Making the right moves - acquisitions of City Beverage - Annual Transportation Report - Company Profile

Making the Right Moves

The bucolic splendor of the Indiana countryside is in stark contrast to the turbulence of the state's wholesale beer market. For almost two decades, Indiana beer wholesalers have been tangled in a competitive maelstrom, a result of the state government's reluctance to enact exclusive territory legislation.

In a market without boundaries, transhipping is the norm, and competitive pressures have driven many wholesalers from business. Since widespread transhipping began in 1974, the Indiana wholesaler corps has shrunk from 200 houses to 62.

Thanks to capable management and fortuitous acquisitions, City Beverage of Huntington, IN, can be numbered among the survivors. In point of fact, the company is stronger today than it was in 1974. City Beverage now handles Anheuser-Busch in two counties, Miller in nine and Coors in 12, with sales of 1.7 million cases last year.

"It's been a difficult, hectic time," observes owner and president Michael Fisher, "but we've been lucky in many ways. Frankly, if things hadn't happened the way they did, we'd still be a small distributor selling beer in one county. Instead, we're the fifth largest wholesaler in the state of Indiana."

Building volume

Founded by Michael Fisher's father in 1951, City Beverage started out distributing Champagne Velvet Beer. The company acquired the rights to distribute Anheuser-Busch products in Huntington County back in 1953, although A-B was not the powerhouse it is today. "When we first handled Budweiser," Michael recalls, "it was 100 cases gathering dust in the warehouse."

Budweiser soon began its rise to preeminence, however, and the company began to build volume. In 1974, City Beverage made another timely acquisition, buying out the local Miller/Falstaff house. "Miller's brands were only doing so-so at the time," Michael says, "so the owner figured it was a good time to get out."

As chance would have it, transhipping began that same year, and the market began to fragment. "It started out small," Michael relates, "when some small-town distributor started shipping across county lines. He wasn't doing anything illegal, just looking to expand. Once he took a customer or two from someone else, though, it started up."

Within a few years, Michael reports, the practice had spread state-wide. "By the late 1979s," he says, "the situation was getting really bad. Transhippers were going into markets left and right, and cherry-picking big accounts. It was very destructive, because when a transhipper entered a market, it disrupted the whole pricing structure. The transhippers weren't really serving the market," he points out, "but wholesalers were being knocked out of business anyway."

Wholesaler attrition

"At first," Michael explains, "local wholesalers thought transhippers would go away, so they didn't react price-wise as quickly as they needed to. The breweries didn't seem to think transhipping was a bad deal either, because they thought the smaller houses in the state would get weeded out.

"Exactly the opposite happened," Michael relates. "Bigger houses in urban areas couldn't sell beer as cheaply as little guys in small towns. This year, there are 62 wholesalers left, but I'd say another five or six will go out very soon. Within a couple of years," he says, "I think we'll be down to 50 houses."

For City Beverage, strong brands were key. "We had all the big brands by the time transhipping really started," Michael says, "and that gave us the volume we needed to survive."

According to Michael, however, City Beverage did not simply rely on its strong portfolio. Building on the foundation of strong brands, the company also began to expand its market reach across county lines. "We never stopped looking for acquisition opportunities," he says, "and through the '70s we bought a distributor every two years. After we bought the Miller house in '74, we bought other distributors in '76 and '78."

Operations manager John Fisher reports that these acquisitions brought more than added brands and volume. "We inherited good employees from the companies we bought out," he says, "and they have blended in well with the exceptional people we already had."

City Beverage's growth continued into the 1980s. "In 1983, a large wholesaler in Ft. Wayne closed its doors," Michael says, "and since we were in the best position to serve that market, we started taking beer into the city. It was a very competitive market because there were enough retailers in Ft. Wayne to attract transhippers. At one point," he says, "there were 16 distributors bringing beer into Ft. Wayne. Eventually it was weeded down, and by then we had tripled our size."

Market insulation

Through heightened volume, Michael says, the company was able to insulate itself from the vicissitudes of the marketplace. "We increased our base to the point where if we lost a customer, it wasn't disastrous," Michael says. "We stressed service to our customers, and not just the big accounts - we served all of them."

According to Michael, this sense of market integrity separated the company from its transhipper competitors. "I'm proud of the way we expanded," he says, "because we did it the right way. When we bought a distributor, we gave all the accounts full service. It may have cost us more money, but we thought the only way to do it was to go into the market legitimately, and that meant providing good service to smaller accounts."

Michael says that these smaller accounts have become City Beverage's backbone. "Our strong point has been smaller on-premise accounts," he observes, "and we've got many customers who take anywhere from 25 to 300 cases a week. The margins with those smaller customers were never big enough to attract transhippers, but for us they're ideal. They appreciate the fact that we're there to service them once or twice a week, and clean out their lines periodically."

Daily profit reports

According to John, the company also relies on modern business technology, employing computers to monitor the ebb and flow of the bottom line. The company employs IBM PCs that run on a software system from Insight Distribution. "To meet the transhippers head-on," John says, "we had to react price-wise, and that meant working on extremely low margins. We run a daily gross profit report, and we monitor it religiously. When you're working on 50 cents a case, you have to run a tight ship."

Computers also help manage City Beverage's relationships with its brewery suppliers. And, as sales manager Tom Blomeke reports, when those suppliers include all three of the top three brewers, that can be a job in itself.

