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AWMA Summit 2006
Record Turnout in Lake Las Vegas
The 2006 AWMA Summit kicked off September 11 at The Ritz-Carlton in Lake Las Vegas, NV, and distributors and suppliers settled in for nearly a week of top-level educational programming, networking opportunities, and the AWMA Business Exchange (ABX).
The annual event is designed to help distributors improve their bottom line profits, address the many issues they face in a challenging competitive environment, and via the ABX, get business done between trading partners, and problems resolved.
"The Summit provides our members with an incredible opportunity to get down to business, and this year's setting was particularly outstanding," said AWMA Chairman Ricky Jones, vice president, operations, Andalusia Distributing Company, Inc., Andalusia, AL. "Once again, it was a very productive meeting for all involved."
First on the busy agenda was the Summit's opening reception, the first of several opportunities attendees had to connect-and reconnect-with each other, compare notes, and discuss common concerns.
"This is a great setting for members to talk with each other and exchange ideas," Scott Ramminger, AWMA president and CEO pointed out while in Lake Las Vegas. "Then, add to that the educational programming and the ABX meetings, and this is a terrific opportunity for members to build business and plan for the future."
Challenges of profit, opportunities for success
The typical AWMA distribution company generates annual sales of about $70 million with pre-tax profit of about .5 percent, according to the Hershey Industry Performance Analysis (HIPA) report presented at the 2006 AWMA Summit.
However, John Mackay, of the Mackay Research Group, which prepared the findings, said high profit companies produced sales of $80.5 million and a much healthier profit margin of 1.8 percent. Meanwhile, Return on Assets performance of the typical company was 4.0 percent, but 16.2 percent for those in the high profit category.
"What separates the typical company from high profit companies isn't a home run, it's the little things," Mackay told distributors at Tuesday's opening Summit session, noting that the more profitable companies had lower operating expenses against higher sales, as well as higher productivity, as evidenced by sales per employee, than did the typical distribution firm.
If that typical firm could impose a 1 percent price increase, boosting sales by $1.4 million while holding the increase in cost of goods sold to about $650,000, the gross margin would be increased from $4,690,000 to $5,436,900, Mackay said. With variable expenses increasing by a modest $10,500 and fixed expenses being held in check, profit would be increased from $350,000 to $1,086,400-an increase of 210.4 percent.
The challenges involved in implementing such a price increase and strategies for making that possible were addressed in a new study, "The Distributor Value Equation in the Convenience Channel," presented by Kit Dietz, president, Dietz Consulting, LLC and Bob Gatty, president, G-Net Communications Consulting.
That report quantified many of the services provided by distributors which provide value to both manufacturers and retail customers, and urged both trading partner groups to recognize the contribution they make to their own company's success.
During that presentation and in a panel discussion that followed, Dietz stressed the importance of distributors setting higher expectations for profit and refraining from engaging in competitive tactics that serve to restrain overall profits. "We just keep cutting each others' throats," Dietz said. "There have to be higher expectations."
Paul Auger, former president and chief operating officer, Pine State Trading Company, advised distributors to carefully monitor their accounts and, if necessary, increase prices on those "C & D" accounts that are not generating sufficient profit. However, he as well as management consultant Wayne Outlaw stressed the importance of "buy-in" by the sales department.
In fact, Outlaw throughout the day emphasized the need for distributors to upgrade sales personnel so they can support the concept of selling value and relate to strategic concerns of retail customer executives.
"If you have sales people who cannot sell, you are not getting value for your money," Outlaw declared. "And you've got to have top level managers who can manage those people. That drives new business so you have an ample number of prospects in the pipeline and you don't have to have that customer [who only cares about price and doesn't recognize value.]"
Foodservice offers huge potential
The foodservice sector is undergoing dramatic growth offering significant opportunities for convenience stores and the distributors who serve them, according to David Henkes, senior principal at Technomic, Inc.
Henkes told a Summit audience that in 2005 foodservice for the first time garnered 51 percent of consumer dollars spent on food overall, but that those dollars represented only 24 percent of the meals consumed. "So there is still a long way to go," Henkes said. "That's one of the reasons why we're so bullish on foodservice."
Henkes said that convenience store foodservice generally has not "captured the consumer's imagination," but called it a "sleeping giant," noting that convenience stores offer the location and the opportunity to provide the quick meals away from home that many consumers seek every day.
He urged distributors to help their retail customers develop strategies to capture foodservice customers in increasing demographic groups, including older consumers, Hispanic consumers, and minority groups whose spending power is increasing.
He also cautioned distributors not to ignore growing concern on the part of many Americans about health and wellness, and the need to find freshly prepared foods that meet their better-for-you requirements.
"We don't think c-stores are doing nearly enough as an industry," Henkes said, and urged distributors to capitalize on the opportunity.
Moist smokeless tobacco set to explode
Wall Street tobacco analyst Nik Modi is convinced that the moist smokeless tobacco category is poised to explode and provide important opportunities to convenience store distributors searching for a solution to declining cigarette profits.
In fact, Modi told an AWMA Summit audience that entry into that category by the R.J. Reynolds Company is an important development that will "lift" the entire category and result in increased sales for other brands as well.
"When a large player comes into the category, the entire category swells," Modi said. "RJR has just entered and we're already starting to see the chatter and the growth accelerate. I think there is more to come."
