The only constant in life is change. Nothing stays the same, even for companies that have been established for decades. With that reality, business owners tend to closely watch how market conditions affect business operations. The past few years have seen tremendous shifts in lifestyles, global economies, supply chains and logistics. For distributors, quickly shifting consumer preferences and the continued demand for variety have placed pressure on operations.
As you look ahead at your company’s financial priorities, here are some elements to keep in mind, and the financial strategies that can support your goals.
What’s next for your distribution company?
A business needs to remain nimble and flexible as strategies can change when the business matures. You may have some upcoming plans that can have significant impacts on your bottom line.
Warehouse expansion, updates or new construction
An efficient warehouse is a key component to a successful distribution operation. If you’re outgrowing your warehouse space, or feeling the friction of outdated technology, a warehouse upgrade is likely keeping you up at night. Deciding whether to add to your current space, update your equipment or technology, or take the plunge with a new warehouse are weighty choices with real impact on your operations and output. Your business banker should be able to assist with a financial analysis to understand impacts on a more efficient warehouse.
The beverage industry has seen massive consolidation over the past 10 years, including a substantial number of transactions in the distributor tier. As you consider the long-term strategy for your operation, acquiring a neighboring territory or even deciding to buy a new territory in a different market are worth contemplating. These decisions come with an incredible level of complexity and require a good amount of planning, thought, and consideration.
The opportunity to grow through acquisition often only comes once in a generation. That’s why it’s important to prepare so you can act quickly and decisively when that opportunity is presented.
The addition of a new supplier or brand relationship to your business can occur quickly, but needs to be carefully considered, as most distributors can attest. Partnering with a supplier is a long-term, intricate relationship with variables like exclusivity, marketing commitments, customer servicing expectations, and growth goals. While adding a new brand or supplier can help diversify your offerings or target a niche consumer in your area, the risks and long-term financial value should be carefully considered with your team and external partners.
Inventory management is a job reserved for your best team members. Warehouses will flex to accommodate bulk shipments from major suppliers to managing low levels of inventory and “out of stock” items in a very short amount of time. Having a banking partner that provides the flexibility to finance larger shipments without impacting your credit structure is very important.
In addition, consumer palates are changing and the demand for beverage variety is at an all-time high. The rising trends of innovative products continue to stress the limits of inventory. According to InsightAce Analytic‡, the global ready-to-drink (RTD) alcoholic beverages market is expected to reach $85.5 billion by 2030, up from $32.94 billion in 2021.
As distributors confront the challenges of SKU proliferation, business strategy not only needs to take into consideration how to stock the right brands, but also how the new brands will impact the efficiency of the warehouse. This mix is a fine-tuned process that can have significant financial impact.
Freight and fleet management
A foundational element of a successful beverage distribution business is an optimized and efficient fleet that can carry our inventory to your market quickly and accurately. However, market challenges – such as driver shortages, gas price hikes, and “out of stocks” – can make managing a fleet complicated. And evaluating the ROI and costs of maintenance, technology upgrades, equipment updates and fleet expansion can feel more like guesswork than strategy.
Financial forecasting and modeling
Big business decisions can come with uncertainty, which is why it’s critical to analyze your options through financial forecasting and modeling.
Financial forecasting is a strategic process where you consult with a financial professional to forecast how your distribution company will perform in the future based on current data. Your financial forecast is built using your existing financial statements in tandem with strategic quantifiable changes to your business model.
You should make it a point to find partners that can assist with compiling the data and work with your teams to quantify impacts of strategic changes to your business. Establishing a forecast not only helps you gain a better understanding of what’s ahead, it also a healthy practice that will assist in building a growth mindset.
If you’re considering significant business updates, financial modeling should be a key element in planning your next steps. Models help business owners assess the risks and benefits of decisions like updating a warehouse or buying a new brand.
The next year may bring change or growth for your beverage distribution business, and with a close review of your goals and practical financial strategies, you can feel confident in your financial decisions.
At UMB, our specialized beverage finance team can help counsel and guide your financial next steps with robust reporting, forecasting and strategic modeling. Whatever may be on your mind or on the horizon, we can help demonstrate the benefits, risks and value of your growth decisions. Connect with us today to start your beverage finance consultation.