Summit 2010 Education

The AWMA Summit offered attendees a full day of in-depth educational sessions.
 

Keith Canning Gets His Chairman's Jacket

During the Summit luncheon, Jon Burklund, the 2010 AWMA chairman, presented the traditional green jacket to Keith Canning, who will serve as the 2011 chairman. 
 

Summit 2010 Networking Lunch

Attendees took a break for the Summit networking luncheon.

Weitzel Speaks at 2010 Summit

Paul Weitzel, managing partner, Willard Bishop LLC, advised attendees that developing the proper assortment is essential to success.

Final Panel Discussion Summit 2010

The Summit concluded with a panel discussion of steps that can be taken to improve product assortment and profit that tied in well with the day’s sessions.

Summit 2010 Diamond Sponsor Altria

2010 AWMA Summit & ABX Diamond Sponsor, Altria Sales & Distribution, Inc.

Top Row (L to R): Bob Sears, Pete Diatelevi, Gregg Augustine,  Kylie Bishop, Jerry Margolis, and Leonard Gega.
Bottom Row (L to R): Sarah Krysalka, Jackie Valdez, Mei-Ling Sha Campbell, Kristin Benson, and Mark Smith.

AWMA Chairman Jon Burklund, president, and chief operating officer, Burklund Distributors, Inc., welcomed a record crowd to the 2010 AWMA Summit & Business Exchange (ABX) in Key Biscayne, FL yesterday.

“AWMA is the one organization that brings us all together for a common goal for the benefit of our industry,” Burklund said, outlining achievements in government affairs and educational activities. He announced the formation of a new Past Chairman’s Council, which will take advantage of the talent available from those who have previously served in that position.

Burklund spoke at yesterday’s Summit luncheon, following a morning of intensive and informative educational programs. He introduced his successor as AWMA chairman for 2011, Keith Canning, managing partner, Pine State Trading, and presented him with the traditional green jacket symbolizing leadership of the association.

Revitalized AWMA Show Detailed

Distributors and suppliers were urged to attend the 2011 AWMA Show, Feb. 8-10 at the Paris Hotel & Casino in Las Vegas, NV.

AWMA President & CEO Scott Ramminger said the redesigned and revitalized show will feature the strongest educational program ever assembled for the event, featuring three Super Sessions, a five hour category management program for buyers, and workshop tracks that will include programming for smaller companies.

Keynote speaker will be Sonja Hubbard, chief executive officer at E-Z Mart, a successful and progressive convenience store chain.

Those who register for the Show during the Summit & ABX will receive a $25 discount on their registration fees, Ramminger said. The super saver registration deadline is December 15.

Strategies to Capture Growth, Maximize Efficiencies Highlight Summit

Tuesday’s Summit educational program was packed with in-depth and sharply focused presentations that carefully targeted strategies to help distributors to grow, even in a difficult economy, and to maximize efficiencies. Sponsored by Altria Sales & Distribution and The Hershey Company, the program was facilitated by industry expert Kit Dietz, president of Dietz Consulting LLC and featured presentations that fit together to present a complete picture for attendees.
 
After Walter Zimmermann, vice president & technical analyst, United-ACAP, known for his record of accuracy, presented a fascinating and eye-opening economic forecast, Louie Sheetz, executive vice president of marketing, Sheetz, Inc. shared with Summit attendees the culture of his company’s success – from getting things right for customers to managing assortment and best practices.

Then, the program focused on such actionable issues as waging war on complexity, the importance of targeting core products, a case study on efficient assortment opportunities, ways manufacturers and distributors can use AWMA InfoMetrics data to improve performance, using data to help identify distribution gaps, and ways trading partners can collaborate for success.

Economic Outlook – Will it Get Worse?

Detailing a technical analysis of stock market performance and past trends, Zimmermann offered evidence of difficult times ahead predicting that further declines in the real estate, commodities and stock market are ahead.

“2012 – 2016 is the danger period,” he said, explaining that in 2012 commodities may stabilize, by 2014 the real estate market should stop bottoming out, and by 2016 the stock market may improve. But between now and then, he said, new lows in the market may materialize.

He advised distributors to minimize inventory, try to stay liquid, have cash on hand, and try to deleverage debt.

“Have a backup plan,” Zimmermann advised, one that will help weather the coming storm. “What does that involve--layoffs, salary cuts, getting rid of SKUs that are not doing so well?”

He advised attendees to pay attention to “what the market is saying, not what the cheerleaders (the government, the media) are saying,” in making financial and investment decisions. “Don’t believe the cheerleaders. It’s their job to raise hope; it’s not their job to give objective advice.”

