Is there a good reason for distributors to exist?

[ramblinman]

This may be a little too meta, but one of the posts in the "Why?" thread got me thinking.

Is there a good reason for distributors to exist? I guess I can understand a bit that they served as a taxation "choke" point as there were a lot of producers and a lot of retailers, but with the way business is done today do they serve any purpose other than a middle man?

Do you think there would be any differences in the bourbon being produced if distillers could work directly with retailers, and perhaps directly with consumers?

Note: I realize being in Georgia I have basically nothing to complain about than some of you guys in controlled states, and other places with crappy distributors. But curiosity got the better of me

[TheOakMonster]

Is there a reason for distributors to exist? 1000% YES. Working for a retailer, it would be a nightmare for us to deal with each and every producer, week in and week out. If I had to call the distillery every time I wanted to order a case of Wild Turkey or Eagle Rare, it wouldn't be worth it. We'd carry fewer brands, simply to minimize the hassle. Our store actually orders some products directly from local wineries (NYS allows this) and it takes more manpower for us (and the wineries) to work this way. Most NY wineries do not self-distribute because it's far easier to leave deliveries to one entity rather than drive all over the state for a few cases here and there.

[jmj_203]

Is there a reason for distributors to exist? 1000% YES. Working for a retailer, it would be a nightmare for us to deal with each and every producer, week in and week out. If I had to call the distillery every time I wanted to order a case of Wild Turkey or Eagle Rare, it wouldn't be worth it. We'd carry fewer brands, simply to minimize the hassle. Our store actually orders some products directly from local wineries (NYS allows this) and it takes more manpower for us (and the wineries) to work this way. Most NY wineries do not self-distribute because it's far easier to leave deliveries to one entity rather than drive all over the state for a few cases here and there.

Ny for you. Cmon its helping retailers? How about us enthusiasts and supporters. Glad we can make it easier on you to provide what is easiest for you to make one phone call per day. Yeah everything isnt clicks on the internet noawadays. Thanks for confirming the power structure in controlled states.

[P&MLiquorsEric]

Those distilleries would need a rickhouse full of telephone order takers if every retailer phoned in each order.

[smknjoe]

Sort of like shopping for groceries without a grocery store.

[TheOakMonster]

Ny for you. Cmon its helping retailers? How about us enthusiasts and supporters. Glad we can make it easier on you to provide what is easiest for you to make one phone call per day. Yeah everything isnt clicks on the internet noawadays. Thanks for confirming the power structure in controlled states.

Reality is, our store would carry far fewer products and producers without the efficiency of distributors. We wouldn't even bother carrying KBD products or similar small producers because we couldn't meet minimum order requirements from a direct supplier.

[squire]

I see no good reason why there couldn't be a dual system where distributors continued to offer their services but the distilleries were also allowed to make direct sales if they wished.

[Clavius]

I really like the smaller distributors. They tend to have knowledgeable sales reps that know their products, etc.

On the other hand I really can't say much positive about the big distributors... one of them in particular.

[TheOakMonster]

I see no good reason why there couldn't be a dual system where distributors continued to offer their services but the distilleries were also allowed to make direct sales if they wished.

Agreed. If the requirement to use distributors was removed, your large producers (say, Sazerac, Pernod, Campari, Suntory/Beam) might establish warehouses, staff, trucking, and salesmen in each state and abandon their distributors while smaller producers continue to rely on distributors. But, what's the real benefit? I doubt, Pappy Van Winkle or AAA10 will be more readily available nationwide. Yes, distributors decide, in part, what products to carry from a producer, but the producer also chooses to not make all products available in all markets. Will prices decrease? That's no clear, since the producers are now required to invest money to fulfill functions distributors once covered.

[sutton]

Taxation and uneven distribution issues aside, from the producer's standpoint, I'd think the distributor offers the obvious benefit of more predictable revenue and working capital management - being able to move your inventory on some regular and more or less predictable schedule brings efficiencies to those operations.

[Quantum]

Ny for you. Cmon its helping retailers? How about us enthusiasts and supporters. Glad we can make it easier on you to provide what is easiest for you to make one phone call per day. Yeah everything isnt clicks on the internet noawadays. Thanks for confirming the power structure in controlled states.

The distributors do help the enthusiasts, a lot. Ordering directly from the manufacturer requires a lot of work and expense logistically. Each purchase order has costs for both the supplier and the customer. There is the administrative portion of just placing and keeping track of each order. Then each order needs to be shipped, received, and paid for. Even if a retailer had the capability to handle this, it would result in greater expense for them, which gets passed down to the consumer. It would become very difficult to justify ordering from any manufacturer that only sells a few products. Shipping costs alone would force most retailers to only order from manufactures that can bundle several different lines. It would be a nightmare for any small manufacturer to maintain accounts with thousands of retailers across the nation, and you would end up with localized and uneven distribution territories.

