Saturation Distribution: The Walmart Cola Syndrome

By -

What happens when every distributor in town represents the same manufacturer?  Extending this thought, let’s assume at least a few of these distributors “sell” several of this manufacturer’s competitors.

To better understand the situation, let’s change the scenario up a bit and take a trip to America’s number one retailer, Walmart.  Wandering through the megastore, we find ourselves in an aisle containing colas and other soft drinks.  Looking around we see Coke, Pepsi and over a half dozen other brands, including a “house brand” named after the iconic Sam Walton.  Walmart has them all.

Does this giant retailer sell a lot of cola?  If you consider “selling” as a transaction, the answer is yes.  However, if you count “selling” as an activity where users are convinced to by one brand over another, the answer is a definitive no.  The truth is, Walmart doesn’t care which brand you buy as long as you conduct your transaction within their walls.

What does this mean for a cola manufacturer?  All active selling must occur before the visit to the local megastore.  This explains why Coca-Cola spent $5.8 Billion on advertising in 2018.  Demand and all active selling functions are handled by the manufacturer and the retailer simply provides the delivery mechanism.

To capture those customers who are not completely sold on a specific brand, the manufacturers provide incentives to the retailer to capture preferential product shelf placement.  This explains the large endcaps and special islands featuring the brand that pays the most for the privilege of exclusive placement.  But again, the manufacture funds the selling activity. 

So how does this tie into distributors? 

 




Some Mega-distributors are working to position themselves as the one-stop shop of their industry.  Like Walmart, they have every brand available and do little “active selling” on behalf of the manufacturers they sell. 

Knowledge-based distributors appear to have taken a different approach.  They work hand in glove with their supply-partners to find new applications, grow the market and, very importantly, convert customers over to the products provided by their supply-partners. 

There is a difference in the type of sales activities and the expertise required to work the model.  And, there is a major difference in the cost of selling.  When manufacturers lose sight of this difference, something bad happens; the knowledge-based distributor quits “actively selling” these products.

Manufacturers need to understand the difference and ensure their vision isn’t clouded by the volume of orders coming from the Mega-distributors.  Conversions, new applications and technical support feed future sales for manufacturers regardless of who does the work. 

With this in mind, I would like to ask the following questions of manufacturers:
  • What are the cost ramifications of taking on all the selling, specification and troubleshooting work currently handled by the distributors? 
  • Are you counting on distributors to actively sell your products?  (Hint, this model will not provide the results you desire.)
  • If some of your distributors support only your product, should they be additionally compensated through tiering or additional gross margin tied to supporting only your company’s products?
  • Do you have volume-based rebates or other programs that encourage distributors to overly discount or dump products into adjoining distributors’ territories?


A final word on distribution strategy

Do you have a specific strategy or does your policy toward distribution just happen?  The business model for the distribution business has changed much in the past decade.  Is it time to rethink your plan?  

Drop us a line, we’d love to hear your thoughts…
Frank Hurttte is the Founding Partner of River Heights Consulting.  He combines the battle scars of 28 years of front line "in the trenches" experience with over 13 years of service to knowledge-based distributors and their manufacturer partners.
Email or call today for a free 30-minute consultation!

Comments

Post a Comment

Popular posts from this blog

50 Questions for Distributors

By -
Image
Last week I wrote an article titled “Six Questions that Demand an Answer.”  Sharing the article with a few trusted advisers, I received one consistent bit of feedback best summarized by this response. “Frank, I agree these are questions we must ask ourselves; they caused me to pause and ponder.  I used them as an exercise with my team to think about our overall strategy.  I believe taking the time to think about our business from an outside perspective to be justified and worthwhile.   Sometimes it’s hard to do this subjectively.  I would like to see more questions just like these.” The following is my first round of questions.  I have put them into categories to make them easier to digest.  Some will apply to your position, some will not.  I suggest spending a moment visiting these topics with members of your own team. A note:  The readers of this blog come from a variety of backgrounds, hold a diverse collection of positions within distribution and come from a number of
Read more

Ship and Debit Programs

By -
Image
Special Pricing Agreement and Thoughts about Ship and Debit Programs Click here for a brief tutorial on Ship and Debit Programs. Special Pricing Agreements (SPA) have been around for a very long time. The concept is simple; a manufacturer uses their distribution channel as a vehicle to service a customer who requires very low pricing to match some commercial situation. The details of the commercial situation aren’t really all that pertinent. They can arise due to customer potential, competitive pricing pressure, or supply contracts driven with large mega-corporations. The point is normal distributor margins no longer support the selling price and the distributor plays a critical role in providing some service to the customer. In years gone by, distributors involved in these situations purchased products earmarked for the special priced customer at sub-distributor price levels. The freshly purchased (at lower than normal cost) products were either brought “into stock” to sell
Read more

Where are the Sales Calls?

By -
Image
Sales managers are under pressure to increase sales calls and productivity. This leads to scrutiny of call reports, which often reveal poor results.  To improve their reports, salespeople are counting drop-by visits with no customer contact as sales calls, which is ineffective. Several factors contribute to the lack of customer visits: poor time planning, inefficient travel, failure to make appointments, getting caught up in trivial tasks, excessive focus on customer emergencies, and complex individual situations.  To address these issues, you need a coaching plan. Over a 6-8 week period, sales managers should review each seller's planned activities for the upcoming week, log data on their plans, and compare them with the actual results. This allows for the identification of: • Scheduling issues.  Are they really planning ahead? • Issues with setting appointments.  Do they need some coaching here? • Emergencies that took them out of the field.  Are they justified or just con
Read more