Merry Christmas, Happy Chanukah, Happy New Year, and if I have missed your specific holiday, please celebrate that as well. We are at the end of the year and now, it is time to look forward. The only real business happening now is at the retail level and the rest of us are planning for January and hoping December finishes strong. Many of the buyers and leaders at the supplier and distributor tier are packing a large suitcase for warmer weather and will watch the numbers come in via smartphone.
If we at BevStrat could attach a word or phrase to 2017 it would be the year of the independent brand. Perhaps this is my perspective as this is the lens I look through, but aside from Tito’s being the top vodka now, the world is talking about independent brands. I spoke at Wine and Spirit Daily’s convention last January and all the talk was the indy brand. At USATT, the floor was flooded with small brands. At WSWA is was all small brands looking for distribution, and our client book is all small brands. So therefor, I believe that 2017 was the year of the small, independent brand.
When making predictions on a new year, many prognosticators stay safely in a comfort zone and tell a reader/viewer what they already know, not us, nope, we are going out on a limb. We have run this piece for 7 years running and have been mostly correct in our predictions. We called the distributor mergers by name, we called the massive expansion of Total Wine, we called the leadership change at BevMo. We called Bourbon and Mezcal trends. So we are at it again and this is that we think:
- There are no more large scale distributor mergers really available any longer. The next wave of consolidation will be the hand fight of the mid tier distributors. In speaking with sources within Breakthru and Southern, it is clear that the next battle will be at the mid tier level to get complete USA coverage. These mergers will not happen quickly, and they will be expensive, but they will happen, and they will happen quietly.
- The web based distribution model will become much more popular and mainstream. As we talk about often, the independent brands have NOWHERE to go to sell their goods. The shrinking footprint (by choices) of brands will lead them to outlets like Liberation Distribution and the like. Companies that take less commission, and allow the supplier to be in charge of their own fate will continue to move towards mainstream thinking. In every business globally the web has leveled the playing field, and this is no different. Suppliers are going to grow sick of paying high fees just for the pleasure of sitting on a back shelf of a distributor and not being sold. The growth of sales organizations, like ours, and distributors like LibDib will be getting a seat at the table with the big guys this year.
- Retailers will begin to rebalance their inventory towards independent brands. I write often about the shrinking gross margin that commodity items provide. Additionally the downward pressure on price to compete with mass merch stores, and regionals will crush the ability of the retailer to make money. The off premise account will need to rebalance the inventory to make any money at all. Selling a wine at 14.99 that was purchased at 12.80 is not as good as selling a wine at 14.99 that was bought for 6.50. Commodity items do not allow for the prior and independent brands allow for the latter. Smart retailers will buy more from brands that no one has heard of and have to “hand” sell them to increase their GM%.
- Bars and restaurants will sell more items and create more mixed drinks where the alcohol price is >$1.00/ oz. This is the sweet spot and the more data that is available to the Somm or beverage director that looks like this, the more sales will be made. That demographic of buyers is wicked smart.
- The independent sales force, like BevStrat or others, will continue to gain strength. Suppliers will get their Q4 depletion numbers, and you will hear a collective THUD from them. With less distributors and more brands, the Big 4 are focused on selling core brands for fear of penalty. The small supplier is left holding the proverbial bag. More and more suppliers will be ditching the sales teams that are “supplied” by big distribution and hire a salesforce that will sell their brands and not 500 other items. In a world of “gig” economy and work when you want, there are scores of salespeople out there that want to sell your brand.
2018 will be a year when the independent brand begins to control their own fate. It will be a year where the “us versus them” mentality is prevalent and the “us” is the supplier and brand that reads this column. With the new web based technology, the supplier can finally sell their own brand when and where they want and have some control in their future.
Wishing all my readers the happiest of holidays and a wonderful New Year.