Slows elimination of underperformers. Suppliers sales people hesitant to cite poor performance. Suppliers more aggressive during consolidation. Resentment/anger/jealously/envy.
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IV. Consolidation
Accelerating pace.
Prices are higher than ever. Interest rates as low as they can go.Capital gains taxes lower than ever.15 year depreciation of distribution rights available.Availability of Big Money.
Meritage influence (Private Equity). 5.5 to 6.25 times cash flow.
Buy off balance sheet.
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IV. Consolidation
Future value determined by:Profit.Interest rates.Taxes.Footprint strategies (competition for your
brands or business).Mega.Brewery influenced (ownership/partner/bank).
ABI.MC/HOBO.
Legislative/legal challenge.
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Number of Distributors14
• By end of 2012 IBG estimates ABI will have 2 more branches. ABI branches centralizing functions (horizontal shared services).
• IBG predicts that by 2020, 200 to 225 will do 90% of volume.
Macro Brands vs. Micro Brands(Logistics distributor vs. brand builder)
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Macro (-8.8%), Micro (+8.0%). Mike Mazzoni is right. Mega brands are old. We can’t get younger, neither can they!
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MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NMTX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD
DE
NJ
CTRI
MA
ME
VT
NH
ABI
ABI Hensley
ABI
ABI
ABI
Hand
ABI
Ben E. Keith
Nau
Lamantia
ABI Mega Distributors
ABI
ABI
Dobbs
Jefferies
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CoHo MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD
DE
NJ
CTRI
MA
ME
VT
NH
Ingram
Reyes Goldring / Moffat
MC
Reyes
United
Keg 1
Andrews
Gold Coast
Goldring / Moffat
HoBo
Taylor
MC Mega Distributors
HoBo
Andrews
Reyes
GlazerReyes
Reyes
Glazer
Taylor
MonarchClay
Clay
Clay
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MONTANA
WYOMING
IDAHO
WASHINGTON
OREGON
NEVADA
UTAH
CALIFORNIA
ARIZONA
NORTH DAKOTA
SOUTH DAKOTA
NEBRASKA
COLORADO
NEW MEXICO
TEXAS
OKLAHOMA
KANSAS
ARKANSAS
LOUISIANA
MISSOURI
IOWA
MINNESOTA
WISCONSIN
ILLINOISINDIANA
KENTUCKY
TENNESSEE
MISS
ALABAMAGEORGIA
FLORIDA
SOUTHCAROLINA
NORTH CAROLINA
VIRGINIA
WV
OHIO
MICHIGANNEW YORK
PENN
MARYLAND
DELAWARE
NEWJERSEY
CONNRI
MASS
MAINE
VT
NH
ALASKA
HAWAIIIBG Transactions
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V. Mega Distributors(Big part of the future)
Macro numbers.Economic trends of mega distributor consolidation.
Mega distributors have lower cost (14% - 18% of sales). Gross profit is higher due to pricing power (24% - 28%). Profits have risen from an historical level of $.50-$1.00
to $1.50-$2.25 profit per CE 2012. AB distributors at $.55 at the 2005 Dallas convention.
Mega distributors are more efficient, may or may not be more effective. Size / scale does matter in lowering cost and raising margins.
Mega distributors get traditional 3-tier model margins with logistics cost.
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V. Mega Distributors
Performance. Mega distributors have changed traditional 3-tier model.
No local ownership, management that can be fired, more profitable, more logistics oriented, different brand building process, outside resources/skills.
Reduce cost by centralizing functions (horizontal shared services). Tel-sell, payroll, inventory management, H.R., payables,
receivables, routing. Different service to lower volume accounts, minimum
drop size, aggressive tel-sell, better technology. 90/10 rule, not 80/20 is new reality at retail/supplier.
W/S and soft drinks system very consolidated. Historical beer distribution system unique. Mega
distributors can help middle tier improve
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V. Mega Distributors
Performance. Effective service to high volume / chains.
