Industry Trends: Beer Distribution And Improving Profit Performance

Beer Distribution is an interesting business: High margin, protected by regulation that has traditionally limited most forms of competition, which leads to an overall lack of incentive to innovate technologically.

Nevertheless, despite the lack of innovation incentives there are some activities occurring that signal the status quo may be changing a little bit; for example, the recent foray of Berkshire tossed into the mix through the purchase of a couple of distributors.

If the current dynamic were to change, for whatever reason, forecasting would be one area that would allow distributors to rapidly improve – even advance – their bottom line performance outcomes. Currently, on average, there is not a lot of focus on forecasting. Basic practices involve sales people “working” their on- and off-premise customers, while the inventory people make sure they keep enough stock on hand to ensure customer order fulfillment is met. Inventory managers look for opportunities to take advantage of strategically ordering from suppliers that game prices increases, etc.

A heightened focus on improving forecasting and ordering would allow distributors to lower working capital invested in inventory, while maintaining and/or improving customer service.

Customer service could improve in a number of ways; better order fulfillment being the most basic upgrade. On the more advanced side of the equation; distributors could work together with bars and liquor stores to make sure the products stocked, or on offer, respond and adapt to seasonal changes, trends, pricing, promotions, and holidays – making the distributor a value-added supplier.

In turn, the end merchant will become an even more valued customer by providing a more accurate forecast to their suppliers. This helps distributors and their supply chains become more efficient. Ultimately, this virtuous cycle helps set the distributor apart as a better supply partner – making it one that beer manufacturers will want to work with and which has the capacity to make a product successful in a new market. This allows the distributor to negotiate more favorable terms with suppliers, thereby increasing margin performance. Everyone benefits.

Improving the forecast model will require improvements in technology and process systems – something that owners will have to support. Since distribution sales people are singularly focused on driving volume and taking care of their customers, they do not take kindly to activities such as supply chain forecasting. But their input is critical in order to achieve a “big picture” point of view that will help the entire company. When forecasting is tied directly to how it will help sales people earn more money (working for a higher margin distributor), a critical component of improving forecasting will be realized.

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Gene Tanski is president and CEO of Demand Foresight Software in Golden, Colorado. Prior to joining Demand Foresight, Tanski was a partner with Accenture, working with clients on technology initiatives that delivered more than $250 million in improvements to bottom-line performance over four years. He also held a number of overseas management positions for ARCO and Caltex Petroleum Corporation, and helped to build a consulting practice for Perot Systems. He likes cross-country skiing.