Expert: Eric Hofer - 1/28/2010

Question
QUESTION: I am interested in starting up a beer and wine wholesale distribution business abroad. In my dealings with other wholesale distributors, I was told that the beverage manufacturers were not interested in selling to my market. I believe there to be a larger market now with the invention/improvement of one way containers. However, these houses are unwilling to fill with them. Would I get in trouble if I purchased kegs from a wholesaler and transferred the product into these one way containers for redistribution? Secondly, would you recommend doing so without exclusivity to my marketplace?

ANSWER: Kevin,

Interesting questions.

I see what you mean about the 1-way container concept; there's value there worth exploring.

To the points at hand:-

Given your geography - I'm assuming that you're thinking about restricting to a specific island (or islands), then you're going to have to invest in infrastructure; in which case, securing exclusivity is worthwhile.  Consider, you build up a market interest, regardless of how small the market is, and then somebody else undercuts all your work.  

If you're willing to put up the capital and get the "system" working locally; and you're credible, then manufacturers would consider you.  You might have to start small though, so rather than going for a huge name, develop credibility distributing lesser brands that demand far less of you and then use that to show that you will do a decent job for a larger brand (brand owners worry about damage to their image as well as quality).

I'm not sure I'd go to wholesalers on the mainland.  I suspect that will only increase your cost of goods and create more lag, decrease quality, etc.  You're going to have to solve a lot of problems - like customs, storage, line of credit, labelling, etc. just to get the product "into" your market.

Given the challenges, the lesser renown brands offer you a chance to "work out the kinks".  You'll also have a chance to get the "distribution" side worked out.  There's a lot to distribution.  And that's something that "brands" care a bit about.  On that aspect, contact the lads at www.salessuite.net - I know that they're working with distributors of major brands in other remote locations - including the Carribean where they're providing both the training for the sales team (to build the market) as well as the order taking (telesales, van sales and pre-sell handhelds), dispatch, settlements and reporting - and they're offering their systems and services in a pay-as-you-go format.  They can help you with setting up the team, getting your CRM and Sales Development going, and helping you to master what there's to know about when knocking on the doors of accounts and incentive-izing staff.

---------- FOLLOW-UP ----------

QUESTION: Given the fact that I am new to the distribution business, would hiring the right person, one with contacts, credibility, and experience, help crack into the larger houses? My concern is that right now, the long distance beer distribution market is about to radically change with these 1-way containers. I don't want to prove the viability of the marketplace only to have someone else, someone bigger and more experienced, come in with the bigger houses and steal my idea. The real money is in exclusivity with the big houses. Where would one look for such an executive? Given my marketplace, the European beer market would have greater appeal.

Answer
The "right" person?

Contacts help.  But how do you find a bona fide person with contacts?  Lots of people talk the talk but don't walk the walk.   

I'm doubtful that you'd be able to "hire" the person.  These people, where they exist, either go for %s for brokering deals.

Agreements like these though take a while to negotiate.  The "right" person doesn't translate into getting a signed agreement; and the exceptions I can think of saw the "right" person being the person who got the deal and the locals became the "silent" partners, living in hopes that the rights to would be transferred to them.


Getting A Deal

You might be better off, for the moment, just establishing yourself as an "export" wholesaler (from their prospective) and not worrying about the exclusivity.  The majors would see you as just another "primary transport" - with a longer turn around time.  You'd set about proving to them that you're somebody with whom they can do business.  One of the concerns of manufacturers is that discounted priced product leaks out.  Islands don't have "porous" borders, though "ships" can go elsewhere.

Once you'd established a track record and relationship, you could argue that you want to expand which requires more capital investment, potentially specialist labels (e.g. with your local address) and therefore you want to take up exclusivity.

By becoming exclusive, the major players will be concerned about your ability to honor a contract (pledged purchasing x hectolitres per year for the exclusivity while ensuring that stales are taken out of the market, marketing materials are current and the brand image isn't tarnished).  Further, there'll be concerns about corruption, ability to get the necessary permits, etc. and your ability to "service" the market locally.  This usually comes up in the EDA (Exclusive Distribution Agreement).  Hence, while you've got an idea on the transport mechanism, you'll have to prove that you've got lots of other elements solved too.  And that can only be demonstrated through action.

Now I know this sounds a bit dicey, but there's logic here.  The "track record" is key, for even if somebody else realizes the advantage of 1-ways, you've already got a head start "proving" yourself.

...

I'm happy to take this off-line to continue.  Please investigate skype (www.skype.com) so we can hook up over the internet using their chat and/or voice app (it's free btw).  My contact name is "eric.hofer" and my time zone is CET (so the time in NY + 6 hours usually).

Eric