It seems we talk about value every
day. If it’s not about the value added of the wholesale tier, it’s about the value a business is worth,
or the value of the brands we sell. Regardless of the context, “value” is in the eye of the beholder. Does
the distributor add value to the three tier system by offering services no one else is able to, and if if you
are contemplating selling your business or buying another will your perceived value be achieved?
In recent years
I have not heard a lot of talk about the “value added” concept with regard to the wholesaler tier. Maybe
it’s just me, but it seems the recent battles in protecting the three tier system have not been so much about what
the distributors offer with regard to adding value but more about how alcohol can be better regulated with the current
system. It is my contention that we need to move back to the discussion on what the distributor adds in value because
of the services offered.
As both crafts and imports grow as a percentage of the industry, the need for distributors
to add value to the retail segment is more important than ever. While one of the primary roles of the wholesale tier
is the logistical aspects of storing and delivering I believe the distributor must also go much further to build the brand
in the market. In reflecting back over my years where brands dominated a market or category, it was more about the activity
of the distributor that pushed their share higher than the national average than what a brewer did with marketing. As
distributor portfolios grow it seems we are losing that ability or focus to build brands based on in-market activity. If
suppliers do not feel there are enough focused efforts on their brands does this mean they change the game? What
if suppliers realigned the margin pool? While I am not sure how far suppliers are willing to take this concept, the thought
of using this additional income to put their own people in the market to drive retail initiatives could be attractive to some.
This concept is already being used today in the wine industry, by Gallo.
During the last several weeks we have heard a lot about
the price paid for certain consolidation moves in Florida and North Carolina. There is no doubt that these transactions
were not your normal market value deals. Again what is the perceived value of any price paid? In these cases the
buyers felt there were good reasons to pay the price they did and the sellers just happened to be in the right place at the
right time. In these situations it was about location, location, location, and having a strategic location to carry
out a longer term supplier plan or one of your own if you are a growing and expanding distributor. I do not think it
is time to announce that the market value of distributorships is escalating or declining as this will ebb and flow with the
economy and the trends of the domestic premium brands. The value today of any asset will no doubt change a year from
now and one needs to fully understand the risks by waiting to take any action.
I remember one
of those first weeks in Houston as the new regional manager for Miller in 1990 and I got the call to come visit Joe Huggins
at Houston Distributing. Still being a little wet behind the ears, I was no doubt intimidated by the meeting
with such an iconic leader within the beer industry along with the fact the Mr. Huggins along with Don Faust and Frank Horlock
grew Miller Brewing to become the leader in the Houston market. After several hours of Joe’s interrogation to
make sure I could pass muster as the Regional Manager, I found out why he wanted me there. Joe wanted to make sure that
I would not lead any effort to increase the discount on his Lite 12 pack cans. In Joe’s words “don’t
F### with my discount on the Lite 12 pack cans.” My reply was the obvious, “yes sir.” Wow,
how times have changed for many of the industry’s leading premium brands as they have migrated over the years from having
a high value proposition, with little or no discounting, to one where retailers look at these brands as commodities who can
offer more for less.
So with value continuing to play a significant role in our business vocabulary every day, is it not all about
perception? Generally the perceived value of what we have to sell or what we want to buy is reality. There is
no doubt that perceptions vary and thus values vary. In order to achieve our maximum value we are challenged with creating
the best image we can for our product so that the perceived value to whoever may be buying is there. I believe this
works in all of the examples I have outlined this month regardless of your role in the industry.