Last blog post we spoke about the four different types of distributors, which I have classified as (a) rent-a-distributor, (b) Mom and Pop, (c) Mid-Sized, and (d) the Majors. Today we’ll be dellving into the risks and benefits of each. As always, Helmsman clients get these services for free and if you need a deeper look, we can hook you up with our expert consultant partners to help you plan your go-to-market; just ask!
Rent-a-Distributor
This is sometimes a good option and it is usually a stop on the way to full distribution, not a permanant solution.
Rent-a-Distributors Have a Few Risks
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Product Availability. Product is not easily available to buy and often has to be shipped at a higher carbon footprint
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No Sales Coverage. You have to make all your sales
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Account Setup. Not all accounts use this type of system, so be prepared to have to fil out paperwork on onbaord new accounts.
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Minimums. Accounts like smaller numbers of distributors, not more, so be prepared to hve to deal with minimums issues
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Scale. Good distributors scale you – and you won’t get that here.
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Credit Risk. If the account doesn’t pay, you don’t get paid. One advantage of distributors is that they take the credit risk for you.
Rent-a-Distributors Also Have a Few Benefits
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Margin. You keep more margin. Normally you would give up 25-30% and in this situation you keep it all.
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Choose Your Own Adventure. It allows you to have the most control over your go-to-market strategy and is often best when it’s you or a key Stateside partner. You may need counsel on visas in this situation, if so, we can recommend some great immigration attorneys who can help you understand the appropriate options.
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Freedom. You’re free to organize your own life. And isn’t that what America’s supposed to be all about?
Mom and Pop Distributors
There are many small (and often growing) distribution companies who work in the U.S. marketplace. Often, they start as enthusiasts and begin to add brands.
Mom & Pop Distributor Risks
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Viability. Sometimes these distributors have balance sheet issues or are not familiar with the cash cycle needs of products
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Scale. You are often working with a company with a small set of final account salespeople, which may be changing all the time because they cannot provide the salary or benefits that larger ones can.
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Length of Relationship. As with most industries, Alc Bev is a relationship industry so you might have newer reps with a shorter depth of relationship with the larger buyers you might want.
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Trucks and Logistics. Often these distributors cover a smaller regional focus (i.e. downstate New York focused on Manhattan only, or Miami but not Orlando/Tampa/the Panhandle)
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General Best Practices. Sometimes these distributors may not have set best practices.
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Higher Margin Asks. Often these distributors are more dependent on your cash flow and they may ask for larger margin
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Account Opening. Not all accounts will have an account with these distributors and therefore you may find yourself opening accounts for them.
Mom & Pop Distributor Benefits
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Focus. If you are a successful brand for this distributor, you can sometimes insist on more focus. You are most likely to receive focus from this type of distributor than the others.
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Portfolio Benefit. Often these distributors have great portfolios; however, sometimes as a brand grows, it will shift to another type of distributor and you’ll be left without the positive sheen from association. In general, these distributors are best when you can grow with them.
Mid-Sized Distributors
Mid-sized distributors can be a great option as you grow. They are often distributors with strength in another type of beverage (for example wine or beer) that see the growth in spirits and want to send more products to their clients on their trucks.
Mid-sized Distributor Risks
In general, this is one of the least risky options; however, the devil is always in the details.
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Strategic Focus. Often these distributors are going through growth themselves and therefore their strategic focus might change more suddenly than you would like, leaving you in the dust. But it can also be an opportunity.
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Large Accounts. They occasionally do not have as deep a relationship or pull with large accounts (like big grocery, casinos, arenas, etc) as they will be competing tooth and nail with the big guys. Therefore, if your strategy is very focused on those big channels, you may want to consider trying to get into the larger portfolios.
Mid-sized Distributor Benefits
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Balance. These distributors have some of the best balance between focus and breadth,.
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Great Sales Reps. They often attract an unusual quality of sales rep because they provide best-in-class portfolio, a minimall corporate vibe, and some freedom to do their job. That means you can engage these sales reps on the passion you bring to your brand and quality can sometimes be helpful
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Strength in Key On-Premise. They often have unusual strength in high-end on-premise like key restaurants and bars, because they provie the smaller batch, cool products with the ease of administration
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Ease of Administration. They usually have good general market coverage
The Major US Distributors
The big dogs are the majors: i.e. Southern, RNDC and Breakthru (and will include regional big dogs which might be very influential in 3-5 specific states).
The Major Us Distributors Risks
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Lack of Focus. The reps here have tens of thousands of SKUs and gaining their attention, and their manager’s attention can be extremely diffficult
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Strategic Focus. Their focus is on beating their opponent, which means that your margin is frankly not so important to them. You may be able to ride the growth of a craft division, for instance, but upper management may deprioritize this one day to the next.
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Capture. Once you’re in, they’ll often ask for contracts that make it hard to get released.
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Internal Polltiics. An organization of this size often has political issues to navigate.
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Turnover. There are times when their rep organization changes frequenlty and it’s hard to keep up with who’s who.
The Major US Distributors Benefits
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Scale. These guys have the best scale, which includes almost univeral account coverage and weight with big buyers.
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Total Account Universe. You can pretty much ship anywhere in a state with these options.
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Large Account Focus. They can (but they won’t unless they have a reason) help you with very large buyers (i.e. Disneyworld, BevMo, arenas, etc) but if you have a need for these accounts you may want to consider working with them. Check out how that account feels about that partner if so.
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Traditional Distributor Best Practices. Often these distributors utilize best practiices for distribution, which if you have a team member that knows these arts, they can be great partners
There’s a lot more to distributor choice but this should give you a general overview of the landscape as you start to build your brand. If you have any questions or we can be of help, reach out to inquiries@helmsmanimports.com and we’ll help you navigate this complex distribution landscape.
