Monday, October 22, 2012

The Distribution Dilema...

Picking a distributor is probably the hardest decision that a brewery has to make short of actually deciding to start the brewery in the first place.  I am fairly certain that I have a growing ulcer that if dissected would bleed the logos of all the local beer distributors.  Not an hour of the day goes by that I don't think about it.  I have made more than a few lists with pro and con columns listing all the finer points of how each distributor operates.  Did I mention it's a big deal?

But why?  As I have discussed before there's a lot of reasons why choosing a distributor is a big deal.  In Ohio a brewery can self-distribute but in Kentucky you cannnot.  So to sell beer in Kentucky you MUST have a distributor.  What most people don't realize is that in Ohio (and most everywhere) distributor agreements operate under franchise law which means that when you sign with a distributor it is essentially a perpetual agreement.  That means you don't sign a one year or three year agreement and then "decide" whether or not to continue the relationship.  Nope.  It means that distributor agreements are in effect until such time as they are "mutually severed".  If things aren't going well then the distributor can either let you go or they can tell you "tough shit".  At that point you can sue for negligence to try to get out of the agreement, but that generally doesn't turn out well for anyone but the lawyers.  This is not to say that a distributor would stoop to that level, and every agreement is generally done in good faith.  Still, it's something you have to be aware of when considering the "worst case scenario".

So if its that big of a deal then why do it?  Why not just keep self-distributing?  Well, as I mentioned you can't self-distribute in Kentucky so I am missing out on a big hunk of the local market.  But, there's more to it than that.  Self-distribution was never my long term plan.  I wanted to do it starting out so that I could learn that side of the business since it is where I was the least experienced going into this endeavor.  Boy have I learned a lot in the past 4 months.  Some good stuff, some bad stuff, and some stuff that makes me wonder what the hell kind of business I have gotten myself into.  I definitely haven't learned it all in this short amount of time but I have learned enough to know that I don't want to do it much longer.

As a self-financed "one man army" it is simply not practical to self-distribute long term.  I don't have the time to make the beer, sell the beer, deliver the beer and do the myriad of other things that go along with running a business.  To do it would require a lot of capital that I simply don't have.  To meet the sales targets that I have I would need at least one if not two full time sales reps/delivery drivers.  I need to get a bigger delivery truck (the Ranger has really taken a beating the last few months).  I have to pay these people (bear in mind I haven't even gotten a paycheck yet), insure the truck, and so on.  Essentially I am creating another "business" unto itself.  This distribution arm now has to struggle with being new to the local market and try to convince customers that they should write an extra check and schedule an extra delivery every week from a new supplier.  Some accounts are fine with that but others don't like the extra hassle (so I have found).  In the end you still only have one or two people out "hitting the streets" trying to sell your products through primarily "cold-calls" whereas the other distributors have many more people who already have relationships with accounts.  Certainly over time you can build these same relationships but it takes a while to build this kind of business and in the meantime I can't sell as much beer as I need to stay in business.  Granted, if we had a big bankroll maybe I could pull it off, but I simply don't have it.  In my mind I would rather spend any "extra" capital we may get on additional equipment to grow the business.  That in a nutshell is why we are getting a distributor.

So before I get into the particulars I want to put out a HUGE disclaimer.  All of the local distributors that I have talked to have been extremely nice to me.  I have had multiple meetings with several of them and they have been very helpful with information about their company and the distribution world in general.  My decision to go with one versus another was purely a business decision and not because of any personal reasons or "issues" with any of them.  I consider all of them to be my new friends in the business.  Also, my reasons for my choice were what I thought was best for me and my business and do not in any way constitute an "endorsement" of one distributor over another.  Everyone's "path" is different and what seems best for me may not be best for someone else.

Granted every market is different and one of the first things a brewery needs to consider is how it wants to fit into that market.  The market here in Cincinnati is fractured between Ohio and Kentucky due to different state laws that don't have much overlap.  So whatever you decide to do in Ohio doesn't necessarily translate into anything in Kentucky.  Indiana is different yet, but to be honest I haven't even looked into how things work over there.  In this area you can break the distributors down into a few "groups".  There are distributors that distribute the "big brands" along with some craft and there are others who deal only in craft.  Some of these distributors have territories that cover the whole state and others only operate in certain counties.  Some are strictly in one state or the other and some have branches on both sides of the river.  There are also differences in how sales forces are structured, chain account access (think Kroger's) and things like that.

