Mesa Distributing Inc.

August 1, 2006
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Mesa Distributing Inc.
BY ELIZABETH FUHRMAN
Pursuing perfect portfolio performance.
Miller, Coors, Heineken, Diageo, Inbev and Boston Beer … Mesa Distributing Inc. and its Parent Company, san Diego-based Liquid Investments Inc., Distribute National Brands, Imports, Craft and Microbrews as Well as Water, Energy Drinks and Other Non-alcohol Beverages for Nearly 30 Suppliers.
“Obviously this portfolio is a lot of fun,” says Nick Gagliardi, president of Mesa Distributing and Liquid Investments. Managing the portfolio is more than just filling accounts. It’s about being best in class for Mesa, and technological advancements that make the company more effective have been a major initiative for the company since Gagliardi joined four and a half years ago.
This ever expanding portfolio and consistent effort for Mesa Distributing to be best in class is what led Beverage Industry to choose the company as Wholesaler of the Year. Total Liquid Investments’ sales this year will be close to $275 million, with case volume for Mesa Distributing in San Diego increasing 3 percent for the fiscal year ending September 30.
Territory opportunities
Liquid Investments didn’t begin with the territories it has today, but grew through the acquisition, consolidation and leadership efforts of Ron Fowler, chairman and chief executive officer. Fowler, who relinquished day-to-day operations to Gagliardi, now focuses his time on strategic issues and the more than 10 boards he sits on for the industry, the community and charities.
Fowler has undergone some 40 acquisitions during his time in the industry, Gagliardi says. “We are always looking for ways to not only grow market share, but to grow volume, and most importantly, get our efficiencies better for the bottom line.”
Fowler started in the beer industry after he left graduate school in 1968. His career eventually led him to take over the management of a distributorship in San Diego in 1974. By September 1978, Fowler had purchased the business and Mesa Distributing was formed, conducting business in the southern half of San Diego County.
Mesa began its relationship with Miller Brewing, the second-largest brewer in the United States, with the San Diego acquisition in 1978. Liquid Invest-ments then expanded that relationship when it acquired a Miller distributorship in Santa Rosa, Calif. About the same time, Mesa bought the Miller distributorship in Grand Junction, Colo., which operates in a large territory on the Western Slope of Colorado. The company added a Coors branch in Grand Junction as well as a privately owned Coors distributor in Montrose, Colo., which became part of the territory as well. Now the Colorado distributorship operates as a Coors and Miller operation under Colorado Beverage Distributing Inc., which includes some of its own unique craft brews as well as the imports and larger craft beer brands that the rest of Liquid Investments offers.
Colorado investments also eventually led to further growth in San Diego. Mesa Distributing, which had originally only been in the southern half of San Diego County, used funds from the liquidation of its once-held Colorado Front Range territory to purchase a Miller distributor in the northern half of San Diego County. Now Mesa covers the whole county.
The last territory Liquid Investments added was in Sacramento, Calif., almost nine years ago. Miller decided to terminate its distributor in Sacramento, and as Mesa already was in Northern California, it was told it needed to take the territory, Fowler recalls. The company put a great deal of effort into its relationship with retailers and suppliers in the area, and after building and rebuilding those relationships, Mesa Beverage Sacramento will account for more than 5 million cases this year, Fowler says.
And last year, Liquid Investments further consolidated its business in Northern California. The company used to distribute in Marin, Sonoma, Napa and Solano counties, but sold Napa and most of Solano to consolidate Coors, and added brands, including Red Bull and Fat Tire, into its operations in Marin and Sonoma. “What we did was grow our volume more than 400,000 cases, but most importantly our efficiencies became better in two counties vs. the four counties,” Fowler says. “What that does is provide better results. That was a big project that is finally reaping some great benefits this year.”
Portfolio development
Liquid Investments will reach more than 18 million cases this year, with San Diego’s distributorship growing to about 9 million cases. So it makes sense that Liquid Investments and Mesa Distributing’s headquarters are in San Diego. Mesa has been in its 200,000-square-foot office and warehouse building for 18 years. The company has centralized supply chain, finance, marketing and human resource departments for all of Liquid Investments in San Diego.
Mesa’s large portfolio helps address the diverse nature of its consumers in San Diego County. Its “beach” audience has a very different mix of beers than its downtown and Gaslamp Quarter, which are full of trendy restaurants, bars and clubs. San Diego has more of an “Urban Cowboy” element to the east, while there are certain pockets with a concentrated Hispanic population. More than 30 percent of Mesa’s consumers are Hispanic, with particular product preferences throughout the county.
Adding another element to San Diego’s beverage demands, the county conducts numerous events, making Mesa Distributing’s draft business very significant in the market. In addition, Mesa services key venue locations, including the Del Mar Race Track, Qualcomm Stadium, Petco Park, ipayOne Center, Cox Arena and the San Diego Zoo.