"We're tied in directly with Anheuser-Busch, Miller and Coors," Tom says. "We report weekly sales and inventory levels, and they keep us posted on upcoming shipments."

To help juggle its Big Three suppliers, City Beverage has compartmentalized its operation. "We appoint a manager for each brewery," Tom says, "and they make sure that each company's national programs are in place."

Despite City's best efforts, Michael reports brand proliferation has made the job difficult. "It's getting pretty tough to keep up with all the new brands and promotions," he says, "and the breweries are recognizing that. They're now asking Indiana wholesalers to choose whether they want to be Miller or Anheuser-Busch houses. It makes sense," he says, "because we don't have the margins to hire enough merchandisers to represent them properly. Transhipping has forced Indiana wholesalers to become nothing more than delivery people."

Single warehouse

City Beverage's evolution is particularly evident in the architecture of their warehouse, an enormous facility boasting 40,000 sq. ft. of storage space. "We've added on to the warehouse six times," Michael says. "We were going to add onto the offices, but we were lucky enough to be assigned as a Coors distributor. Instead of new offices," he says, "our latest addition was a 5,000-square-foot refrigerated room."

Indiana law mandates that a wholesaler maintain only one distribution point, a law that Michael sees as a boon. "It's good in a way," he says, "because if transhippers had been able to put branches all over the state, things would have been worse. As it was, they had to go a pretty good distance."

With one location, and a shipping radius of 90 miles, City Beverage makes some long delivery runs - the longest, from Huntington to Angola, IN, is 75 miles. The company's transportation needs are reflected in their 20-vehicle fleet, which boasts long-haul highway tractors in addition to 12-bay beverage trucks.

Used trucks

Much of the current fleet is made up of vehicles that have come to City Beverage through acquisitions, although the company has also bought a few trucks of their own. "When we do buy a truck," Michael notes, "it's used. I don't know of any Indiana beer wholesaler who buys new equipment.

"They're mainly 12-bay diesel straight trucks," Michael says, "but we also run a few 16-bay tractor-trailers and several 18-bay units. For our newer units, we are specing the 18-bay trailers."

According to Michael, 12-bay beverage bodies don't suffice in the Indiana market. "The Department of Transportation regs mean you can't load a 12-bay full without being overweight," he says, "and we have to carry everything we can. That's why we went up to the 16- and 18-bay trailers."

Michael notes there are trade-offs between the two larger units. "The 16-bay is a single axle, which gives us a saving on tires, but also reduced weight capacity. Of the two, the 18-bay tractor trailer has proven most efficient. They're speced with a tandem axle, so you can really load them up."

Driver acceptance

"Driver acceptance of the 18-bay took some time," Michael says, "because our drivers weren't sure they wanted something that big. It's proved out well, however, and now they say it's easier than a 12-bay, because you can bend the trailers around anywhere."

The units have also proven out cost-wise, Michael notes. "We track operating expenses, fuel consumed and cases delivered per man-hour to figure out the efficiency of the fleet. We've found that two guys on an 18-bay truck can deliver 1,400-1,500 cases of beer a day. For our longer runs, the 18-bay is really efficient."

For the future, Michael says City will gradually go to the larger tractor-trailer units. "We will build the fleet around 18- or 20-bay units," he says, "although we'll probably still need a group of the 12-bays locally."

With trucks running over such a wide area, City Beverage has found the need for a careful preventive maintenance program. "You can kid yourself and run your trucks until they fall apart," Michael points out, "or you can maintain them." City Beverage is doing the latter. "Our in-house mechanic keeps the vehicles maintained," Michael says. "We've found he can also take care of nine out of 10 repairs."

The coming years

For the future, Michael sees some encouraging signs. Although Governor Evan Bayh's veto of the territories bill in 1990 was a blow, Michael believes the worst wholesaler attrition is over. "The Indiana Beer Distributors Association went belly-up when the beer-baron bill failed," he says, "but 10 of us got together to keep it alive. We formed the Indiana Beverage Alliance, and it's growing in strength. Almost all the remaining Indiana wholesalers belong."

According to Michael, City Beverage is in good shape as it enters the next phase of the Indiana beer market saga. "Even though on-premise business has been down a little bit," he explains, "we're still getting more off-premise accounts. There aren't too many transhippers around anymore, so we've been picking up quite a bit of business.

"We're about three years from getting down to workable margins," Michael says, "but we're going to make it." And, as any Indiana wholesaler will tell you, making it is more than half the battle.

PHOTO : Michael T. Fisher is president of City Beverage, a Huntington, IN, beer distributor that has expanded from a one-county operation into the fifth largest distributorship in the state.

PHOTO : Operations manager John Fisher helps monitor the company's daily gross profit report on one of the company's personal computers.

PHOTO : With a delivery radius of 90 miles, City Beverage utilizes some heavy-duty transportation equipment, including this Ford cabover on-highway tractor and an 18-bay trailer. "We've found that two guys on an 18-bay trailer can deliver 1,400-1,500 cases of beer a day," Michael Fisher notes. "For our longer runs, the 18-bay is really efficient."

PHOTO : City Beverage operates out of the same modest-sized office it has used for years, although conditions are becoming a bit cramped. City Beverage personnel include: (clockwise from upper-left corner) Marsha Fisher, Tim Albertson, Lani Thorn, Maxine Ptak and Connie Sark.

PHOTO : Bill Ehler, purchasing manager, taps into his records on one of City's numerous personal computers.

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