Industry Insights
Turning Industry Challenges into Opportunities: Key Takeaways from NBWA 2024
Encompass CEO Patrick Tickle recaps the 2024 NBWA Conference, highlighting key industry shifts, the growing power of the consumer, and the need for operational excellence. Discover how distributors can adapt and thrive in today’s rapidly changing market.
October 3, 2024
As I flew home from San Diego and this year’s NBWA Conference, I felt the urge to share some of my observations from the event and the state of our industry. As the CEO of Encompass Technologies, I have the unique and privileged opportunity to meet with senior industry leaders across our amazing customer base, the many distributors looking to modernize their technology, ecosystem partners, NBWA leaders, suppliers, and investors - not to mention absorb all the excellent conference content just like any other attendee… What jumped out at me this year?
The New Normal is Here and it’s Accelerating Everyday
It’s a sometimes trite and overused term, but our industry is clearly in a “new normal”. Over the past several years, I sensed an attitude that we were living through an anomalous cycle driven by bizarre, one-off events that would eventually self-correct. But this year, it was clear that everyone realizes that the return to “business-as-usual” is simply not going to happen. Every presentation this week started with the words “headwinds,” “disruption like we have never experienced,” “and not slowing down, if anything accelerating.” Traditional beer, the carrier wave of our industry, is still a massive category, but without question, it is in systemic decline. As Maggie Timoney, the CEO of Heineken USA relayed - three consecutive years of 3% decline is a trend that we all must internalize. Maggie also said, “Things are faster than ever and will never be this slow again.” Across the board, independent distributors are going to have to adapt to these new realities.
But Why? Because the Consumer has Officially Become King
Our industry has essentially flipped in a radically short period of time from a supplier and distribution-centric supply chain to a consumer-driven market. Every day the beverage industry looks more and more like any other CPG category where consumers are trend-driven, brand launches are higher risk, product life cycles are shorter, and supply chain agility is a fact of life. The “beer fridge” in the garage or the “beer aisle” in the grocery store is now the “beverage” aisle or fridge - filled with everything from probiotic soda, to RTDs, to FMBs, to Delta9, with some beer and wine in there as well - it’s the “omnibibulous” effect and it is not going away.
Merrilee Kick, the founder of BuzzBallz, shared during a BREW panel that one of their keys to success is releasing new flavors all the time, which sounds very CPG to me. Erika Ayers Badan, the previous CEO of Barstool Sports, made a great observation that supports this industry flip when she shared that “traditional marketers are panicking.” Their tried and true strategies to build brands and drive consumer behavior are increasingly ineffective. “Mirroring” the consumer and building a fan base is the model for building brands today. Insightful observation for sure, but very counter to the traditional beverage model.
The Distributor Rewire - The Demand for Business Agility and Operational Excellence
What are the implications to independent distributors now that these changes are here to stay? As one of our customers told me, “The days of focusing all of our efforts on growth are over. We will always look for growth, but now we need to balance our efforts with even more focus on operational excellence that can drive profitability.” I know from spending time with Ray Guerin, one of our Encompass board members, that Reyes has always had this acute focus on supply-chain operational excellence. Incoming NBWA Chair, Rebecca Maisel amplified this sentiment and the need to future-proof, “Take a look at your warehouse and routing efficiency, put an emphasis on operations, revisit your procedures, be open to best practices, and invest, invest, invest.” We all love growth, but nothing is more empowering and “independent” than profitability - it provides the ability to weather trends, reward employees, and invest in the community like no other financial outcome.
An incredibly interesting dynamic from a presentation by Arlington Capital and Bump Williams Consulting makes this operational excellence and margin focus even more compelling. For distributors looking to maximize valuation in a consolidating industry, the omnibibulous effect puts even more of a premium on driving increased profitability. As “4th Category” SKUs become a larger percentage of the revenue mix, they reduce a distributor’s percentage of franchise-protected revenue. This portfolio diversification is demanded to hold/grow revenue, but at the same time, diversification lowers the overall quality of revenue, thus adversely impacting valuations. Profits and margins will have to fill this gap to hold valuations. Again, operational efficiency and its outcomes will be the great equalizer in this new market landscape. They also pointed out that increased investments in technology will be demanded to operate in this environment.
Our Customers are the Vanguard
One of the best reasons to spend time at NBWA is that I get to see so many of our customers in one place over a short span of time. Having a beer and catching up on business is always time well spent. This year, 40% of the distributors attending NBWA were Encompass customers! Although Encompass customers are not immune to the trends and observations shared here, they are immeasurably better positioned to deal with them because they have invested in a technology platform that is built to support these new realities. A dynamic software platform that effortlessly scales to support a more complex business, promotes business agility with real-time data, supports a relentless focus on operational efficiency, and provides security in a faster-moving industry is a true competitive advantage and a buttress to long-term independence.
There is plenty of hard work every day, but as a collective, it is a privilege to work with all of these amazing operators. As I have spent more and more time with our customers, it has become clear to me that their decision to leverage Encompass is not only a great business decision, but a great decision for their employees, their community, and the industry as a whole. Together we can do great things, move forward faster, give back more, and turn headwinds into opportunities. It was a great few days in San Diego, see you next year!
pt