BENCHMARKS FOR HIGH PERFORMING P. 9 BEER WHOLESALERS · 2019-08-08 · Verno’s Beer Brief EAR 16...

THE WHOLESALE INDUSTRY’S LEADINGBEST PRACTICES PUBLICATION

YEAR 16, ISSUE 6 | AUGUST 2019© 2019 VERNO CONSULTING, LLC.

ALL RIGHTS RESERVED.

BENCHMARKS FOR HIGH PERFORMING BEER WHOLESALERS

UPCOMING VBB ISSUE

SEPTEMBER 2019

IN THIS ISSUE

WHAT ARE KEY OPERATING INDICATORS?

METHODOLOGY

KEY DRIVERS OF PROFITABILITY

IMPACT OF MARKET SHARE ON PROFIT

BENCHMARKS FOR HIGH PRODUCTIVITY

HOW TO USE THIS BRIEF

P. 2

P. 2

P. 3

P. 5

P. 6

P. 9

If you can’t measure it, you can’t manage it. Benchmarks empower departments to make meaningful impacts on the metrics that matter. Just about every client we consult with eventually asks us for benchmarks. They want measures that will tell them how they are doing and which areas they need to concentrate on. We have access to up-to-date wholesaler performance information from groups of wholesalers and clients and have used this information to provide the benchmarks our clients want while maintaining confidentiality of the names of the wholesalers in our database.

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Last fall we gave a seminar at the NBWA titled, “KOI’s & Benchmarks That Drive Efficiency and Improve Profitability.” The genesis of this topic came from our clients as well as our own interest in understanding more definitively which measures are most important when it comes to driving profitability.

As we researched this topic, gathered information, and analyzed wholesaler data, it was apparent that many of the measures we thought were important weren’t very important. We were also surprised to find some of the measures were basic yet actually held more weight when it came to driving profitability.

In this issue of the Brief, we will also define KOIs, the impact of market share on profitability, and the most important KOIs that determine profitability.

The KOIs in this Brief are broken down into four categories:

1. Financial Productivity KOIs2. Account & Stop Productivity KOIs3. Personnel Productivity KOIs4. Waste KOIs

Let’s start by defining KOIs.

THE GENERAL MANAGER’S

JOB DESCRIPTION

PAGE |Verno’s Beer Brief - YEAR 16, ISSUE 6, AUGUST 2019 2

WES VERNO · 303.718.7849 · [email protected] JOE VERNO · 303.807.5176 · [email protected]© 2019 VERNO CONSULTING, LLC. ALL RIGHTS RESERVED. WWW.VERNOCONSULTING.COM

WHAT ARE KEY OPERATING INDICATORS (KOIs)DEFINING KOIsKey Operating Indicators (KOIs) – also called Key Performance Indicators (KPIs) - are measures that can tell you a problem exists or how a function is performing, but they don’t tell you the root cause of a problem. KOIs are similar to warning lights on the dashboard of your car. They tell you if there is something wrong with your engine, if your tires need air, if a headlight is out, and when it’s time to service your vehicle.

TYPES OF KOIs The following are examples of the two types of KOIs:

KOIs used to measure performanceo Cases picked per hour in the warehouseo Percent of sales PFP goals attained for the period

KOIs used to indicate a problem exists and needs management attentiono Number of off-day deliverieso Inventory book to physical variance o Employee turnover rate in a specific department

METHODOLOGY USED TO DETERMINE THE MOST IMPORTANT KEY OPERATING INDICATORS

GROUP 1: High Profitability Wholesalers• Defined as wholesalers earning

$2.00 per CE or more in EBITDA

GROUP 2: All Other Wholesalers• Defined as wholesalers earning less

than $2.00 per CE in EBITDA

The first thing we did was collect as much wholesaler financial and performance information as we could find. This information came from our clients, industry data, wholesaler peer groups, and nationwide performance information from suppliers. We ended up with information from hundreds of wholesalers. Once we collected this information, we began to analyze it and group the information by wholesaler profitability.

We divided the data into two groups of wholesalers:

METHODOLOGYHOW WE DETERMINED

HIGH PROFIT PERFORMERS

Collected data from hundreds of wholesalers.

Identified high performing wholesalers based on EBITDA per CE.

Analyzed data for $2.00/CE EBITDA to see key performance measures that set the high profit wholesalers apart.