So there is no one way to "skin the cat" as you can see.  It depends on what you want for your business.  Going with one of the "big guys" means being able to tag onto a large logistics network that can make moving product around fairly easy.  The smaller craft only distributors are generally less "corporate" than some of the "big boys" which can make them a little more nimble which is nice.  Which is better?  Well, both and neither, depending on how you want to be positioned in the market.

Choosing a distributor that covers the full state means that when you're ready to grow all you have to do is "turn on the switch" to expand into other counties without having to sign a new agreement with another distributor.  Signing with a more local distributor means you can choose different partners in different markets that may suit your needs better in that particular region.Once again, which is better?  It depends.

This may be a rather simplistic way to look at it and trust me, there are a lot more in's and out's that I won't go into.  To me, this pretty well illustrates the primary "paths" that I had to choose from.  For me there are advantages and disadvantages to each of these paths which has made this whole process mind-numbingly difficult.  You have to consider what is best for you now AND what will be best for you 10 years from now.  To be honest I have spent so much time and effort just getting this brewery off the ground that I can barely picture what may or may not be happening in 10 years.  This is where the ulcer part comes in.

So after weighing all the options, wavering back and forth for weeks and pulling out some of the little hair I have left, I have finally made a decision.  As of Monday November 5th our products will be distributed in the Cincinnati and Northern Kentucky area by Stagnaro Distributing.  I'm excited to have finally gotten this decision out of the way and hope I have made the right choice.  Only time will tell but in the meantime I am looking forward to concentrating more on production.  This is not to say that I will never make a sales call again.  I still plan to be out in the market visiting customers once a week.  I just won't be doing it 3-4 days of the week like I have been!

10 comments:

  1. So, if it works out, you got that phone number from me! Looks like things are going well, wish I could stop by and try some of your beer :)

    Jon O formerly of Aristech

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    1. Hey Jon, Good to hear from you. I ended up with a few phone numbers for them but yours definitely helped. If you're ever out this way look us up!

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  2. Great blog post! Can you tell us a little about why Stagnaro was a more attractive partner than the other distributors you considered ie what business model or "path" they represent?

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    1. Stagnaro distributes Miller/Coors in this area and Northern Kentucky but not in the full state(s). They also distribute some local, regional and national craft brands. That puts them kind of in the middle of the two "paths" that I spoke about.

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  3. Congrats Scott on making this very important and stressful decision. The "married for life" nature of distributor agreements is one of those archaic alcohol laws that was easy to get passed when there were few breweries, and now that there are dozens popping up every week, I believe it makes little sense. I've heard the horror stories of a brewery going with Distributor X after be wined n dined and given plenty of promises, only to have that distributor put their orders on a back shelf to gather dust....just so another distributor wouldn't get the brand. It's just a tough, tough call. We are lucky right now in that all of our distributors are healthy and in good shape....with a strong desire to work for their craft brands. So, in that sense, you really couldn't go wrong. Now, ALL you gotta do is make enough beer to keep up! Good luck!
    -Craig Johnson, Cincy Beerfest

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    1. Thanks Craig. It really was a tough choice as all of the local guys had good things to offer.

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  4. Scott,

    Thanks for the insight about your decision. I really enjoy your blog so I hope you are able to keep it as you undoubtedly will be busy pumping up production.

    It seems that the distributors really have you guys by the you know what. Your comment that: distributor agreements operate under franchise law which means that when you sign with a distributor it is essentially a perpetual agreement seems like a bunch of mularkey to use a phrase in the news of late. It would seem that the ability to issue solicitatins for you business would give you the upper hand which is probably exactly what those in the distubution industry are trying to avoid. Seems a little one-sided; probably not by accident. :)

    As a local/craft beer supporter, I wish you all the best. I look forward to trying Fork in the Road tomorrow night.

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  5. Thanks for sharing, I will bookmark and be back again






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  6. Stagnaro has done a great job bringing Oskar Blues into the area, I think you made a great choice. Very excited to see more of your beer out in the bars!

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