A Profitability Playbook for Distributors
Navigating price increases can be one of the toughest challenges for beverage distributors. With suppliers regularly adjusting pricing and margins tightening, it’s crucial to approach this with strategy rather than dread. On a recent episode of the Tapped In Sales podcast, Bud and Mikey broke down the best ways to handle price increases from a profitability standpoint. In this post, we’ll cover the three key strategies discussed: limiting bridge buying, synchronizing increases across suppliers, and maintaining strong customer relationships.
1. Limit Bridge Buying
One of the first issues Bud and Mikey address is the practice of bridge buying—when retailers load up on inventory before a price increase to avoid paying the higher price. While this might seem beneficial in the short term, it can create a ripple effect of problems:
- Unreliable Forecasting: When retailers buy excessive inventory before the increase, it creates a chaotic sales pattern, making it hard to accurately predict future demand.
- Profitability Loss: If retailers sell that pre-price-increase inventory at a post-increase price, they pocket the difference, leaving the wholesaler with missed profit opportunities.
Pro Tip: Encourage Strategic Inventory Management
- Rather than allowing retailers to overstock before the price increase, encourage right-sized inventory levels that align with their normal sales patterns. If bridge buying is necessary, negotiate terms to ensure the product is priced appropriately once the increase takes effect, or exchange other benefits (like extra displays) to maintain control of the relationship.
By being proactive, your sales team can focus on selling the current stock at its increased margin, boosting overall gross profit (GP) instead of letting retailers walk away with the extra earnings.
2. Synchronize Price Increases Across Suppliers
Bud and Mikey dive into the complexities of handling multiple suppliers, especially when each may have their own timeline for price adjustments. As distributors, having dozens of suppliers and thousands of SKUs means navigating price increases can get messy if not handled properly.
Pro Tip: Streamline Increases with Multiple Suppliers
- Synchronize your price increases to limit the number of times you have to deliver bad news to your retail partners. Rather than staggering increases throughout the year, consolidate them into one or two events.
By bundling price increases, you avoid repeated negative conversations with retailers, who are more likely to appreciate fewer disruptions. Bud also shared a helpful tactic: communicate your pricing plans to suppliers early, and if necessary, move forward with or without their official pricing adjustments to keep things aligned and manageable.
3. Maintain Customer Relationships During Price Increases
Managing the human element of price increases is crucial. Bud and Mikey emphasize the importance of maintaining strong customer relationships even when delivering the tough news of price hikes. The key is transparency and support.
Pro Tip: Be Proactive and Transparent with Retailers
- Retailers may not always realize that they, too, will benefit from price increases in the form of improved profit margins. Work with them to break down the numbers—showing how small increases in cost per case translate to pennies per serving. This can go a long way in softening the impact of the news.
- Offer support in updating shelf strips, cooler stickers, and signage to reflect the new prices. The more prepared and helpful you are, the smoother the transition will be.
By being transparent, presenting options, and offering a clear plan for managing the transition, you keep the relationship strong and ensure the retailer is focused on their own profitability, not just the price increase.
Conclusion:
Price increases are never easy, but with the right approach, they can be managed in a way that protects profitability and maintains strong relationships with your customers. Focus on limiting bridge buying, synchronizing increases across suppliers, and supporting your retailers through the transition. By using these strategies, you’ll not only navigate price increases but also ensure your business continues to thrive.
Want to learn more?
For a deeper dive into handling price increases in the beer industry, check out the full Tapped In Sales episode where Bud and Mikey explore these strategies in detail.