BENCHMARK USED THROUGHOUT THIS STUDY:

$2.00 EBITDA per CE



Then, we went about trying to find measures that explained why some wholesalers were able to earn $2.00 per CE in EBITDA and other wholesalers were not. Our initial thoughts were that profit was determined by share, cost management, and volume. While these factors were important and helped explain some of the differences in profitability, they were not the biggest factors that explained the difference between high profit wholesalers and the rest of the wholesaler universe. When we developed the KOIs and measured the data across both groups, the key determiners of profit became very apparent.

WHAT ARE THE KEY DRIVERS OF PROFITABILITY?Before we will show you the comparison of KOIs from the two groups of wholesalers, we first want to discuss the most important profit driver KOI.

THE KOI THAT MADE THE BIGGEST DIFFERENCE IN EBITDA WAS GROSS PROFT PER CASE.

Here’s what we discovered:

• GP per case was more important than GP % or even cost management or personal productivity.

• The wholesalers earning more than $2.00 per CE of EBITDA typically had a $1.00 to $1.50 per CE higher GP than the wholesalers not earning $2.00 per CE in EBITDA.

• The wholesalers earning $2.00 per CE of EBITDA were not always the most efficient nor did they always have the highest market share.

• Some of these wholesalers had Constellation brands while others did not.

We will explain these statements quantitatively later in this Brief. From an overall strategy perspective, the following was our high-level conclusion:

FIGURE 1: KEY PROFIT DRIVERS

It’s all about margin Gross profit $ share leader Keep GP % and GP $ per CE high Manage pricing Manage sales mix

MILLERCOORS

It’s all about managing costsBe more efficient than MC Wholesalers Manage service even as the volume market share leaderMaintain/increase GP, concentrate on high end, high GP $ per CE products

AB-INBEV*

*Unless you have Constellation



This may sound pretty basic, but in order to be a high profit performer, you need to:

• Manage your GP $ per case

• GP$/CS is more important than GP%

• Manage your sales mix

• Managing pricing

• Watch your expenses

• Keep service frequencies in check

• Manage your head count

• Gross Profit Per FTE is the key measure

COMPARING HIGH PROFIT PERFORMERS TO AVERAGE PERFORMERSFigure 2 compares the critical measures of high profit performers to the average profit performers:

FIGURE 2: HIGH PROFIT PERFORMERS COMPARED TO AVERAGE PERFORMERS

KEY OPERATING INDICATOR COMPARED TO AVE. AMOUNT

Gross Profit per CE Higher $1.00 - $1.50

Gross Profit per Stop Higher $40 - $90

Labor Cost per Stop Higher $2 - $10

Total Expense per Stop Higher $20 - $40

Total Operating Expense per CE Higher $0.30 - $0.40

Stops per Account per Week Lower 0 - 0.3 times

HIGH PROFIT PERFORMERS HAVE MORE GROSS PROFIT $ PER CE & MANAGE SERVICE BETTER THAN AVERAGE PROFIT WHOLESALERS.



In the above chart you can make a few key observations about high profit performers:

• They have between $1.00 and $1.50 per CE more gross profit

• They have higher gross profit per stop

• This can be explained by the wholesaler’s higher gross profit per case and managing stop frequency

• They are less cost efficient based on labor cost per stop, total expense per stop, and total operating expense per CE.

• They delivery their average account 0.3 times per week less than the wholesalers that don’t earn $2 per CE (the number of stops drive costs)

• They can invest more money in people, marketing, and even service, and they will still outperform the average profit wholesalers from a profit standpoint.

A wholesaler that has a $1.00 to $1.50 per CE gross profit advantage, even if they spend $0.50 to $0.75 per case more in expenses, can still earn $2.00 per CE in EBITDA.

IMPACT OF MARKET SHARE ON PROFIT Market share is very important to maximizing EBITDA and long-term health of any wholesaler. Market share growth without the corresponding increase in profit is a wasted effort and a strategy that will cause wholesalers to be low-profit performers.

Market share impacts:

• Share of the gross profit pool• Profit and cost per stop• Ability to leverage a wholesaler’s overhead

Figure 3 shows the basic relationship between share and gross profit per case and their impact on profit per CE:

FIGURE 3: GROSS PROFIT & MARKET SHARE MATRIX

L O W S H A R E < 4 5 % H I G H S H A R E > 5 5 %

HIGH GP PER CASE

HIGH EBITDA

VERY HIGH EBITDA

LOW GP PER CASE

VERY LOW EBITDA

BELOW AVE. EBITDA



If a wholesaler has a high market share, it will still be difficult for them to achieve $2.00 per CE in EBITDA if they don’t have a high gross profit per case. They can still make a lot of money, but maybe not $2.00 per CE. Looking at the other side, a low market share wholesaler with a high gross profit per case can earn $2.00 in EBITDA. If a wholesaler has low gross profit per case and low market share, they will have below average profit per case. If the low share, low margin wholesaler starts to see their share or gross profit per case start to slip, they should consider selling.