Merchandising, headquarter calls, entertainment, ipads.
Different service to very low accounts. Example: 2,400 accounts; 500 do 96% of volume,
1,900 do 4% of volume. 1%-2% underperformance?
Do the math – 200 x 2% = 4M bbls. Has this hurt industry volume? Image? Do suppliers do the same thing? Urban markets vs. other markets.
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V. Mega Distributors
Are Mega distributors good partners? Take cost out of the traditional 3-tier system.Tough negotiators with suppliers because of other
options. Push back attitude.
Changing balance of powerProfessional management. Increased influence on pricing.What happens when financial times get tough? (Price
wars, fuel cost escalates, volume loses, etc.).Diverse background with different skill sets.
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V. Mega Distributors
Middle tier neighborhood image difficult to maintain.New underdogs are craft brewers.
Energetic, risk takers, creative, growing, represent change. Hiring people locally gives them more influence.
Fewer distributors due to consolidation.More craft suppliers due to expansion.
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V. Mega Distributors
Strained relationships, “but” are they to blame?.Overall distributor performance is different not
necessarily worse. Less time to sell. More efficient, more options, less dependent. 25% margins are for brand building. 15% margins are
for logistics. Many suppliers feel they are paying more, getting
less. Opportunity to change model for the better.
Use current financial performance to improve overall system.
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V. Mega Distributors
Strained relationships, “but” are they to blame?.Are suppliers losing control?
What is too big? Crafts getting aggressive.
Carve out laws. Self distribution.
Work together to solve “small” retailer service. Internet orders, separate sales forces, allocate more
resources to selling, unique upcharged delivery. Improve local consumer marketing to offset
difference.
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IV. Mega Distributors
Impact on Value.How does this affect value of non-mega distributors
within footprint? Mega distributor/supplier branch may be only buyer.
Skilled negotiators. Can wait for distributors within their footprint
circumstances to change. You could bring contiguous value.
What if outside footprint? No real need to worry or rush. Mini Mega distributors evolving.
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IV. Mega Distributors
Impact on Value.Significantly affect day to day decisions of smaller
distributors within footprint. Sell in your territory. Get new brands / sub-distribute. Influence pricing. Influence marketing (stadiums, arenas, $ per case).
Significant influence with supplier / retailer. Small distributors lose independence/control.
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V. Mega Distributors
Reduced competition, no fear of repercussion and protective state laws lead to finger pointing and conflict. Resentment is growing.
More cost conscience. Changing historic beer service behavior.
We need to use Mega Distributor skills to adjust selling and marketing capacity of 3 tier system.
Continue to be logistics oriented. 15% operating cost as a % of sales target.
Need for leadership focused on building a better model.
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V. Mega DistributorsFOLLOW THE MONEY
Distributor Money.
AB Branches.
Big Family Money (Reyes, Ben E. Keith, Ingram, Dobbs)
ABI Chicago/MC – HOBO Meritage.
Next???
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VI. Middle Tier Risk
Could lose legislative influence as,Craft influence increasing in legislative.
More aggressive legal challenges.
Internal division among distributors increasing.Challenges to franchise protection at state level
increasing. Cash laws. Carve out laws. Self distribution.
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VI. Middle Tier Risk
State tax increases.WA state increase (1.10 per c/e Big 2, nothing craft).
Wine and spirits attacking.Availability, price, marketing.
Lose equivalency argument.Now $18/bbl., if passed, $49/bbl.
Beers with ABV from 3% to 55%. Craft Brewers with distilleries on site.
Growing division between suppliers and distributors on expectations.
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VII. Conclusion
The “Traditional” 3-tier model has changed as Mega Distributors have grown.
Should utilize Mega Distributors unique skills to improve distributor performance.
Doing nothing to implement solutions and address differences is hurting everyone.
Great time to buy, great time to sell.
We are growing profits but losing drinkers.
Consolidation is accelerating. Prices are higher.
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