Zimmermann suggested that higher interest rates are ahead because of the vast amount of debt by both consumers and government that will need to be refinanced.

“There is a tidal wave needing to be refinanced that is going to pounce on the market over the next few years,” he said. “If all this debt comes on the market, interest rates will rise. There could be an arms race of higher interest rates.”

While he acknowledged that the convenience industry is “somewhat well insulated from a continuing recession,” because items sold are largely small ticket impulse items, “we are not too keen on building new stores right now because we expect prices to go lower.”

Sheetz, Inc.: Best in Class Insights

Sheetz, revealing some of the steps his company takes to encourage employee loyalty, including annual ski trips to a winter resort in Pennsylvania, said his company, which now includes 380 stores, had a record year in sales last year despite the shaky economy. Twenty-eight new stores are planned for next year.

He attributed much of that success to vertical integration, which included creation of the Sheetz Distribution Center in the 1990s. “Our wholesale services were getting more expensive and less efficient,” he said. “Continued out-of-stocks were hurting our business.” Customers were unhappy, and so the company decided to control everything from sourcing to delivery. A 310,000 sq. ft. state-of-the-art warehouse now serves all stores across six states.

“We understood that we would have to re-think and realign our entire business model to get into the distribution business,” he explained. That meant thinking differently about the impact of product changes, quality control, supply needs, inventory, the working relationship between retail and distribution management – and fitting it together.

Empowering employees to look for opportunities to work more effectively, efficiently, and with more benefit to customers was essential, he said, as was an investment in technology that has allowed the company to customize and optimize distribution to its stores.

Today, in-stock performance at point of delivery is 99.8 percent, with 47 trucks making three deliveries per store per week – plus, every store can receive emergency stock even if it’s not their delivery day.

Store orders are automatically generated based on current sales, sales history, individual store planograms, and “build-to’s,” he added, and increases products as needed for weekends/holidays and other predictable events. Managers can review and adjust orders through a handheld computer that scans an item on the shelf and increase or decrease the amount needed.

Once processed and divided at the DC, using the same paperless system, it is placed on the truck and delivered. When drivers arrive, they scan out the order, which is placed inside the store where a management person counts the number of totes and boxes and signs for their receipt. The invoice has already been sent to the store electronically.

Sheetz has lowered its inventory to balance its margins, Sheetz explained, by identifying key items that must always be in stock. That focus on core products, with an analysis on a product’s true cost versus its contributing profitability, means that the DC carries between 3,800 and 3,900 SKUs at any one time.

That’s just a taste of Sheetz’ presentation, as he also detailed the company’s system of product management, use of activity-based costing (ABC) with managers focused on the true cost of a product to Sheetz from product development through delivery. He discussed the company’s focus on private label development, which also places pressure on the major brands to negotiate on costs to get more space and product into the stores.

The Sheetz distribution center is operated as a profit center and will “make about $20 million this year,” Sheetz said.

Sheetz shared many details with distributors, including product strategy for entry and exit, and the company’s foodservice expansion with the creation of its kitchen/commissary in 2008. Sheetz is now known for its foodservice products that include proprietary sandwiches and yogurts and items from the Shweetz bakery, delivered daily.

“We want to move our brand from a gasoline operator that sells food to a restaurant operator that sells gasoline,” Sheetz explained. While the kitchen/commissary is losing money to date, Sheetz said he is hopeful it will break even within a year.

“Every step of the way, we can see who supplied the product, where it’s stored in the warehouse,  what store it was delivered to, when it was purchased, and how we are going to get it restocked,” Sheetz said. “We know exactly what our costs are for the item and how much profit we make on it. Our DC has been a profitable venture, not only in terms of revenue from their work, but also in terms of store sales. With a 98.8 percent in-stock level, our customers are able to walk into their local Sheetz store and buy what they need, when they need it. We’re keeping the promise we make in our Mission each and every day.”

Answering a question, Sheetz said the experience of running a distribution operation has generated his respect and admiration for the services provided by convenience distributors.

Waging War on Complexity Costs

Steven Wilson and Andrei Perumal, managing directors, Wilson Perumal & Co., Inc., and authors of “Waging War on Complexity Costs,” discussed approaches for tackling and removing complexity and its related costs from businesses.

Complexity costs are often the single biggest detriment of cost competitiveness, they said, stressing the importance of properly costing products. Complexity impacts the ability to deliver, gets between the distributor and the customer, and erodes profitability, they added, warning that “unprofitable growth is not sustainable.”

“While some complexity is good, too much of it is bad,” said Perumal.

They advised distributors to “start with a multi-dimensional view,” take concurrent actions, use top-down costing and “leverage sustainability.”

