Friday, November 03, 2006

Consolidation.... Good, Bad, and Ugly for the Beverage Industry.

Consolidation.... Good, Bad, and Ugly for the Beverage Industry.
I hear about beverage companies buying out smaller wholesalers on a daily basis. I think we are in the beginning stages of seeing the effects that this is having on many wholesalers, especially beer wholesalers. A lot of times I think egos are to blame with large wholesalers wanting to outdo other large counterparts. The small wholesalers get caught in a game of "beverage politics" and usually are forced to sell out, even though the small wholesaler may be doing a good job. One good thing is that these businesses are trading at high "blue sky" levels, so these small wholesalers aren't neccessarily "put out on the street". Anyway, the following are some anecdotes I have heard in industry circles, starting with the good:

  • I have heard of Miller/Coors wholesalers receiving offers in the plus $8/case range. For some Corona wholesalers, a whopping $35/case. A/B distributors in the $10 to $12/case range. These multiples were based on 24/12 equivalents for sales over a 12 month period.
  • Larger wholesalers mean less expenses for breweries on POS, travel, incentives, paperwork, training, meetings, mailings, or nearly everything the brewery does. It doesn't take a rocket scientist to wonder who has really been behind consolidation.
  • We are starting to see new, Mega-wholesalers that won't be bullied into distributing one line of beverages. Share of mind is really for the birds. I am a beer wholesaler first, but I still need energy drinks, soft drinks, water, and cups to survive. Heck, I've tried everything once---beef jerky, potato chips, peanuts, etc. Very soon we will see wholesalers that have A/B, Miller, Coors, RedBull, Vitaminwater, Jack Daniels, Smirnoff Vodka, Gallo wines, RC, Seven-Up, Fiji water, and even some snack foods all under one roof. These companies will be virtual beverage monopolies in their respective territories. These are the distributors that will make money.
  • The larger a wholesaler is the more control he/she has over his/her own destiny.
And now the bad:
  • Once another wholesaler is acquired, it is difficult for the company to operate with the extra debt especially if the market is not growing at a reasonable rate. With interest rates rising it will be even more difficult to service this debt.
  • Salaries are growing. Keeping key personnel is very expensive. Training these employees is time consuming and costs a small fortune. The work is so demanding and exhaustive that many supervisors, managers, and delivery drivers are leaving for jobs that pay better with less labor and time.
  • Beverage companies have taken most of the margins in their products for themselves while taking most of the margins out for the wholeasler. 70/30 co-op on price increases leaves the beverage company with the greater part of the increase. Have you ever had an FOB reduction and got to keep your regular front line price? No, you are losing margin percentages every year.
  • Once consolidated into a multi-brand house, beverage companies expect better service and attention to their brands. Its just not going to happen. A lot of very good brands get lost in the shuffle. More brands mean more duties for salesmen, more in training, more in salaries, and more in attention to details. Our best salesmen seem to get burned out quicker because of all the "extras". We can have sales meetings all day and my guys are still confused.
  • Retailers will never be satisfied. I don't care what anyone says, a retailer will always expect more out of its vendors. It is a fact of life. It makes the retailer stronger. It is good business sense on the part of the retailer. And it is very expensive for the distributor.
Don't forget about the ugly:
  • Fuel prices are soaring. I think its ironic when we think that $1.99 unleaded is cheap, this is exactly what the oil companies want. And how in the world is diesel more expensive than unleaded?
  • Health insurance, workman's comp, life insurance, corporate umbrella's---my favorite part of doing business. Abuses have led to outrageous claims. No end in site of spiraling health care costs. Get used to it insurance costs will never go down.
  • Freight rates are rising. I love to pay fuel surcharges that have gone up even when the price of fuel goes down. Also, I've heard of breweries giving freight allowances to certain distributors, while leaving others out in the cold. Doesn't that smell.
  • Oh yeah--- refrigeration, temperature controlled warehouses, truck and car leases, psuedo-marketing fund charges on certain brands (that is one of my favorites), the beloved 50/50 co-op on everything, sign machines, constantly changing and evolving online business portals, 100 emails per day that require "immediate attention", shrinkage that never seems to go away, employees that are last to show up for work on Monday morning and first to complain about their check on Friday. Did I leave anything out?

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