BENCHMARKS OF FOR HIGH PROFITABILITYThe following benchmarks are derived from taking the high profit wholesalers and seeing where they measured based on certain key criteria. Note: If we lacked sufficient data to create a benchmark, we labeled it “Target Defined by Company”.

FINANCIAL KOIs

G R O S S P R O F I T $ P E R C E

Total Gross Profit $Total # CE Sold $5.75 - $6.20

Target Defined by Company & Supplier Mix

Total GP $ - (Discounts + OOC + Breakage + Marketing Spend)

Total # CE Sold

G R O S S M A R G I N %

Total Gross Profit $

Total Sales $ 27% - 28%

P O O R P E R F O R M I N G S K U s ( G R O S S M A R G I N % )

Total # SKUs with Gross Margin % less than Target Gross MarginTarget Defined by Company

T R U E G R O S S M A R G I N $ P E R C E

T O T A L O P E R A T I N G E X P E N S E S P E R C E

Total Operating Expense $Total # CE Sold

$3.40 - $3.60

BENCHMARK

BENCHMARK

BENCHMARK

BENCHMARK

BENCHMARK



BENCHMARK

BENCHMARK

ACCOUNT AND STOP PRODUCTIVITY KOIsIt is important to stop for a second and explain why stop measurements are important. The number and makeup of stops drive the following:

Labor Costs

• Delivery labor • Sales labor • Warehouse labor

Operating Costs

• More delivery routes – more trucks• More cost of running the trucks

Due to the combination of high gross profit per case and controlling delivery frequency, high profit performers excel at account and stop productivity. Delivery stops drive labor costs in multiple departments, including delivery, warehouse, and sales.

T O T A L L A B O R E X P E N S E P E R S T O P

Total Payroll ExpenseTotal # Stops $87 - $90

T O T A L O P E R A T I N G E X P E N S E P E R S T O P

Total Operating Expense $Total # Stops $150 - $160

Total Gross Profit $Total # Stops $250 - $300

In addition to driving labor costs, incremental delivery stops directly impact total operating costs in the form of more delivery routes, which results in higher fuel and maintenance costs as well as insurance costs.

PERSONNEL PRODUCTIVITY KOIs Personnel costs are the number one expense factor that affects overall wholesaler profitability. Not only are they the largest expense, labor is also the most controllable expense.

• Too many employees• Too many layers of management• Too much service• Wage scales / ranges are too high

• Poor work productivity• Unbalanced volume per day of week• Doing too many things that don’t yield

a payback

COMMON CAUSES OF HIGHER PERSONNEL COSTS

BENCHMARK

G R O S S P R O F I T $ P E R S T O P

• Poor supervision and training• Wrong person doing the wrong

job (working down a level)



BENCHMARK

BENCHMARK

BENCHMARK

Total Payroll Expense

$1.95 - $2.05Total # CE Sold

Total Payroll $Total Sales $ 9% - 10%

T O T A L C E P E R E M P L O Y E E

Total # CE SoldTotal # Employees ABI: 30k - 34k | MC: 28k

WASTE KOIs Waste KOIs are areas that aren’t always 100% in the wholesaler’s control, but they can still be positively impacted by management. Improving a wholesaler’s waste KOIs means finding “free money”.

While there are many areas where waste can be improved, the following two KOIs can have the biggest impact on profit:

R A T I O O F O U T - O F - C O D E T O N E T S A L E S $

Total Out-of-Code $

Total Net Sales $ 0.07% - 0.10%

A V E . W E E K LY D E L I V E R Y S T O P S P E R A C C O U N T

(Total # Stops Per Year / 52 wks)

Total # Accounts 0.75 - 1.0 Stops

BENCHMARK

BENCHMARK

P E R S O N N E L P R O D U C T I V I T Y R A T I O

T O T A L L A B O R E X P E N S E P E R C E



HOW TO USE THIS BRIEFWith every Brief we publish we hope that our readers are using the material to better their companies. This Brief provides a lot of information. The best way to use this Brief is as follows:

1. Share this Brief with your executive team.

2. Discuss the different measures and why they are important.

3. Run a comparison of your numbers (KOIs) versus the benchmarks in this Brief.

4. Pick one or two areas where you may be underperforming and develop a game plan on how to improve your numbers. Examples might include:

• Develop a service policy that reduces wasteful stops and improves your gross profit per stop.

