The drinks we consume on daily basis usually go through at least three entities before reaching us. These are distinct businesses within the distribution chain that play their roles to ensure that consumers get their drinks when they want, in a consumable or wholesome state and at the right prices.
From the manufacturer, distributor, wholesaler and retailer, the drinks are passed from the factory to the consumer. In between the manufacturer and the consumer are distributors who through effective supply management make available drinks for the consumers.
Intermediaries are usually business establishments rather than individuals running a one-man business. They invest in logistics and large stock of drinks and employ different levels of skilled and unskilled labour in other to run a smooth and efficient distribution business. Intermediaries are rewarded for their roles and efforts, through mark-ups on the products distributed.
HOW TO START AND RUN DRINKS DISTRIBUTION BUSINESS
To start, you have to duly register a business and meet all regulatory requirements. Location is very important factor in this business as it directly impacts both revenues and expenses. Choosing a suitable location for your office and warehouse should take into consideration factors such as proximity to factory, proximity to market, road network between factory/supplier and market (customers), security among others.
A warehouse or conducive storage space is required to stock the drinks that are unsold at the end of the day. These storage rooms must have the right temperature and lighting– usually indicated on most drinks. Drinks must also be packed in the right manner – suppliers usually will show you how to pack and unpack the drinks.
In addition to these, you need very dedicated staff to help you run this business. A driver, salesperson and an office clerk are usually people you will need to run a small drinks distribution business. Time is very essential in the drinks distribution business. Orders must be placed with supplier at the appropriate times and for the right quantities in order to avoid overstocking and stock-outs, which may impact operating expenses.
Selling is at the heart of the business. You grow only by increasing sales. It is important to seek new customers each day, whilst doing everything possible to retain existing customers. Discounts, speed of delivery, customer service, dependability, and honesty are some of the factors that can help you grow sales.
Some manufacturers segment the market and assign each distributor with a slice. Distributors are therefore expected to play within these geographical boundaries. For such models, usually a security deposit in the form of stated amounts of money are given to the manufacturer. Fortunately for intermediaries, most producers of drinks take care of all advertising for the products, and as such distributors, wholesalers and retailers easily ride on that to increase sales.
Revenue models of drinks distribution businesses are usually of traditional mark-up type. They buy the drinks at an amount and add some profit margin for onward sale. The amounts added per carton may appear slim but the volume of sales drives the business. Business growth is largely based on units sold. The more units you sell, the more revenue the business generates to cover its variable and fixed costs, and then profits.
Competition among distributors can be very stiff especially with drinks that the producer does not regulate pricing.
Below are financial estimates for a drinks distribution business. Estimates are based on common drinks on the Ghanaian market such as soft drinks, energy drinks, beers etc.
|Amount Invested (GHc)||Average Margin||Expected Margin (GHc)||Stock Turnover p.a||Expected Margin (GHc)||Average Operating Expense (GHc)||Contribution (GHc)|
These are only estimates based on certain assumptions. All figures are pretax.
Operating expenses in the above projections does not include non-cash expenses such as depreciation. It is also based on an assumption that there is no interest payment towards debt. Normal staffing level is assumed. The 50 stock turnovers in a year is a little below industry levels.
Fixed costs come in the form of acquisition of delivery vans or trucks and warehouses. However, smaller start-ups are advised to rent or lease these assets in order to minimize start-up costs.
RISKS AND CHALLENGES
Major risk in this business includes damage to goods in stores or warehouse. Goods may also be damaged in transit. Players are advised to take an insurance policy fit for their businesses.
Investment sector: Distribution
Tenor: 1 year
Expected Return: 120% before non-cash deductions and tax
Payback Period: 10months
Attention required: High
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