Eliminating distributors would be a death blow to small manufacturer and retailers. Retailers would need to be part of larger chains that can share some of the administrative and logistics costs. Most producers are already owned by some sort of conglomerate, but it would become impossible for any startups not backed by one of them. Retailers and producers would both need to be owned by larger companies that have corporate offices that essentially function as distributors. Now the power is even more consolidated among a select few, and you end up with monopolies. There could be some benefits, but history tells us this is usually bad for the consumer.

Your statement "its not all clicks on the internet nowadays!", conflicts with your idea of eliminating distributors. Quick and easy one click ordering is the only way small manufacturers could hope to make any sales. Even though every retail store has hired an additional person to place orders, they still wont have time to actually call each manufacturer. Everything would have to be highly automated.

I am all for for a dual channel system, but eliminating distributors would cause costs to skyrocket and selection and availability to plummet. That would be a sad day for enthusiasts. It would probably drive me to stop drinking.

[sailor22]

I can honestly say I have never met a particularly knowledgable or interested rep for a distributor. Their ONLY focus is on how many cases of Crown or WT101 or Vodka or Fireball they can move in a quarter. Some slight lip service is paid to special releases and specialty bottles but for the most part they really could care less about KBD or High West or any of their smaller accounts. Interestingly few seem to drink much beyond a vodka cocktail or an occasional Bourbon and water on ice. They don't seem to know much beyond the fiction the producers PR department is spewing and they are not helpful to retailers or interested consumers unless the retailer buys A LOT of Vodka, Fireball, Turkey 101 or whatever. They will however pony up for an expense paid trip to KY for favored retailers who buy a lot of their product so said retailer can pick barrels from their producers. Something that private groups manage to do on their own quite well.

They just get in the way and make everything more expensive.

There is no reason why a manufacturer couldn't out source distribution in much the same way they sell to distributors now but also have a retail or wholesale stream they managed on their own.

[TunnelTiger]

Not to mention that this is 2014 and most orders to manufacturers are not done with a phone call but by directly accessing their site on the internet.

Does anyone think that Walmart has thousands of customer service employees placing orders with thousands of suppliers or that there are several empolyees at each store calling in orders in today's climate?

Distributors only benefit small "mom/pop" operations that don't have a large line of credit or do a lot of volume. No matter the business.

And no, there would not be any savings to the consumer. The idea would be more profit for the manufacturer which is why anybody is in business.

[cowdery]

Producers would love to be able to sell directly to large chain retailers. They essentially do, but the distributor has to be in the mix, at least on paper. The issue with the three-tier system is not whether or not distributors provide value, it's whether or not requiring the 3-step process is justified. I don't think it is. People often confuse this with whether or not distributors have value. It's a different question. If I can streamline the process by eliminating the middle man, what is the public policy benefit of government preventing that?

One reason the present system seems like a waste of money is how easily most of the rules are circumvented, at least for some purposes. 'No cross ownership' is a joke. They have to look separate on paper, but distributor/producer cross-ownership is common in fact. Distributors as in-state businesses? Also a joke. Most distributors are national or nearly so, they're just separately incorporated in each state where they do business. Does it make sense that distillery gift shops have to buy their own distillery's products through a distributor?

Okay, so if the current law makes no sense, why not change it? That's easy to say, virtually impossible to do. Distributors and government (both the elected part and the bureaucracy) have a vested interest in the status quo. Small retailers do too. Producers of all sizes and large retailers would like to see the distributor made optional, not mandatory.

How would small producers benefit? One of the reasons small producer products are expensive is that they need those prices to interest distributors. Most micro-producers in most places have no trouble getting distribution because it's a very profitable business for the distributor. If mirco-producers could sell directly to retailers, some might be able to build a respectable business just by keeping the ten (arbitrary number) liquor stores closest to the distillery supplied and happy. If the producers can charge the same wholesale price to the retailer that they were charging to the distributor, the retailer would be able to charge less and sell more. That scenario does nothing for the distributor but it could be terrific for the producer and its preferred retailers.

Edited May 5, 2014 by cowdery

[Harry in WashDC]

. . . Does anyone think that Walmart has thousands of customer service employees placing orders with thousands of suppliers or that there are several empolyees at each store calling in orders in today's climate? . . .

Off thread a little - Charles Fishman wrote 'The Walmart Effect' in 2006 (still available in paper and as an ebook) which talks about, among a lot of really interesting things related to retailing, how Walmart's relationships with its suppliers have changed the traditional manufacturer/wholesaler vs. retailer dynamic. Walmart may not have 1,000s, but they do have 100s, of reps that use Walmart's size, face-to-face, to get the best deal from/beat the stuffing out of (pick one) suppliers. The result may be the lowest cost to Walmart which may translate into lower consumer prices, but I do know that 100% of the savings is not passed on to consumers.

