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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]

THE EVOLVING DISTRIBUTOR LANDSCAPE!

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THE EVOLVING DISTRIBUTOR LANDSCAPE!. THE EVOLVING DISTRIBUTOR LANDSCAPE! Overview Suppliers Distributors Consolidation Mega Distributors Risk Conclusion. I. Overview. Volume Per Capita Consumption – Beer Per Capita Consumption – Absolute Alcohol. - PowerPoint PPT Presentation

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Page 1: THE EVOLVING DISTRIBUTOR LANDSCAPE!

THE EVOLVING DISTRIBUTOR LANDSCAPE!

Independent Beverage Groupindependentbeveragegroup.com

Joe Thompson843 384-0828

[email protected]

Jeanette FoleyCorporate

125 Old Plantation Way

Fayetteville, GA 30214770 487-0277

[email protected]

Todd Arnold4370 Crestone Cir.

Broomfield, CO 80023303 410-7748

[email protected]

Page 2: THE EVOLVING DISTRIBUTOR LANDSCAPE!

THE EVOLVING DISTRIBUTOR LANDSCAPE!

I.Overview

II.Suppliers

III.Distributors

IV.Consolidation

V.Mega Distributors

VI.Risk

VII.Conclusion

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Page 3: THE EVOLVING DISTRIBUTOR LANDSCAPE!

I. Overview

VolumePer Capita Consumption – BeerPer Capita Consumption – Absolute Alcohol

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Page 4: THE EVOLVING DISTRIBUTOR LANDSCAPE!

Per Capita Consumption - BeerIn Gallons

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2005 – 2011 Actual 2005 - 2011 = 6.9% decrease

Page 5: THE EVOLVING DISTRIBUTOR LANDSCAPE!

Per Capita Consumption – Absolute AlcoholIn Gallons

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Alcohol Industry Problem?

Beer (-5.1%)

Spirits (+20.8%)

Wine (+30.0%)

Page 6: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 10: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 12: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 14: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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.

Page 15: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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!

Page 16: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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Page 17: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 20: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 21: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 22: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 23: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 24: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 25: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 26: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 28: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 29: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 30: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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Page 31: THE EVOLVING DISTRIBUTOR LANDSCAPE!

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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