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WHOLESALE

FEARS

Independent distributors express concern—and hope—for 2009 BY BILL DONAHUE AND ABBEY LEWIS

From dramatic tobacco tax increases to a pocket-tight customer, retailers are hardly alone in their merchandising dilemma. Seeking new ways to entice consumers to let go of increasingly tight dollars is placing new burdens on wholesalers, most notably independent players whose limited turf and tight margins leave little room for error. That most of the 15 wholesalers approached for this story declined to be interviewed is, perhaps, reflective of the fears and tension many of these businesses now face. Executives of two local WHO’S WHO distributors, however, did agree to share their thoughts, Allen Brothers Wholesale Distributors Inc. concerns and hopes for 2009. Location: Philadelphia, Penn. Jeff B. Allen, president Dist. Area: Penn., Del., N.J., Md., of Philadelphia-based Washington D.C. Allen Brothers Wholesale Retailers served: 1,200 Distributors Inc., is the third Employees: 75 generation of Allens in the Warehouses: 1 business. His company delivers products to more than

1,200 convenience retailers, most of whom are independent, in Pennsylvania, Delaware, New Jersey, and parts of Maryland, New York and Washington D.C. Allen recognizes the plight of the independent retailer, and anticipates trouble ahead. “There are some big issues with independent retailers, carrying through into 2009. We’re seeing that independent cstores went through challenges with fuel, and that led to some big decreases across the board,” he says. “We’ve seen what were once secure accounts getting into dangerous territory. It has continued into 2009, and it will continue to Andalucia Distributing Co. be even harder throughout Location : Andalucia, Ala. [the entire year].” Dist. Area: Ala., Miss., Fla., Ga. For Peggy Kiefer, director Retailers served: 800 of marketing for Andalusia Employees: 78 Distributing Co. in AndaluWarehouses: 70,000 sq. ft. distribution center sia, Ala., 2009 might not be that bad. The family-owned business has been around 52 March 2009

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“2008 was a good year for us, although we had unit declines in cigarettes. There are some big issues with independent retailers, carrying through into 2009. The biggest problems for independents surround the fact that many of them didn’t know how to handle issues with managing money and fuel. It’s been unbelievably challenging for c-stores. Even the people who were healthy are starting to suffer.”

years, employs 78 people and delivers to 800 stores in Alabama, Mississippi, the Florida panhandle and parts of Georgia. “I think [retailers] have adjusted to the slower economy and are ready to move on to get more motivated in a positive way,” she says. “They are interested in lower-priced items though, I will say that.” Earlier in 2008, CSP reported that wholesalers face pressures to maintain their own profitability due to shifting costs in nearly every part of their business. The industry-leading cigarette category, which for years filled the margin trough for wholesalers, will no longer subsidize a system plagued by inefficiencies—especially considering recently passed tobacco legislation, and elevated state-by-state tobacco taxes. Exacerbating matters, independent wholesalers confront a new wave of competition from membership clubs wooing smaller operators with cheap prices on popular staples. Sam’s Club and Costco are increasingly popular among independent retailers, reports

THE ECONOMY “On the retail side, [independent operators] don’t have the ability to get loans. Some people I’ve spoken to, regarding lines of credit, retailers were not able to tap into them when they needed them. As a wholesaler, we’re constantly poised to look 12 to 24 months down the road. We know if there’s an increase coming to the federal excise tax or a state tax, we know it’s coming. I don’t think the independent has the wherewithal to plan like we do. The wholesale community is getting smaller, and that’s one of the ways we can make money. We’re in a time where in your industry, you’ve got to be the game or you’re going to be out of the game.”

ALLEN:

“Vendors’ and manufacturers’ prices have increased. We’ve seen prices increase so much in 2008, and it’s almost impossible administratively to keep up. The effects of the economy overall: we’ve balanced out to be a little on the plus side. Yes, we’ve been affected negatively, because we’re not selling as much as we used to and our costs have gone up, but we’re running so lean that we can still make money. With a lot of new stores, they’re not wanting to make decisions to change wholesalers, and they’re not willing to do something they’re not already doing. They’re sticking with the basics when it comes to coffee and drinks —and coffee and snacks and delis. Everything is still going OK on the whole, but overall, they’re not wanting new ideas.”

KIEFER:

THE GASOLINE EFFECT ALLEN:

“Fuel is still fluctuating up and down…we’re still fighting the fuel battle, but it’s better than it was. We definitely saw during the up-and-down that same-store sales were down and units were down. [Customers] might grab one pack of cigarettes instead of three. Or they might just put $20 in the tank instead of filling it up.” “The drop in fuel prices has helped us tremendously. We had to increase our delivery fee—a fuel surcharge—and we had to increase that but bumped it back down since the prices dropped.”

KIEFER:

March 2009

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CATEGORY MANAGEMENT “We’ve always offered category-management services and store set services. With a new account, we discuss what we think they need to do. If they’re carrying a large automotive or frozen set, which is a huge category now, we give them advice about what they can do to increase their sales. It’s something we’ve always done, but we’re talking more about inventory control and cigarette inventories. These are the same things we’ve done the last 10 years, but maybe they’re more open now. Independents are fighting so hard against the 7-Elevens and Walgreens of the world. Everyone is a competitor.”

ALLEN:

“We are extremely technologically driven. The picking in our warehouse is done on a handheld computer, and we can literally scan UPCs, pick and scan and put in totes. When the totes go through screening, if something is wrong the system will flag it. All our systems are based around technology to keep us efficient and cost-effective. This is something we’ve been doing for a while. Customers can order so much easier. You don’t get the holes like you’ll see when distributors don’t use that kind of system.”

KIEFER:

TOBACCO ALLEN:

“I think 2009 will be a cautious year for everybody. I think it will be a fairly flat year, and people will be cautious. People will continue to do acquisitions, but on the whole I think it will be a quiet year. For us, we’re not out of the woods. [With the passing of] SCHIP and if an excise tax goes on, [cigarette] units will go down even further.”

“We do about $120 million in sales, and every year there’s been double-digit growth, pretty much —but not this last year. We were up 1% to 1.5%. For us, it was bad, but it wasn’t bad bad. Retailers are reporting that in some areas people are still buying inside sales. In other areas, it’s all they can do to put gas in their cars. In some areas we service, a cstore is about all they have [in terms of retail choice], and those areas are least affected. But on the whole, I’d say people are buying less-expensive items, but people are still buying cigarettes and beer.”

KIEFER:

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“What I’m most optimistic about in 2009 is that I feel like—and I don’t know if there’s anything to this— so many [retailers] are signing up for our trade show… When it comes to certain snacks, they stay to mostly name brands. We sell a lot of the alternative brands that would be more generic.”

indicate, but industry observers suggest that these clubs are unlikely to dislodge the traditional wholesale-delivery system (see story, p. 35). Convenience retailer giant 7-Eleven is working on revolutionizing their distribution system. Their goal, as outlined by 7-Eleven president/CEO Joe DePinto at the 2009 CSP Convenience Retailing Conference, is to reduce the number of deliveries and place them on a more rational schedule where like products are delivered on the same day. In fact, 7-Eleven has implemented a 400-store pilot plan in Los Angeles that incorporates the company’s strategy of logistics consolidation. So where does that leave the smaller state and regional wholesaler—and the independent retailer? Certainly, if the big fish are floundering in the big pond, then the guppies must be on the brink of starvation? Not so say Allen and Kiefer. Both Allen and Kiefer offered their insights into the current year during an inter■ view with CSP Independent.

Wholesale Fears - Distributors Express Concern  

Independent distributors express concern - and hope - for 2009

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