On thread - I also agree with TT's observation on whom distributors benefit primarily. Anyone who has liked a bottle of wine in a restaurant and then tried to buy it through a liquor store or wine shop will appreciate how Republic National, Continental, etc. (in my case) and other wholesalers facilitate the purchase. Instead of having to do "all" that "who made it the where is it?"/order/payment/be-home-to-accept-delivery-by-signing stuff, I just ask my local retailer to "get me this" and as if by magic it shows up two or three days later. I'm sure I'm paying more for it than if I ordered directly, but time is money, and the hidden shipping/insurance costs I pay to the retailer might even be less than if I were paying them directly - economies of scale and such.

[cowdery]

I think about what I've experienced with Amazon as a small publisher. Their deal with all but the biggest publishers and authors is pretty much take it or leave it. You have to be very careful about making sure you have enough profit left in your products after Amazon gets through with you, but if you make that deal they will proceed to sell a shitload of products for you, and do it like no one else can. That's what manufacturers see in Walmart and what Walmart takes fair advantage of. The tighter margins are justified because they deliver like no one else.

[flaminiom]

I kind of feel like the argument should be about the three tier system and not distribution. I don't see how someone can have a national retail presence without distribution partners. Or own a distribution company. I can't see Buffalo Trace dispatching an army of delivery vehicles out of Kentucky to every store across the country. They're going to want to send big full trucks to distributors and let them deal with the last mile. They've got the logistics and it makes a whole lot more sense because they're delivering lots of different products to make it worth while

[MauiSon]

Why should any producer need retail delivery trucks? Just allow the USPS to carry their products right to your door for a WIN/WIN/WIN/LOSE/LOSE (USPS/producer/customer/retailer/distributor).

[T Comp]

One reason the present system seems like a waste of money is how easily most of the rules are circumvented, at least for some purposes. 'No cross ownership' is a joke. They have to look separate on paper, but distributor/producer cross-ownership is common in fact. Distributors as in-state businesses? Also a joke. Most distributors are national or nearly so, they're just separately incorporated in each state where they do business. Does it make sense that distillery gift shops have to buy their own distillery's products through a distributor?

From a recent job ad for a sales position with SBA, Inc (a subsidiary of Sazerac) and the responsibilies are listed:

-Achieve volume objectives for specific market within assigned field sales budget

-Communicate regularly and work effectively with Sazerac Field Sales Manager(s) and/or Division Manager(s) on market research findings as well as determine goals, Key

Performance Indicators and performance against each

-Identify target accounts and build relationships with on-premise, bartenders, waitstaff, retail managers and distributor sales personnel

-Support the distributor's efforts at meeting trade priorities and goals as defined in the brand standards

-Identify key market influencers, establish relationships and develop into an ambassador for the brand

-Carry out engagements that will create brand awareness, encourage trial, generate buzz and build brand's fan base

It is said in the ad that SBA supports, Gemini Spirits & Wine, another wholly owned subsidiary of Sazerac and an importer and brand developer of spirits which is not an actual distributor within the three tier system...but...at this point what more is the distributor doing other than to warehouse and deliver.

Mr. Goldring, chairman of Sazerac is also chairman of, Crescent Crown Distributing, a beer distributor. He also owned the distributor, Republic National Distilling, until he sold in 2010.

http://bevforce.com/jobs/sales-brand-ambassador-miami-fl

[squire]

I'm in favor of the system that produces the lowest retail prices.

[flaminiom]

Why should any producer need retail delivery trucks? Just allow the USPS to carry their products right to your door for a WIN/WIN/WIN/LOSE/LOSE (USPS/producer/customer/retailer/distributor).

[cowdery]

The issue, remember, isn't whether or not distributors have value. Of course, distributors have value. But should producers be prohibited from selling directly to retailers, as they are now. That's the issue.

A change would mainly benefit big retailers and big producers. Brown-Forman could supply Jack Daniel's to Walmart much more efficiently through the Walmart distribution system. Some may argue that the current system is better, then, because who wants to improve things for Jack Daniel's and Walmart, but those people would be communists.

I was inspired by this threat to write this blog post. Thanks, everyone, for the good idea.

[smknjoe]

Some may argue that the current system is better, then, because who wants to improve things for Jack Daniel's and Walmart, but those people would be communists.

[sutton]

I would go one further - producers shouldn't be prohibited from selling to anyone if they chose to - skip around the entire chain including retailers and sell directly to customers if they feel it is in their economic interest to do so.

Smaller volume producers could benefit if they couldn't find distributors willing to take them on, as would small volume one-offs from large producers which might create a new market segment. Producers could still avail themselves of the economies of scale of distributors (or direct to big-box retailers if they wanted) for their large volume products.

[P&MLiquorsEric]

But let's not forget that amendment to our constitution giving states the right to govern alcohol any way they want.

Our government and country was not built on "path of least resistance". Checks and balances?!

Efficiency be damned. There is almost no room between a politician and easy tax dollars.