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Brewer and Wholesaler Consolidation

What Does It Meant To Today's Convenience Store Operator?

The first thing any retailer needs to do when it becomes apparent that large, potentially impactful change is on the way is to identify what it is, where it will come from, and what reaction will be necessary to address it efficiently.

This is certainly true with the consolidation taking place within the beer industry. While the impact of these changes might seem to have little to no impact on the c-store retailers, closer examination reveals that is not the case.

InBev, a Belgian brewer, is poised to buy Anheuser-Busch for a staggering sum of 52 billion dollars. This debt may not seem to be relevant but has a potential negative effect on retailer effort particularly the convenience store industry.

Anheuser-Busch has been the driving force in the growth of the beer category in the c-store channel for years. Unfortunately, a lot of this growth is being generated in a less than desirable profit environment.
InBev is a notorious cost-cutter and profit driven organization. They will probably cut the depth and frequency of discounts, raise prices in larger increments than history suggests – and more often.

The beer industry consolidation will also be felt at the distributor level were brewers have to determine who will be distributing their products. While there are a large number of legal issues to be settled, the end result will likely be fewer distributors. The survivors will probably cover a larger geographic area and service more customers. The net result – higher volume per distributor.

These distributors will be carrying a higher debt load having just purchased their former competitor. The debt service will likely be funded by the retailers. How? By some of the same mechanisms utilized by the brewers - product price increases, and reductions both in quantity and frequency of discounts. Another possibility is reducing service frequency. Consider if deliveries were cut from twice per week to once per week, would logically require the c-store retailer twice the level of inventory on hand at all times to do the same or possibly lesser volume. This would certainly negatively impact both turnover and cash flow – especially in states where beer is C.O.D.

Once the distributor consolidation has been completed it will be incumbent on the retailer and wholesaler to identify their new "partner in beer", what changes they bring to the table, and how they both must adjust to accommodate the change. Most of the expense associated with all of this change will probably fall on the retailer.

The biggest thing that the retailers lose in the consolidation process is competitive leverage. Clearly two can get together and agree much easier than three or four. Two wholesalers talking about perfectly legal issues can agree on much more than three or four--particularly when one is dominant. It makes it very difficult to leverage one against the other.

Service frequency and energy consumption to advantageous conclusions are two good examples, with the physical pricing of beer being another. Any retailer with ten or more stores who does not have scanning ability would probably have to hire additional personnel just to price beer if the wholesalers refused to do it citing time constraints throughout the marketplace.

The consolidated pressures driven by brewer and wholesaler changes are going to create an environment of change for the retailer that will have a large impact on how the beer category is managed from this point forward. The c-store channel will be hit the hardest. Ask yourself – what would you do if:

The following things must be done objectively yet critically to allow for a determination of present strategy and obvious need for change as you move forward:

There is a great deal of your information that a wholesaler does not want you to see or be aware of. This information could have a dramatic impact on some decisions you as a c-store retailer will have to make and most wholesalers would like to continue to omit it. Be advised, it can be significant and can take you in a direction with this category that you never considered. Unfortunately, most people do not know that it is available and useful and therefore never ask for it. Don't be guilty of being a c-store who fits the following definition: They don’t know what they don’t know and don't know what they could know about this all important category.

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