The Mendis Difference, Part II

In Part I of The Mendis Difference, I wanted to highlight how we developed Mendis coconut brandy and our image and brand philosophy. In Part II, I want to provide you insight into distribution and what critical role it plays to a product’s success in the alcohol industry. Business is like a fine oiled machine, one in which every part must work correctly or the engine will come to a standstill. So let’s look at what are we doing at Mendis to build Mendis for success and some mistakes we are watching out for.

At Mendis we spend every day analyzing all alcohol companies in the US and around the world. We review reports on their financials and review their spending patterns. We study alcohol market analyses to see what each category segment is doing and what the short and long-term trends are. What this enables us to do is single out companies that are doing well and why they are and also to see which companies are not performing well and what to watch out for. This process is a critical part in how we decide to go about promoting our product, where to spend our funds and how to set up distribution.

Many new start-up alcohol companies, in particular within the highly speculative vodka market, are going all-out in an effort to get their brand into any event or publication at any monetary cost. Many of these new companies have access to millions of dollars for advertising and like a person who has just won the lottery, rush to spend their easy earned money with little thought provided, sort of reminiscent of the late 1990's tech spending hay-days.

The best way to highlight major mistakes being made by new beverage companies is to provide direct reference to the past and present events. Though prior to doing that, let’s get some oversight into how the alcohol industry works from a distribution standpoint and the critical relationship between distributors and advertisement placement, these two go hand-in-hand when it comes to success in the alcohol market. The U.S. distilled spirits market has changed over the last decade in relation to the structure of the channel of operations of distributors and retailers. These changes are shifting the control of a brand’s market position and placement from the manufacturer to the distributor and retailer for the following reasons:

· Restrictions on advertising make point-of-sale in the retail stores presence increasingly important for winning market share.

· The U.S. market is a "specialist dominant" marketplace where small retailers account for 50-99% of spirit volume sales, depending on the state. This is because state laws and/or controls over spirit distribution distort the retail-chain structure towards numerous small scale operations, preventing large retail liquor chains.

· Due to consolidation in distribution there are fewer market players with more market control.

· "Distributors play a key role in determining where, and whether, a given brand will be sold. In most cases, the distributor has an exclusive territory for a brand".1

This shift of control means that now, wholesalers/distributors are a key factor in determining commercial success in the spirits market. Advertising must be tailored towards the distribution channels and strong channel relationships with distributors must be established.

So what does all this mean? Basically from a new alcohol company stand point, it is best to limit distribution to within a geographic area that, as a manufacturer, you can provide sufficient marketing support to the stores your distributors supply to, so the product will move. You can only grow your company as much as you have the resources to support it. If you expand your company’s reach beyond of what it can support, you’re setting your company up for failure. I believe there is nothing worse than supplying a product with no demand. I think against the grain on this and would prefer to have demand first and then supply that demand.

Manufacturers/importers (like Mendis and other beverage companies) at the end of the day really don’t control the sale of a product, in thinking so is fooling oneself. All we can do as an alcohol importer is understand how the market works, our place in the supply chain and what we are supposed to do, not what we want to do. In light of the above knowledge of how the market operates, our role is to work with distributors in our marketing placement.

One thing all new beverage brands need to realize is that 99% of the time, there is another one of them right behind to take its place. Even given the fact that we have no direct competition yet as a coconut brandy, we do not discount or take for granted the current position we are in and ready ourselves for the unknown. We spend countless hours researching and developing our business model, supply chain, marketing campaign, potential competitive beverage companies (large and small) and most important of all how the industry works. The absolute success or failure of a product can’t be predicted. If there were a magic formula, everyone would be following it. There aren’t any guarantees in life but as we go out in the marketplace we will put our best foot forward.

1- Aspects of Retailing Global Spirits Distribution, January 2000, Euromonitor.