Transcript Document

THE EVOLVING
DISTRIBUTOR
LANDSCAPE!
Independent Beverage Group
independentbeveragegroup.com
Joe Thompson
843 384-0828
[email protected]
Jeanette Foley
Corporate
125 Old Plantation Way
Fayetteville, GA 30214
770 487-0277
[email protected]
Todd Arnold
4370 Crestone Cir.
Broomfield, CO 80023
303 410-7748
[email protected]
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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
 Volume
 Per Capita Consumption – Beer
 Per Capita Consumption – Absolute Alcohol
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Per Capita Consumption - Beer
In Gallons
2005 – 2011 Actual
2005 - 2011 = 6.9% decrease
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Per Capita Consumption – Absolute Alcohol
In Gallons
Beer (-5.1%)
Spirits (+20.8%)
Wine (+30.0%)
Alcohol
Industry
Problem?
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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.
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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 Distributors
•
•
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)
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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Own/Control with no time restrictions.
Limited partner
Loan Only.
No ownership or loan.
??
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WA
ABI
MT
ME
ND
VT
MN
OR
NH
MA
ID
WI
SD
ABI
NY
WY
RI
MI
CT
ABI
IA
OH
UT
KS
CA
AZ
Hensley
Dobbs
NM
ABI
MO
MD
WV
VA
KY
TN
ABI
Jefferies
NC
Hand
OK
AR
SC
TX
Ben E. Keith
Nau
MS
AL
GA
LA
FL
Lamantia
ABI Mega Distributors
NJ
ABI
DE
IN
IL
CO
ABI
ABI
PA
NE
NV
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WA
CoHo
MT
ME
ND
Taylor
VT
MN
OR
NH
MA
ID
Clay
WY
Ingram
WI
SD
NY
HoBo
MI
Reyes
IA
PA
Cla
UT
y
OH
CO
IL
MC
Monarch
DE
IN
WV
KS
CA
MO
Reyes
VA
KY
AZ
NC
Reyes
NJ
NE
NV
Goldring /
Moffat
TN
Clay
NM
OK
AR
SC
Glazer
HoBo
Andrews
MS
AL
GA
United
Reyes
TX
Keg 1
Glazer
Andrew
s
MC Mega Distributors
LA
Goldring
/
Moffat
Taylor
Reyes
FL
Gold
Coast
MD
RI
CT
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WASHINGTON
MONTANA
NORTH
DAKOTA
MAINE
MINNESOTA
VT
OREGON
NH
WISCONSIN
SOUTH
DAKOTA
IDAHO
NEW YORK
MICHIGAN
WYOMING
RI
CONN
IOWA
PENN
NEBRASKA
NEVADA
OHIO
UTAH
ILLINOIS
COLORADO
MARYLAND
WV
VIRGINIA
KENTUCKY
CALIFORNIA
NORTH
CAROLINA
TENNESSEE
ARIZONA
OKLAHOMA
NEW
JERSEY
DELAWARE
INDIANA
KANSAS
MISSOURI
ARKANSAS
SOUTH
CAROLINA
NEW MEXICO
MISS
GEORGIA
ALABAMA
TEXAS
LOUISIANA
FLORIDA
IBG Transactions
ALASKA
HAWAII
MASS
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 power
Professional 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 Distributors
FOLLOW 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.