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Ten Tips - Time for a Distributor Change

By: Greg Seminara,Export Solutions

Changing distributors is a last resort but a necessary step in some situations. Consistent under-performers impact your ability to achieve your own assigned objectives and bonus plans. The financial crisis of the last two years has exposed the short comings of lagging distributors. In some cases, shipment objectives are being met, but the brand owner and distributor no longer share a common philosophy or platform for building a brand. Listed below are our ten tips signaling time to consider a distributor change.

1. Distributor shipment results out of sync with overall market trends:Many markets have suffered during the last two years. The key is to measure distributor performance versus overall market and category trends. For example, a distributor with -5 % shipment results in a market that is down 10 % may not represent a poor performance. On the other hand, a distributor may experience a positive 5 % growth rate in a market like China or India and be significantly behind the 10-20 % growth rates enjoyed in many categories. Look at overall local retail sales trends or benchmark results with other suppliers from your country.

2. Financial Difficulties- Late, Late, Late: Late payments and late orders signal financial stress at a distributor. We must balance short terms problems experienced country wide versus a financial cancer that could rapidly spread. In cases of Russia,Greece, or Venezuela, most market distributors are having a tough period, so a distributor change may bring more uncertainty and risk. Late payments can escalate quickly, as some of the distributors brands may demand Cash on Delivery (COD) terms. A brand owner may be willing to monitor the financial situation at a long term partner versus a quick exit recommended with a short term distributor in a problem country.

3. Distributor Loss of a Major Brand: A distributor loss of a brand representing 15 % of total turnover or more may stimulate a rush to insolvency. There is a cycle: Lose a big brand, reduce head count. Reduce head count, lose more business. This cycle repeats itself forcing a crisis situation.

4. Big Country - Small Shipments: Brand owners have developed strategies focusing resources at large population countries. Distributor change may be warranted if your partner is only capable of delivering modest shipment results in a large country. It may be better for a manufacturer to exit the market and recalibrate his plan versus enduring years of shipping a few annual containers of product to a big country like Brazil, China, or the USA.

5. Distributor Failure to Modernize: Serving global retailers and being viewed as a "Best in Class" supplier requires alignment with a modern partner investing in the future. Category Management, EDI orders, Handheld computers at store level, and web based inventory management are practices that are widely deployed even in emerging markets of Asia and the Middle East.

6. Your Business requirements have changed: Many distributor - brand owner relationships extend for more 20 years or more. Has your distributor evolved to offer the services required to optimize your business for 2016 and beyond? Examples would include capabilities in serving Global Retailers, country wide coverage, or serving a distinct trade channel such as Foodservice, Small Shops, or natural Foods. Many brand owners have acquired new brands or expanded into completely different categories. Is your distributor still the right company to manage all your brands ?

7. Lack of Alignment with your Growth Plan: Brand Owners depend on successful execution of a new product launch plan. Distributor reluctance to launch a key new product or a failed new product launch is also a warning sign.

8. Distributor Changes Business Model:Leading edge distributors are also adjusting their business strategies to adapt to the changing business requirements. But what happens when the distributor realigns his organization to focus on categories or retailers that don't sync well with your brand ? For example, a distributor decides to focus on personal care or organic food products instead of your core confectionery business. Other distributors may elect to specialize in fresh food or private label when your product competes in a different part of the store with different buyers and protocols.

9. Distributor leadership not responsive to your Business priorities:The classic issue is when a distributor fails to pay sufficient attention to your brand priorities. It's a tough job for a distributor managing director to balance the needs of all his brands. But , if you feel ignored and the results are suffering, then it could inspire you to search for a partner more committed to your brands priorities.

10. Distributor has become too big (or too small) to handle your business:Distributors and Brands have consolidated creating mega companies. This works well when the distributor and brand have scaled together. The issue arises when one trading partners size is dramatically different versus the other. For example, a niche brand may get lost in the shuffle at a large distributor handling leading brands in big categories. Conversely, a small distributor may not have the resources to service a large brand in a complex, competitive category.

Distributor change used to represent a challenging proposition due to the lack of information on alternate distributor candidates. Export Solutions database tracks over 6,800 distributors in 95 countries. This translates to an average of around 63 different distributors for each market. This has eased the process of identifying alternate candidates when distributor change is being considered or required. Visit our Distributor Database for more information.