Distributor News: SKU/Portfolio Management

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The BA Insider is a free email publication sent quarterly by the Brewers Association. Each issue covers topics relevant to craft beer distributors. Below you will find the first quarter article, covering SKU and portfolio management:

By now, everyone knows about the ever-growing number of breweries (currently over 2,700 in the U.S.) and brands proliferating in the market. For the past four years, an average of over 600 new beer brands have shown up in Total US Food reports (IRI Advantage YTD ending 8/26/13). This level of innovation has brought an amazing number of great beers to market, but also brings with it a number of challenges to distributors and retailers. With the number of brands now available, it is more important than ever for distributors to have a clear strategy for managing their beer portfolio. Every distributor should have a unique strategy based upon their business objectives, to help navigate the variety of new brewers and brands. We surveyed several top distributors from various regions in the U.S., along with several key craft brewers, to get their thoughts on how to optimize your beer portfolio.

Portfolio Management

There is a tremendous amount of diversity among craft brewers, and it is critical to pick brewery partners that fit your strategy and fill a niche in your portfolio. One key criteria when interviewing prospective brewer partners are the personal relationship between brewery and distributor owners and the relationships between sales managers and street level personnel. The brewer/distributor partnership is a marriage, so be sure both parties have the same aspirations in the relationship. When considering new brewer partners, one distributor says it is important to “know the strong local or regional brands in each market, research their flagship brands and discern the flavor profiles and what makes those brands distinct and appealing.” Just as brewers have expectations for distributors, distributors should have expectations from each of their brewer partners. A distributor owner noted: “Not all brands can succeed. It depends on the market. Not all brands work in all markets.” There are countless topics to consider when analyzing brewery partners; here are the most important criteria that distributors ask for from their top suppliers:

Brand Strength & Commitment

  • Brand recognition, excitement, compelling story and respect
  • Clear brand priorities—Flagship or wide portfolio approach
  • Investment in people, events, POS, training, local marketing, national accounts, etc.
  • Strength in home market displays brand strength: “Success breeds success. Momentum matters.”
  • Social media plan to stay in front of craft consumers

Long-Term Vision

  • Commitment to quality: Financially participate in getting old beer out of market (where legal)
  • Mid-to-long term plan for future of brewery – local, regional, national; ownership/succession plan
  • Ability to expand capacity to keep up with increased demand

These are all important topics to consider before you agree to bring new brands to market, as you need to know that your investment will pay off for many years to come. In the words of one distributor, “If the supplier partner is present in the market, has a focus, has consistently good product, markets buzz and the ability to innovate, they will succeed as long as the demographics are favorable.”

Managing Expectations

A critical component of portfolio management is establishing clear expectations for all significant brewers and brands in your distributorship. Distributor noted: “They all have a chance to succeed, but the level of success depends on resources and spending behind the brand.” When establishing objectives, be sure that brewers and distributors are on the same page regarding brand priorities. When considering a new brand from a new or existing brewer partner, ask yourself what niche or void that product will fill within your portfolio. It is critical for brewers and distributors to work together to understand each SKUs unique attributes and how to capitalize on them in the marketplace. “It sometimes feels as if there are more brands today than there are consumers to drink them,” says a distributor. With the expansion of a distributor portfolio, an unintended consequence can be diminished focus on core, established brands in favor of the “new, shiny toy.” It is more important than ever to maintain focus on the flagship and leading brands of the top craft brewers in each market, while complementing these brands with new, exciting entries to the market.

One topic noted by almost all distributors is the need to evaluate under-performing SKUs annually. Distributors should regularly work with brewers to make sure each SKU is meeting expectations. It is also incumbent upon brewers to manage their portfolio to ensure each SKU is beneficial to their distributor and local retailers. The specific criteria are unique to each situation but can include profit per case, incremental profit per case, SKU efficiency, volume, unique fit within portfolio, bringing new customers into beer category anymore. Distributors should hold brewers accountable for effectively investing in and managing their business, and if a brewer is not doing so, a serious conversation about the future of the partnership is warranted.

In a newsletter to clients in July 2013, industry expert Bump Williams shared several key observations:

  1. There are lots of dead packages still hanging out, taking space from new products and faster turning products.
  2. If we did our jobs right, we could turn a negative category into a very positive growth business by better managing the real estate.
  3. There is room for all kinds of new offerings, but when something new comes in, something on the low end of the totem pole needs to be eliminated.
  4. Food stores may not be the right home for some brands or packages, so segmentation and targeting specific consumers is critical for building brands.

Planning and Brand Management

Successful distributors develop a collaborative annual business plan for each key brewer, but most importantly, they refer back to the plan throughout the year. Every annual planning meeting includes goals to increase draft and package distribution. Unfortunately there is not enough space in the world for all brewers to achieve their distribution goals. It is incumbent upon both the brewers and distributors to have realistic expectations of their place in the market and within the distributor’s portfolio. Which brands target top craft accounts, and which should be sold into mainstream accounts or chains? Establishing mutually agreed upon sales and distribution goals at the beginning of a partnership, and review them annually, will help ensure a happy and fruitful relationship.

An additional consideration with major implications is the distributor personnel in charge of their craft portfolio. Some distributors choose highly educated, passionate craft beer enthusiasts who sell to specialty accounts. These craft managers may or may not have specific sales goals, but they are tasked with being a contact and resource for craft suppliers and accounts. In other instances, distributors appoint a specialty manager who has extensive sales knowledge in the organization, but may not have the product knowledge or passion for the craft industry. They have strong market knowledge and an understanding of what motivates their general market sales team. The decision of who should run a distributor’s craft division is important and will vary depending on the distributor’s portfolio and strategy. Be sure to align your strategy with a person highly capable of executing your plan.

Let Our People Go

The final key to a successful portfolio management strategy is acknowledging when a brewery partner is not a good fit for your portfolio. The beer industry—and the craft segment particularly—has evolved over the past decade. It is time to be honest that brewers that are not invested in their brands and business may not be great long-term partners. On the other hand, for a local or regional brewer, they may represent a tiny part of your business, but your market may be a significant part of their current or potential business. When your expectations no longer align, allow brewers to seek out alternatives to ensure the industry continues to evolve. Your brand managers and inventory managers will thank you for reducing these SKUs and freeing up the time and resources to increase your investment behind the brands that will drive volume and dollar growth in the future!

Craft brewers are working hard in many states for franchise law reform, to obtain the right to move their brands out of a distributorship if they believe the partnership is not ideal. As small brewer carve-outs become law in more states, the best distributors in each market stand to benefit by offering a new distribution option to dissatisfied craft brewers. Refusing to release a brand that seeks to move distributors benefits no one and threatens the long term viability of this exciting segment.

The future is bright for the craft segment, as the Millennial generation becomes the dominant force in the beer-drinking population. Independent, American craft brewers will continue innovating and this innovation will provide an unrivaled level of consumer choice, while requiring continuous evolution of retailer and distributor strategy. The most successful distributors will be the ones who continue adapting to the changing environment and optimize their portfolio of national, regional and local independent American craft brewers. With continued partnerships of brewers, distributors and retailers, the U.S. will continue to be the greatest country in the world to enjoy beer.

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