Modi predicted that U.S. cigarette prices will eventually reach the same level as those in the United Kingdom-about $9 per pack- because of continuing upward pressure on excise taxes, which in the U.S. are still considerably lower than those in the U.K. He urged distributors to work with c-store retailers to combat such tax hikes.
"There is a whole untapped army to tap into to help fight these legislative issues," he said.
"We will have a bottoming out of smoking incidence in the United States," Modi predicted, a similar trend that occurred in Great Britain, where smoking has declined in recent years from 44 percent of the population to 26 percent.
Category growth in candy
Confectioner Magazine publisher Lisbeth Echeandia led a lively discussion on Tuesday with four candy manufacturers. The candy executives acknowledged that as they develop and bring new products to the marketplace, they need to do a better job of helping distributors move out slow moving items in order to make room.
"We need to bring a fully integrated plan, and it's very important to include recommendations on what goes in and what to take out," Dave Fleischer, Cadbury Adams USA, said during an AWMA Summit session Tuesday. Other panelists, including Dave Onorato, The Hershey Company, Eric Atkinson, Atkinson Candy Company, and Larry Lupo, Masterfoods USA, agreed that "exit strategies" were needed for unsuccessful items.
"Innovation has driven our business," Onorato said. "New item racks provide a place in the store that houses them. Our challenge is maintaining a spot in the store when they sell through."
The candy executives also were challenged by distributors during the session to provide the necessary demographic and sales information to enable selection of the right products to meet the specific needs of local, independent convenience store operators. They were urged by members of the audience to help them determine which candy and gum items are right for which stores in various regions of the country.
Wholesalers also asked executives to help with merchandising, to provide the appropriate displays so they can take advantage of opportunities the candy company executives contend exist with premium offerings.
"It's a challenge for us to take on from a merchandising standpoint," acknowledged Hershey's Onorato.
The chocolate company executives agreed that dark chocolate sales are exploding, with Lupo saying they are up some 75 percent over the past year.
"We are seeing the same thing," said Onorato. "It's absolutely true. Household penetration of dark chocolate is up over five times in the last year."
Fleischer said gum sales are on the rise, as chewing gum is becoming more socially acceptable, and with growing concerns about obesity, chewing gum is seen as a "snack alternative" by many consumers. He said recent studies show that chewing gum "helps you stay focused", also boosting sales. Moreover, at Cadbury Adams, sugar free now accounts for 70 percent of their gum business, he said.
"We've jumped on the sugar-free bandwagon," Atkinson said, with three brands of candy products. "Certainly, it is a trend that we are addressing."
Also worth noting is a lunch session with Wayne Outlaw, management consultant, who shared unique and innovative ways wholesalers can build loyalty and boost business without reducing prices or increasing rebates.
Plus, for ABX participants with down-time during the two-day ABX meetings, AWMA offered two roundtables-one was hosted by Dennis Loots, the broker at Willis, to raise the visibility of the Cigarette Tax Bond Program; the other was hosted by Bill Seide to promote AWMA's Insurance Program.
AWMA groundbreaking research defines 'value' of distributors
AWMA President Scott Ramminger introduces "The Value of the Distributor Study," a landmark report which examines the essential role played by distributors.
New research commissioned by AWMA was presented during the Summit, which outlined the many valuable services distributors provide to manufacturers and convenience store retailers as well as the need for improved compensation for those services.
The results were highlighted by the research team of Kit Dietz, president, Dietz Consulting LLC, Huron, OH, and Bob Gatty, president, G-Net Communications Consulting, Poolesville, MD, who were commissioned by AWMA to quantify this value and analyze the factors that contribute to poor profit performance.
The study is based on a series of in-depth interviews with manufacturers, distributors and retailers, combined with additional research from HIPA and other sources. Noting that the "table stakes" for AWMA distributor members is their ability to purchase, stock and distribute a broad variety of products every day at a competitive price, the research points out that distributors do much more.
"But those services all come at a cost," the report observes, "and while manufacturers and retailers often understand and recognize the benefits of these value-added services, distributors contend that many of their efforts go unrecognized and are simply assumed. Worse, many retail customers who do say they appreciate the distributor's efforts generally are unwilling to provide the compensation for them that is needed and justified."
The study points to the 2006 HIPA report, which shows that the typical AWMA distributor produces a pre-tax profit margin of just 0.5 percent and a return on investment (ROA) of only 4.0 percent. That ranks c-store distributors as 75th in a list of 75 industries examined.
The report also discusses low-profit contributors, including taxes, declining volume, rising operational costs, over-proliferation of SKUs, unreasonable competitive challenges, and perceived discrimination against the c-store distributor.
It also offers recommended remedies, urging retailers to "recognize that technology-based services, category management assistance, planogram creation and implementation, and extra deliveries all come at a cost."
ABX Participants Get Down to Business
Thirty-two manufacturers/suppliers and 46 distributors took part in the third annual AWMA ABX meetings in conjunction with the 2006 AWMA Summit at Lake Las Vegas. In back-to-back, 35- minute meetings, trading partners met to discuss current accounts and map out business plans for the upcoming year.
"I met with many big players in the two-day period. The cost and time savings are unmeasurable," said Carter Adair, Jack Link's Beef Jerky.
And Joe Bowlin, McCarty-Hull Distributors, Inc., said that everyone from the company that attended the Summit and ABX called the meetings "a tremendous success!"
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