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By Linda Lisanti
LAS VEGAS -- Convenience retailers and manufacturers may see more new pricing models coming from the wholesaler community -- similar to what's now happening in the packaged beverages category -- as the American Wholesale Marketers Association (AWMA) challenges its members to change their thinking and strategies, and reverse the trend of steadily-declining profits.
At its annual Real Deal Expo, which wrapped up Friday at the Las Vegas Hilton, AWMA unveiled a new slogan -- "Championing Distributor Value and Building Profitability."
As 2007 AWMA Chairman Jode Bunce noted in his general session address, convenience distributors are dead-last in profitability compared to the 75 other distributor industries tracked. Reasons include: rising operational costs, low-profit categories, over-proliferation of SKUs, low-profit expectations and price discrimination, he said.
"Clearly, it is time for a paradigm change ... we need to react," asserted Bunce, executive vice president, cigarettes, for Eby-Brown Co., before unveiling the slogan, which he said signals a new direction for the association representing U.S. convenience distributors.
AWMA plans to use a landmark distributor value study that the organization conducted in 2006, entitled "The Distributor Value Equation" as the foundation for its new path, according to Bunce. The study stresses the changes needed to allow distributors to stop the industry-wide decline in profits, including a recommendation that distributors improve their pricing policies for heavy, high-cube products like beverages and bottled water in order to receive fair compensation for delivering and handling them.
As previously reported by CSNews Online, The McLane Co. has announced a new weight-based fee, effective April 1, for its packaged beverage manufacturers at a cost of .095 cents per pound, with a minimum of $2.50 per case. The company said it assessed the fee based on the additional costs paid by McLane for the distribution of the beverages as the category grows and becomes more popular.
Published reports have confirmed that Naperville, Ill.-based Eby-Brown, the third largest wholesaler, and GSC Enterprises also plan to change their pricing models for packaged beverages due to the high costs of distributing these heavy products.
Retailers believe these changes will cause price increases for both them and consumers in segments such as bottled water, isotonics, energy drinks and carbonated soft drinks.
Explaining McLane's recent decision, Tony Frankenberger, the wholesaler's vice president, merchandising and procurement, told Real Deal Expo attendees that the company realized it was delivering bottled water for less than 3 cents a pound under the old model.
"Nearly 48.5 million cases were delivered by McLane last year. That was 35,000 truckloads of low or no-margin product," he said. "We are holding the line on this."
Frankenberger urged other companies to examine their own distribution costs and establish their pricing accordingly, adding, "We're at a crossroads in the industry."
For 2007 and beyond, AWMA also plans to:
-- Conduct educational sessions to examine three key areas that affect distributor profitability: heavy/high cube items, the erosion of cigarette profits, and how expanding collaborative relationships with manufacturers can help boost profitability.
-- Develop a follow-up to "The Distributor Value Equation" study, containing recommendations for action by distributors to help improve profits.
-- Create a Profitability Conference for senior management to explore issues in this area.