There are two ways to grow, they said: doing what you do better, and doing more things. The latter is easier and more common, they explained, and the former is harder but more profitable.

“Only profitable growth is truly sustainable,” they said.

Targeting the Core

Industry consultant Kit Dietz detailed the opportunities for convenience distributors for boosting candy and snacks profits, highlight results of last year’s study on candy profits opportunities and a new study currently being finalized on warehouse delivered snacks.

He said that the top 50 candy and warehouse delivered snack SKUs offer a $750 million incremental sales opportunity if properly leveraged.

“Efficient assortment can drive continuous improvement for you and your retail customers,” Dietz said, urging distributors to focus on making certain that core products are always in stock and effectively merchandised. “Leverage new data, new tools and new thinking that aligns strategic opportunities across the channel,” he advised.

Dietz said his research indicates that while the top 50 SKUs of warehouse delivered snack products produce 33.1 percent of category sales, they do so with just .7 percent of SKUs. The next 350 SKUs generate 35.1 percent of sales with just 5 percent of total SKUs. The next 50 SKUs generate 14.7 percent of sales with .7 percent of SKUs, while the bottom 6,550 SKUs produce 17 percent of sales with a whopping 93.6 percent of total SKU count.

“We really have not identified what our most important SKUs are,” he observed.

Dietz said there are major gaps in distribution of the major SKUs of WD snacks. Salty snacks average an ACV of 51 percent. “That’s pretty poor when we have some great items in the category,” he observed. Packaged sweet snacks constitute a major void, he added, with average distribution of 39.5 percent.

The challenge, of course, is to increase the share of warehouse delivered snacks products in the store versus DSD products, Dietz said. Today, DSD controls 60.4 percent of snacks, compared to the 39.6 percent share held by WD snacks.

“We have an opportunity to take category management to a new level to drive margin in the snack category,” he said. “We need to get out and impact the stores. We’re all in this together --  manufacturers, distributors and retailers, joined at the hip to better serve consumers.”

Efficient Assortment Opportunities

Paul Weitzel, managing partner, Willard Bishop LLC, predicted that the convenience store market share will increase over the next five years from 15.4 to 15.8 percent of food retail sales, and pointed out that cigarettes and other tobacco products generate 80 percent of the typical wholesaler’s contribution to overhead. But many other categories are sold at a loss in the 150,000 convenience stores across the nation.

“We are grabbing our fair share of the market. It is slow growth, but it is steady growth,” he said. “We have more ability to connect with shoppers. Consumers are going more mobile and they are going to demand more convenience.”

He pointed out that with limited space in the stores, every inch of space counts. So developing the proper assortment is essential to success.

“We think efficient assortment is a great opportunity for distributors,” he said, noting that several categories are negative, including non-edible grocery, frozen food, packaged sweet snacks, salty snacks, and dairy. “There are lots of things we can do to tighten up,” he observed.

Noting that 60 percent of the SKUs in a typical distribution center sell less than five cases per week, and that 20 percent of volume is doing 93 percent of sales volume, Weitzel advised distributors to carefully monitor the profit level of specific SKUs as profit begins to wane and turn into losses. “Wholesalers lose money on SKUs in three-quarters of the categories,” he added.

In convenience stores, 95 percent of demand is covered by 60 percent of SKUs as is the case at wholesale.

“We’ve got some critical issues, and we really have to think ahead and prepare. There is a great opportunity,” Weitzel said.

Using InfoMetrics to Improve Performance

“This industry is on the verge of a transformation,” said Viv Penninti, president and chief executive officer, InfoRhythm, Inc., the developer of AWMA’s new InfoMetrics data program created to help distributors and manufacturers operate more efficiently and profitably. “There is only an upside for us.”

So far, some 53 distributors covering 85 warehouses and serving more than 75,000 stores are participating in InfoMetrics, submitting their warehouse movement information for the creation of weekly product movement reports that they can use to analyze operations, share with customers, and improve business operations. More than 800,000 SKUs from 3,000 manufacturers are included, covering 30 percent of convenience stores.

Penninti demonstrated live data from the Internet-based system showing breakdown of specific product categories and their contribution to sales and gross margin. For example, he said, 41 percent of gross margin comes from non-tobacco products, but they consume 80 percent of all SKUs in the warehouse.

The system provides average sales per store and product performance by SKU. A “gap report” identifies missed opportunities. “You can help your customers optimize themselves by providing them with this information,” Penninti said.

Using the data, distributors can discover problem areas and opportunities for improvement by adjusting inventory, Penninti explained. “You want to have the right SKU mix so average sales per store will increase.”

