Cohiba's "Blowing Smoke" – Independent Distributors

[Cohiba]

Tagging onto Bermuda Bob’s idea for a subscriber column, Advisor asked me if I’d be interested in trying my hand at one as well. While Bob focuses on product concepts and performance, I’ll shine a light on other subjects, like distribution and marketing. If nothing else, these columns might fill the otherwise blank pages on slow news days.

Let’s start with a subject that is near and dear to my heart; independent distribution. For you younger readers that may not recognize the concept, independent distribution is when the manufacturer designs and builds a product and lets someone else warehouse it, sell it, deliver it and finance it to the dealers that are one step down the food chain. Think HADCO !

There was a time when all the major high-end players proudly distributed their products through independent distributors. Dacor, DCS, Gaggenau, Miele, Sub Zero, Thermador and Viking are just a few examples of quality companies that bit the 25 point bullet and sold their products through two-step distribution. Sadly, in my opinion, only Viking seems to remain solidly committed to this concept, unless of course you count the BSH brands with two nervous distributors still under contract. Admittedly, no one wants to share a "prime distributor" with a competitor. When Thermador sourced their first Built-in-Refrigerator from KitchenAid, nine of Thermador’s fourteen distributors at that time also distributed Sub Zero; hence, the beginning of the end. Before long, Sub Zero acquired their own cooking brand by purchasing Wolf and then went around the country with checkbook in hand buying their distribution and renaming them Westye, a Bakke family name.

Okay, so Sub Zero/Wolf and BSH both have enough muscle to survive and thrive without the symbiotic relationship. How about the third-tier brands? How do the new upstarts get a foot in the door without strong independent distribution to seed their products. It is awfully difficult to launch a brand without distribution throughout the major markets and when the few remaining regional distributors finally make the predictable transition and become ABDs who is going to provide that launch pad?

Or, do we have enough appliance brands already and don’t need any more start-ups to confuse the market with new technologies? I know too well that it is difficult for a manufacturer to offer nationwide pricing and programs to "national accounts" (Big Box) with independent distributors getting in the way as necessary "middlemen". I’m just not sure high-end brands should be sold in national accounts.

What say you?

[rllingstne]

I believe that independent distribution is the only way for premium and niche products alike to go to market. i honestly don’t see the benefit to being "direct". A brand can deal with Nationals and distributors alike, provided the left side talks to the right side. No one knows and caters to the needs/ wants of their dealers and customers like a regional distiributor. Every area has a different dealer base and the distributor knows how to maximize sales in his territory. There are many brands such as Amana, Jennair, Caloric, Thermador to name a few that thrived under Distribution but faltered or became insignificant when they were taken direct.

I would love to compare sales figures with these brands when they we sold through dsitribution and years after going direct. North of the 49th, I am pretty comfortable in saying that one particular brand that went direct relatively recently has taken the proverbial two steps back to take one forward. There are few brands remaining that will have the brand strength to go direct. Independent distribution will continue to thrive as people reinvent the wheel and launch new, different takes on the fridge, stove dish and hood. think of the brands that were not part of the landscape 5 years ago. what will the next 5 years bring? i can hardly wait!

[kona]

Independent Distribution, in addition to all the things Cohiba listed, traditionally served an incredibly important function by enabling many of the afforementioned manufacturers to focus their efforts and funds on product development and innovation (particularly for the domestic US manufacturers). There was a time when "biting the 25%" bullet was recognized by the then "niche" manufacturers as being a value added proposition that returned much more than "25%". It meant not having to shoulder the intensive local sales representation and marketing costs, the inventory/logistics costs, the costs and risks of handling hundreds of receivable accounts, parts distribution, service coordination, etc. They could focus almost exclusively on product and brand development instead. Some of the lines Cohiba mentioned had their "golden years" of product innovation, and not coincidentally sales and market growth, under the two-step format. One or two still do recognize the benefits of two-step distribution, but sadly, others either through being sold off to conglomerates, or by making questionable decisions to grab that "25%" for themselves, have sacrificed their uniqueness, and diminished the exclusivity, appeal, and ultimately the strength of their brands. Perhaps the next generation of innovators out there, will take time to study how brands like Sub-Zero and Viking were built, and will grasp that independent distribution can be as important to building their brands and their business, as they assume the "greatness" of the products they want to bring to market are.

[Cohiba]

Your comments are right on! Very few manufacturers understood that the 25% GP was gobbled up by rent, commissions, advertising, financing (flooring), admin salaries, warehousing and delivery expense. We used to provide 2% – 4% MDF (Market Development Funds), without which many of our distributors would have had trouble breaking even. Unfortunately, after "going direct", most manufacturers tried to pocket some of the gross by cutting added value expenses.

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