*This article was originally released in April 2022 and updated with additional material in March 2023
For beverage alcohol suppliers, securing the right distribution partnership is a crucial step in establishing a route-to-market strategy in the U.S. Park Street University has a host of resources for helping brands better understand their route-to-market options and the supplier-distributor dynamic. Here’s our roundup of the key considerations for obtaining a beverage alcohol distribution deal.
Determine if Your Brand is Ready for Distribution
If you’ve created a high-quality product with an appealing brand proposition, you may be ready to take that next step and get your products on the shelf at retail. Before you can dive into the distribution tier, you should take inventory of what your brand is bringing to the table. For instance, who is your target consumer and how will you leverage your brand’s identity and story into a plan of action that will connect with this audience?
The next step is to establish an expansion plan, targeting the markets in which you will have the greatest chance of success. Your distribution strategy will be dictated by the wholesale framework of your target state. Below are some Park Street University resources that you can use to take the proper steps to get ready for market entry.
- The Keys to a Successful U.S. Brand Launch
- A Roadmap for Creating a Market Expansion Plan
- Rudy Ruiz on Routes to Market for Emerging Brands
Types of Distribution Partners
While the three-tier system of route to market is federally mandated, there are different distribution options within that framework.
National Distributors
The last decade has seen regional distributors expand their capabilities and geographic reach through acquisitions and partnerships to gain share of the U.S. market and ultimately attain a nationwide reach. The ten largest wholesalers nationwide accounted for a combined estimated market share of 78.5% in 2022, according to Impact Databank.
Leading players in the second tier such as Southern Glazer’s Wine & Spirits and Republic National Distributing Company are examples of national distributors who have transport infrastructures and retail relationships across numerous U.S. states.
These types of national distributors have thousands of brands to split their resources and attention.
Mid-Sized Regional Importers or Distributors
Mid-sized distributors will often take a regional approach to market entry. Distributors of this size maintain personal relationships with retailers and on-premise establishments which they will leverage to get suppliers visibility. Regional distributors will pair suppliers with retail accounts to strategically boost their brand’s exposure rather than taking a high volume approach to sales.
Unlike national distributors, mid-sized importers with a small portfolio of brands have connections across the entire distribution network and can dedicate the necessary time and attention to your brand during the nurturing years.
Self-Pitch Distribution
Some brands choose a do-it-yourself approach to market entry in certain states where self-distribution is permitted. In a distribution landscape that is often very cluttered and competitive, self-pitch distribution is used as a viable alternative to traditional distribution models for brands that are looking to validate proof of concept before entering a distribution contract.
This approach is similar to a traditional distribution model without the sales force capabilities. When it comes to delivery, warehousing, and back-office operations, there is no fundamental difference between a self-pitch approach and a traditional distribution model, but suppliers need to maintain their own marketing, sales, and retail channels. The direct representative of your brand will act as the salesperson from a compliance perspective with pitches being handled directly by the brand.
Remember that brand building takes time. Be sure to balance volume and distribution goals with resources when using this approach.
How to Get a Distribution Agreement
With a route-to-market strategy in mind, your company may choose to establish a relationship with a distributor to initiate sales at the retail level. The first step is to research your potential partner. The easiest way to do this is to ask around with local suppliers, review the distributor’s current portfolio, their organizational structure, and most importantly try to get an idea of what your target distribution partner is looking for. By getting a sense of these aspects, you can make the case that your product is the right fit for this potential partner.
Below are a few resources for best practices to attract a fruitful distribution partnership.
- Asking the Right Questions to Get Distribution
- A Conversation With Horizon Beverage’s Doug Epstein
- What to Do Before Moving Into a New Market
Forming a Mutually Beneficial Distribution Partnership
Formalizing an agreement with a distributor requires clear goals and attention to detail. Pitches to distributors are most effective when your brand aligns goals with your wholesaler. Distributors want to hear that small suppliers have a plan for market entry and are motivated to advocate for themselves.
Instead of approaching these negotiations with a full shelf of ten SKUs for them to sell all at once across a wide range of markets, it’s best to come to a distributor with a more manageable, focused approach. Offering a distributor a smaller set of one to four SKUs with a clear strategy for how these might sell in a target market can be an effective way to get a distributor interested in representing a brand.
While larger suppliers often have smaller gross profit percentages that they can offer distributors, small suppliers find themselves in a favorable position where they can present higher profit percentages that are more attractive. With distributors already having hundreds, if not thousands of products to sell, maintaining high gross margins of around 25-35% is a good way for brands to boost awareness. Your brand can also deploy incentives to increase awareness. Offering significant placement and reorder incentives to distributors is a way to make a pitch more attractive.
Distributors have a wide range of markets and accounts they service, your brand must be sure to advocate for itself to get the proper time and attention it needs, but it’s essential to make sure the brand is in alignment with your distributor as well. Setting the right expectations for both parties will help avoid mishaps.
Check out the links below for some key considerations before you formalize a distribution agreement.
Preserving your Partnership
Successful distribution partnerships are built on sound relationships. The course of a partnership is dictated by your brand’s ability to instill open lines of communication between both parties. No matter the shape the relationship takes, being able to successfully problem solve and collaborate is crucial.
After a distribution agreement is in place, your brand needs to remain active. The last thing a distributor wants to hear is that the supplier is ready for their sales team to advocate for their products alone. Supporting the distributor by making regular in-market visits will go a long way for your brand to demonstrate a commitment to the partnership. Brands should deploy personnel dedicated to pitching retailers and on-premise establishments, especially in the launch phase.
It’s also important to remember that a distribution sales manager likely gets hundreds of emails a day and has to split their attention between many brands at once. In light of this, it’s crucial to develop good communication practices to be sure you’re getting a fair share of attention. The best way to do this is to be thoughtful with how you’re communicating and aware of how often you’re reaching out. Make sure the information you’re getting across is relevant and constructive rather than just serving as a reminder to the distributor that you’re in need of help. While your brand should be consistent with communication, reaching out every day, and bombarding a distributor with emails and texts is far from constructive.
Ultimately, making personal connections with a primary point of contact for a distributor and demonstrating that you’re motivated to support their goals will help make your brand a priority. There are concrete steps suppliers can take to generate attention and awareness within their chosen distribution agreement. We’ve put together some of the best practices for maintaining a constructive relationship with your distributor.
- Optimizing Distributor Communications
- How to Get Your Distributor’s Attention
- How to Gain Your Accounts Trust and Increase Sales
If you find these resources valuable, don’t forget to bookmark this page or reach out if you have further questions at psu@parkstreet.com.