Expert: Eric Hofer - 8/9/2010

Question
Hey, im in the process of starting my own beer distributor. but i have a few questions though. im about to puchase a building and all how do i get my stock? do i contact a brewery directly or is there a third party that distributes the alchol. also what is the avg cost of opening the ditributor in general. all the furniture and shelves im gunna make by hand to save money but like the cost of stock and licences what is the avg startup cost i took 40,000 from the bank to open will that be enough?

Answer
Hello,

I would suggest modelling the business using something like Excel first and testing your assumptions before purchasing assets, approaching a bank and securing funds.

It's been a while since I modeled starting up a distributor.  If you are willing, I could lay out a model and you could assemble the various parameters.  To get you started, there're some questions you need to consider:-
- Market size -
 .. how many potential customers
 .. how many easy, start up customers
 .. number of cases per week you can shift
 .. potential selling price per case
- Supplier
 .. number of days credit
 .. price per case (on average)
- Delivery Vehicles - are you going to lease/purchase
 .. how much you can carry & deliver per day
- Geography
 .. over how big an area do you plan to operate
 .. roads, delivery times, travel, traffic
 .. population / account distribution
- Business Systems -
 .. Sales-to-Cash (here consider www.salessuite.net as you can rent it);
 .. Accounting/Inventory - Traverse, or QAD or QuickBooks
- Incentive systems
 .. for the sales team what % is going to be salary)
 .. delivery staff
 .. attracting accounts
- Terms to customers (COD, x-days)
- Number of SKUs held; average days inventory; amount of capital tied up
- Average staff costs / expectations
- Insurance, Security approach and budget
- Sales strategies
 .. Promotion approach, budget
 .. Monitor impact of the strategy
 .. Returns policy, budget

The biggest question among all of these, before you think about lining up a supplier is, <i>how do you see landing your accounts?</i>  Do you have a strategy already?  What does the competition look like?  How will they react?

The manufacturers you can approach might be limited.  Some may have exclusive deals or might run their own fleets in your geography.  You would normally start approaching the manufacturer; calling a local distributor will only get the answer "No, it all goes through me!" (After all, what would be his/her incentive to say, "by all means, circumvent me")?  

Tell me about the research you've done so far.  What have you learnt?  What products do customers want (stocking unpopular products is not conducive for a business; and unknowns have to be promoted)?  From the manufacturers, what're their terms?  What are your potential customers currently paying?  Are you going to undercut?  Or, are you going to deliver something superior/additional?

You can write me on exahofer@gxmail.cxom (remove ALL the "x"'s).  Or if you use skype eric.hofer.

Eric