• Look at your out-of-code beer expense and develop a plan to reduce it by 30% over the next 12 months.

• Rationalize every employee and the value they provide. Use attrition to reduce headcount and improve your personnel productivity KOIs.

• Review your pricing and gross profit on every SKU. Immediately improve gross profit on under-performing SKUs (increase the price). Stop taking on new SKUs that don’t hit a targeted minimum gross profit $ per SKU.

5. Set up timelines with responsibilities for developing and carrying out these improvement plans.

6. Set up weekly or monthly KOI reports that report your performance in these areas

7. Tie a portion of your entire executive team’s compensation to the improvement in the areas you are focused on.

An important note concerning working on improving your KOI performance: If you pick too many areas to improve at the same time, you will see less areas realize an improvement and many of those that do improve will show less than optimal improvement.

DO A FEW THINGS AND DO THEM WELL. CELEBRATE YOUR WINS.



CONCLUSION Do high profit companies earn more because they spend more (they are often less efficient, but does spending more mean you make more)? Or, do they spend more because they are highly profitable (they spend more because they have the money to spend)?

I think the highly successful and well-run companies probably do both – spend money to make money and spend money because they have the money to spend. Spending strategically can be an effective way to help win against the competition. Spending strategically can also allow wholesalers to be better employers – better wages, training, hours worked, etc.- and create a winning culture. Spending without a plan or strategy often results in short-term gains that provide no lasting value to the company.

MANAGE WHAT YOU CAN MANAGE AND MANAGE IT WELL. IF YOU THINK YOU CAN DO BETTER, DON’T SETTLE FOR WHAT YOU ARE CURRENTLY GETTING OR HOW YOU ARE GETTING IT.

ADDITIONAL RESOURCESVERNO’S KOI BENCHMARK TRACKERIn response to the growing interest and feedback from clients in managing their companys’ KOIs, we developed a simple spreadsheet to help wholesalers track their progress and compare their results to industry high performers. The PDF version of the KOI Benchmark Tracker is included in the following two pages of this Beer Brief. You can also download the Excel template version via our website at:

https://vernoconsulting.com/forms/koi-benchmark-tracker/

We first released the KOI Benchmark Tracker as part of the 2018 NBWA Seminar, “KOIs & Benchmarks that Drive Operational Efficiency & Improve Profitability”. You can download the full seminar presentation on our website at:

https://vernoconsulting.com/presentations/2018-nbwa/

HOW TO USE THE TRACKERPopulate this KOI Tracker to see where your company compares to the industry leaders’ benchmarks for each of the KOIs presented in this Brief.

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Contact Sarah Verno for more information. [email protected]

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• LENGTH OF THE WORKDAY • PREPARING NEXT GENERATION OWNERS • EXECUTIVE BONUS PROGRAMS

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2019 • SALES REP CAPACITY • POLICIES FOR MANAGING SUPPLIERS • MANAGING RESETS

• KOI BENCHMARKS • EMPLOYEE FEEDBACK • SHARING FINANCIALS WITH EXECS • WHY INTERNAL PROJECTS FAIL

• SKU RATIONALIZATION • KEY ACCOUNT MANAGER’S ROLE • DELIVERY MANAGEMENT SELF-TEST • EMPLOYEE SURVEYS

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• SPANS OF CONTROL • MIXING SOFT DRINKS & BEER • CYCLE COUNTING & INV. CONTROL • WAREHOUSE TURNAROUND

• THE NEW SALES SUPERVISOR • BEING SCALABLE • MANAGING INTERNAL PROJECTS • POS SERVICE GUIDELINES

• 4-DAY WORK WEEKS • TOTAL SIGN SHOP COST • ACQUISITION READINESS • SKU DELETIONS, PART 1

• DELIVERY ROUTE COST REDUCTION • HOW WHOLESALERS MAKE MONEY • MANAGING COSTS • SKU DELETIONS, PART 2

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BENCHMARKS FOR HIGH PERFORMING P. 9 BEER WHOLESALERS · 2019-08-08 · Verno’s Beer Brief EAR 16...

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