Keith Canning, managing partner, Pine State Trading, and the incoming AWMA chairman for 2011, urged distributors to participate in InfoMetrics. “I implore you to sign up,” he said. “Your success and our success as a whole depend on it.”

Canning pointed out that each participating company can obtain their own proprietary information in a way that enables them to easily analyze trouble spots and opportunities. “It’s about efficiency and what you’re selling,” he said.

Nick Zaden, City Wholesale Grocery Co., said after the presentation that his company is participating in InfoMetrics. “The data helps us drive our business,” he said. “InfoMetrics is the way to go. This is something we need to embrace. It is about educating the wholesaler and retailer so we can make more money.”

Using Data to Identify Distribution Gaps

Marty Monserez, convenience channel leader, Procter & Gamble, followed the InfoMetrics discussion by outlining ways manufacturers and distributors can work together, using solid data, to improve business opportunities and results.

He emphasized the importance of the multi vendor end cap program developed by the AWMA Warehouse Snacks Committee, and said distributors using the system can improve sales of warehouse delivered snacks by up to 50 percent, with retailers experiencing a 20 percent sales and 23 percent profit boost. As a result, manufacturers realize a doubling or tripling of sales per store, he said.

The importance of developing a strategy to achieve efficient product assortment was discussed, and Monserez said that in-store space limitations make this essential for maximizing success. Like many speakers, he said that generally 20 percent of SKUs generate some 80 percent of sales across most product categories, and emphasized the importance of distributors focusing on core products – those with a record of success.

He received applause when he said that it was a mistake for manufacturers to require distributors to carry all of their convenience SKUs to get “fully funded,” and said there is “excessive focus on new items.”

“When 95 percent of new items fail after two years, you have to pick the right ones, and if the new item is going to take the place of a better seller, that is not in our best interest,” he said. “We need to pursue SKU rationalization. We need to work together to sell our retailers on your outstanding planograms.”

Monserez  received a second round of applause when he declared, “As manufacturers we need to provide terms of sale that are fair for all to compete.” The statement was made in response to a question from Steve Altman, Mountain-Service Distributors, regarding the loss of sales to customers who purchase from club stores because their pricing is lower.

He advised distributors to use electronic ordering systems and not make eligible for those systems the slower selling SKUs that they want to discourage.

Collaborating for Success
 

Industry consultant Kit Dietz moderated a panel discussion that closed out the Summit’s educational program, in which distributors, manufacturers, and consultants discussed steps that can be taken to improve product assortment and profit.

Panelists were Canning, John Dalton, convenient solutions director, General Mills; Scott Dunkley, customer marketing, c-store, The Hershey Company; Marty Monserez, Procter & Gamble; Rob Sincavich, president, Sledd Company, and Paul Weitzel, managing partner, Willard Bishop, LLC.

Dunkley said The Hershey Company identified its top 33 items and launched a strategy to increase sales of those core products. “Sales started to increase, and the category started to increase,” he revealed. “It’s a sustainable strategy.”

“It’s become apparent that we need to get sharper on the non-tobacco segment,” said Sincavich. “But we have to do more than say that we must do something about efficient assortment. What are the changes that you are going to make to make this happen?”

The Sledd Company conducted quality audits in 400 stores, about one-third of its customer base, to analyze performance of various items. “We’ve got to change the focus of how we run our businesses and get away from incremental selling opportunities,” he declared. “Are we getting the real estate right for our customers? When we’re interviewing new items, we need to ask, ‘where is it going to go? What has to come out?”

“The focus on core products really drives opportunity in the channel,” said Dietz.

Weitzel emphasized the importance of distributors analyzing the return on specific SKUs, and Canning said the InfoMetrics program data provides the tools to do just that. Moreover, providing the information to the retailer will help them increase their business, which means increased growth and profit for the distributor, he said.

Dalton said the “opportunity gap” is still large, and said the “real opportunity is continued collaboration and ideas.” He said the next two days of the ABX will provide an ideal opportunity for distributors and manufacturers to do exactly that.

When the program was concluded, AWMA members were pleased with the information that was provided throughout the jam-packed day.

“I think we’ve received the best information we’ve ever gotten,” said Dick Dunham, Stephenson Wholesale Company, Inc., and former AWMA chairman. He was especially impressed with the presentation by Louie Sheetz, in which he outlined the success of his company’s self-distribution operation.

“It’s good to hear the whole story,” said Dunham. Any time you can hear some of our best-in-class discuss how they got there, that is important. I admire them for what they have done.”

Said Tom Eshleman, Sheehan Majestic/Doyle’s Wholesale, “The speakers were informative and eye-opening, and were trying to lead us in the right direction. They gave us some valuable insights and a lot of extremely important information. It was well worth my time.”