News
Resistance is Futile: Why POS technology for beer distributors may be critical for survival in the new world of consolidation and fractionalization
February 29, 2008
After decades of single digit growth in the face of stiff competition from craft beers and imports, it seems that beer
distributors are faced with another double whammy –consolidation and fractionalization.
It doesn’t take a crystal ball to foresee a future where fewer distributors will sell less of more.
For generations, most beer distributors were small to mid-sized businesses characterized as either exclusive or non-exclusive purveyors for a major domestic brewery. But the two trends of consolidation and fractionalization are changing what it takes to stay in the game and remain profitable. While Star Trek may be a fictional universe, realities of a changing beer distribution landscape are real and as Locutus of Borg said, “resistance is futile.”
Consolidation
The continuing consolidation of the distributor tier of the three-tier system is well-documented. Over the last two decades, the number of beer distributors has steadily declined, and the pace continues as smaller distributors scramble to sell before values decline further. For the growing distributor this means as trucks head out to deliver payloads of domestic beer, also onboard will be imports, crafts, energy drinks, spirits or even the new wave of organic waters.
Fractionalization
The term fractionalization paraphrases the concept of the “Long Tail” to describe companies with the distribution power to sell a greater variety of products at smaller volumes than popular products at large volumes. Fractionalization is a consumer-driven trend that is splintering traditional buyer habits of choosing only a single brand. Today’s proverbial“Bud Man” is more likely to purchase a beer for its characteristics, a beer that fits the occasion, the food or the mood.
Implications
Each trend means that the dominant big beer brands may see market share steadily decrease. The success of imports and craft beers, for example, has been at the expense of A-B, Miller and Coors. As exclusive distributors chase growth opportunities, they are weighing their opportunity costs and trending toward multi-brand status or branching out into new territories and brands. Now they must sell the bread and butter brands plus new products and brands, and they also must honor POS budget commitments and reporting imposed by suppliers. As retailers demand more promotional support for their burgeoning SKUs, sales reps must persuade retailers to give over precious shelf space to their products. The result is an ever increasing escalation of SKUs and spiraling costs associated with the making and managing of both temporary and permanent POS.
Dealing with 3-10 times as many suppliers and brands than before, distributors will see a significant increase in the variety and frequency demand for off-premise and on-premise POS. As the Big Three move toward their own kind of consolidation and fractionalization to grab a share of the import and ethnic beer markets, staying competitive and still holding margins will get tougher. Each new brand will demand distributor time, resources and accountability. Each supplier will demand distributor participation, and demonstrated proof of that participation delivered electronically so it can be recorded in suppliers’ marketing, merchandising, and systems programs. If not delivered, distributors could find themselves defending against termination for nonsupport. On the demand side, fractionalization requires more frequent and more effective merchandising support than ever before. Most large multi-brand distributors are racing to make retailer marketing support a priority with higher quality POS displays and merchandisers for named accounts. Those who fail to embrace supplier and customer demands will see further market value erosion, even evaporation of the family legacy.Solution: Technology-managed POS
Will consolidation and fractionalization hurt the beer distribution industry? Not necessarily. Good things can happen when brand proliferation occurs if an industry willingly steps up to embrace the technology to manage it. A Red Bull distributor might complain about the glut of required paperwork, but love the high margins. An A-B distributor may complain about the employee time spent reconciling and reporting POS budget allocations, but supplier incentives make it worth it. So how can these distributors avoid at least part of the brand proliferation pain stemming from fractionalization and consolidation? The answer lies in utilizing technology for POS from the very point of order.
Some distributors may have the expertise to write their own POS management software; for others there are on-demand applications for both temporary and permanent POS. Regardless of the method, the practice can pay big dividends in efficiency, error reduction, and increased operational effectiveness. Data enters the system from the point of order; is used during POS production; then enables the creation of unlimited spreadsheets and reports about POS cost and effectiveness --information that without technology is elusive or impossible to acquire.
Distributors invest in POS not only because of their distributor agreements, but because effective POS simply sells more product. Using technology to manage POS can easily save as much as a half cent per case, according to John Turner of Silver Eagle Distributing, one of A-B’s largest distributors in Houston, Texas, who implemented an on-demand version for temporary POS in 2006.
Like all technology that relies on the collection of data over a range of days, months or years to identify patterns and control costs, the sooner a managed POS system is implemented, the sooner an economic return will be realized. By February 2008, less than a dozen beer wholesalers said they use an on-demand solution delivered over the Web, while only a handful utilize an in-house system in place or have one under development. Why is this?
According the National Beer Wholesalers Association (NBWA), “staying ahead of technology advancements and trends is a challenge and vital for survival in today’s competitive marketplace. To remain successful in the 21st century, beer industry professionals must understand the benefits of existing technology tools and options available to them.”
Conclusion
Distributor provided POS has traditionally been a key selling tool to drive market share. Without technology to manage POS, sales objectives are more difficult to achieve, accountability to suppliers is tedious and time consuming, and being responsive to retailer demands costs substantially more. Managing POS must rise to business-critical status. POS must be tracked against cost, controlled for efficiency, and measured for effectiveness. It must be targeted to a new kind of beer consumer, increasingly attractive to ethnic groups, and be able to manage the ever-increasing proliferation of products and brands. Managed effectively, POS can impact the difference between lower margins or reliable, predictable, dependable profits that keep beer distributors of all sizes in the game.
For more information on SignTrak™ solutions for POS or to request a demonstration call your Account Executive or the product information line at 800-513-9194, extension 205.
