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By Renee Covino
LAS VEGAS -- The core theme of the 2008 AWMA Real Deal EXPO was achieving better profitability for distributors across the nation who, along with their manufacturer suppliers, attended the sold-out show held here late last week.
"Improving distributor profitability is a priority and it will continue to be a priority," said Dick Dunham, vice president of operations for Stephenson Wholesale Co., who officially took over as the new AWMA chairman at the EXPO's opening reception. Dunham commended the profitability work of outgoing chairman Jode Bunce, vice president of cigarettes for Eby-Brown Co. "I want to build on what Jode and past chairmen have done," Dunham explained.
Sessions at the EXPO kept to the theme with Kit Dietz of Huron, Ohio-based Dietz Consulting, also known as "Mr. Profitability Himself," as Dunham referred to him, moderating and presenting profitability ideas.
In setting some profitability goals for the industry, Dietz explained "we all should be shooting for at least a 12 percent return on assets." He said that with this as the minimum gross margin, distributors can continue to provide their "valuable services" to manufacturer and retailer partners, and still make a decent profit.
Some ideas for getting there were presented in a special program that offered distributors a strategy for boosting sales and profits by leveraging category management and working closer with suppliers to find new business opportunities.
Along with Frank Davoli, director of purchasing for Master Distributors, Dietz outlined the benefits of optimizing assortment, sales and margin through category management, category assessment and multi-vendor strategies. Also discussed were the benefits of better managing supply chain costs by applying activity based costing (ABC), through better communication and cooperation among trading partners and of moving more products through the warehouse distribution system.
Using the snacks category as an example, Dietz highlighted that the convenience channel has over-emphasized the role of direct-store delivery (DSD) and has under-utilized category management in snacks. "High margin power brands are overlooked, under-spaced, poorly leveraged and improperly positioned," he said.
Distributors were advised to reinvent their approach to branding in the snacks category. "Properly balance the role of DSD and warehouse-delivered snacks according to consumer brand preferences to maximize sales and gross margin opportunities in each snack segment," Dietz advised.
A study of two convenience store chains representing 600 stores demonstrated that the Snack program developed by AWMA generated more than 20 percent increase in dollar sales and 23 percent increase in gross profits across all snack segments, according to Dietz, who said that the program can be used as a template for other categories and segments.
In another EXPO session, Dietz moderated a special panel of distribution industry experts from Canada who revealed dramatic profitability hits they have taken in the tobacco segment, which is for many, the most important contributor to their sales, due to sky-high tobacco taxes, punitive government restrictions, competition from illegal sales and the withdrawal of Canada's largest tobacco manufacturer, Imperial Tobacco, when it suddenly announced last year that it would begin DSD distribution, ending their traditional relationships with distributors.
Canada is "living proof that a government can ruin a legitimate, legal business just by how they socially engineer the perception of tobacco, and by how they regulate the industry," Dietz said.
It was pointed out that in Canada, the average retail cigarette carton price is $77.67 -- compared to $35.71 in the U.S. -- due to high federal and provincial tax rates deliberately intended to discourage tobacco sales. In addition, cigarette packages in Canada must carry dramatic graphic warnings that cover more than 50 percent of the pack face. One such warning reads: "Warning: Tobacco Use Can Make You Impotent."
What's more, tobacco merchandising opportunities inside Canadian stores have been eliminated in some provinces -- forcing tobacco products to be stored out of sight, with no back-bar merchandising allowed.
Panelists said the entire country will "go dark" in this manner by May 31 of this year.
Because of high taxes, illegal trade has grown to a 30.5 percent share of overall tobacco sales, up from 22.2 percent last year.
Dietz urged AWMA members to grasp these "negative learnings" from Canada's tobacco situation and to work with AWMA to fight increased tobacco taxes and regulations. He also put out a call to distributors to take steps to increase their profitability through means other than tobacco.
"We better get engaged as an industry, to find the things we can agree on to fight tax change and regulation change or we’re going to find ourselves moving in the Canadian direction," he said.