In today’s issue, I’ll go through the 5 most common reasons why drink brands struggle to manage their relationship with distributors. I'll show you my 3-steps to set the foundations right for a healthy relationship and brand growth.
By adopting this process, you’ll make sure you have solid basics in place before you even go into more details.
Unfortunately, most brand owners underestimate how crucial target-setting is. When they get it, they use it as a whip, making the relationship with distributors unbalanced.
Targets and KPIs should be used as a compass, not as a whip. They tell you the direction, but if you don't know where you're heading, they're useless.
I’ve had hundreds of meetings with distributors in 30+ markets across 4 continents. 99% of the time, one or more of these 5 challenges came up:
Challenge 1: you haven’t agreed on targets and KPIs. Agreeing on targets is tough. It's a painful chat to have, I get it. So why not procrastinate? We both want to sell "a lot" right? I've seen a lot of brands starting the discussion but then leaving it blurry and never managing to close it. Don't do that.
Challenge 2: the targets you’ve set are wrong. The second challenge is when both brand owners and distributors get overexcited. They agree on targets but they end up setting them too ambitious. I've seen a lot of hugs and toasts turning into blaming each other over underperformance.
Challenge 3: you refuse to readjust targets to a new estimate. This one is usually driven by the brand owner. Once that's clear that the brand is not going to reach its targets, owners keep pushing for it blindly. This demoralizes teams as they stop believing in it and they end up reaching even worse results.
Challenge 4: you've agreed on targets but the pace to reach them is wrong. This is the devil in the detail. Often all is clear on paper but there's a misalignment between the parties. - the brand wants to accelerate during the same year. Since both parties need to contribute to the investments, the distributor refuses.- the distributor wants to milk the brand and go mainstream very fast. They start using investments tactically. They start promoting the brand in the wrong places as they already had a premium portfolio. They needed a brand to cash in the upper-mainstream segment.
Challenge 5: you've agreed on targets but there is no clear KPIs to track them. Some brands think that setting the yearly volume target is everything. Once you know the end goal, you need to track how to get there. Most brands measure KPIs quarterly but that is often too late as you have only 4 times a year to course-correct.
Sounds tragic? There's a way to fix that. It's no silver bullet but if you put the effort into it, it will work. Here’s the 3-step process I use.
Step 1: Agree on SMART targets & KPIs you both believe in.
When you sit down with your distributor, you only have an idea in mind of how the brand will perform. Set an initial target to start somewhere and agree to revise it after six months (upward on downward). Don't talk about a 5-year plan when you have no market experience. Do that later in the year. That said, set a minimum under which you are not willing to continue.
Targets should be stretched. We all know about getting out of our comfort zone but we also should not get sick for not reaching our objectives. Make sure they make sense. Make it SMART (Specific, Measureable, Achievable, Relevant, and Time-bound)
PS There's also a myth that for brand owners is better not to agree on anything. Allegedly, if you have no contract so you can get out of the deal fast. False! That's going to give you even more problems as there's no justified reason to end.
Step 2: Adjust targets if you see they’re wrong
Targets are what you believe is workable at the time in which you set it. E.g. You set it in September 2022. When you get to May 2023, it’s likely to be a different world and you should take it into account. This happens every year and not only in extraordinary ones like 2020-22. Once they are set, it doesn’t mean you cannot change them. Revise them each quarter. Don't get stuck in it. E.g. Imagine you have set a target of 500 cases in one city in Year X. After 6 months you are at 100, it’s useless to hammer yourself. It means that 500 was not achievable. Go for 300 and keep measuring. This way your teams will not lose their focus. They will still believe in reaching a (revised) target and they'll go for it. If not, they will give up and you will reach 180.
Step 3: Track KPIs quarterly and monthly
Define a clear set of KPIs and the picture of success for distributors. Make sure you agree on what kind of data you will get (not only volume but also where you are selling). Most distributors are reluctant to share such data. It's up to you to build trust. This is crucial to track the pace at which you are building your brand. Most brands track only quarterly. While this is a good proxy to avoid monthly ups and downs, it makes you react only 4 times a year and it's often too late. Make sure you track (at least) the top KPIs monthly so you can react faster. Be on top of your numbers.
Brands are built bottom-up
I hope this newsletter will help you better focus your efforts while scaling up.
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