“The county of San Diego is unique as a market due to the diversification of demographics, which creates pockets for each one of our sub-segments of beer,” Gagliardi says. “For example, the downtown market is a tremendous draft market across our portfolio.”
Because draft sales provide so much volume for Mesa in San Diego, it has a team of draft technicians. With brands such as Miller Lite, Guinness, Fat Tire, Samuel Adams and Sierra Nevada, the ability to install draft equipment and service the accounts is a real advantage to Mesa, says Earl Kight, III, vice president of sales.  
Fort Collins, Colo.-based New Belgium’s Fat Tire Amber Ale, which Mesa launched in September 2005 in 22-ounce bottles, became available on draft as of January 1. The distributor has more than 300 handles of this craft beer in the market, and will sell more than 130,000 cases this year. The brew has become one of the company’s fastest-growing brands.
An import brew, and one of the  quickest-growing brands for the company overall, InBev’s Stella Artois has about 180 handles in the market, and sells around 1,000 barrels a month. “It’s the highest velocity brand per handle that we have,” Gagliardi says.
Pyramid Brewery’s portfolio has produced double-digit growth for Mesa Distributing for six years now. Brands from companies such as Sierra Nevada and Alaskan Brewing continue to grow for the company, and it sells more than 300,000 cases of Samuel Adams a year. Diageo’s Guinness continues as one of the top draft beers in San Diego, too.
For packaged goods, Mesa picked up beers from local brewer Stone Brewing Co., Escondido, Calif., including flagship Stone Pale Ale, and is distributing them to major supermarkets, select convenience stores and venues such as Qualcomm Stadium and Petco Park.
Mesa distributes Heineken and Amstel Light for half of San Diego County, but was awarded this year’s launch of Heineken Premium Light for the whole county. Heineken Premium Light launched March 1 for 30 days in the on-premise channel. Mesa began distributing the light lager in other channels in April.
“What’s exciting about Heineken is that there is the halo effect with Heineken Premium Light that has actually increased our volume for brand Heineken,” Gagliardi says.
Mesa also distributes the brands Heineken USA carries for the Femsa Cerveza unit of Mexican brewer Fomento Economico Mexican (CCM), including Tecate, which is a big brand for the company in San Diego County. “The key for us here is that Tecate in Tijuana [Mexico] is an 82 share,” Gagliardi says. “We do a lot of cross-border marketing, and we’re planning to do more in 2007.”
For Heineken USA, including the CCM brands, Liquid Investments distributed more than 3 million cases last year, and will probably reach close to 3.7 this year.
Miller still makes up 46 percent of Liquid Investments’ total volume. While sales of Miller Genuine Draft have been in decline for the company, increased sales of Miller Lite and other Miller portfolio brands have helped offset the volume loss.
Mesa added several new items this year, including Mickey’s Stinger, Rockstar 21 and Captain Morgan Parrot Bay Tropical Malt Beverages, and InBev’s Brahma, which the company began distributing in June 2005. “We’ve had a pipeline of new items — Fat Tire, Heineken Premium Light, Rockstar 21, Stinger and Parrot Bay — and when you look at the volume and margin contribution on all those items, it is very critical to the success of the company,” Gagliardi says. “Consumers are looking for new items, and what’s exciting about these new items is that the consumers are trading up. They are not just another ‘me too’ product.”
For example, on brands such as Stone and Fat Tire there are no price discounts, which provides Mesa with higher margins. Import brands, such as the new Heineken Premium Light with a higher price point, contribute more revenue and margin dollars as well. “These high-end items are driving the trade-up phenomenon with the consumers,” Gagliardi says.
Mesa doesn’t just pick any new supplier or brand to add to its portfolio; instead Gagliardi asks, “How does it fit our portfolio?”
“If we have seven beers that fit Italian, the question that we have to ask ourselves is do we want to add another beer to this trade class,” Gagliardi explains. “That really is the first step of ‘Where does this fit into our portfolio?’ Do we have a gap in our portfolio somewhere? What separates us from other distributors is we organize our beers by sub-trade classes — sushi, Italian, German, American, sports bars — we actually qualify our brands under each one of these sub-classes.”
But does the company have any gaps? “Our biggest gap today is in Asian beers,” Gagliardi says.
With Mesa already distributing non-alcohol beverages such as energy drinks, Crystal Geyser water, Arizona teas and Henry Weinhard’s and Thomas Kemper soft drinks, it plans to have a non-alcohol distribution operation in the future. Since Liquid’s non-alcohol drink offerings are different in every market, each operation has a different volume, but overall non-alcohol drinks volume amounts to around three percent.
Sales and promotion
Liquid Investments and Mesa’s sales force is channel-specific. Its chain group includes large-format grocery stores and drug stores. Another channel is broad-market, which includes independent liquor stores, neighborhood stores and convenience stores.
With the company’s and sales team’s goal of being best in class, Liquid Investments is using technology to help increase sales and efficiencies.
“Our sales handheld that we use out in the field can actually run a TV commercial on it,” Gagliardi says. “We’re taking inventory every day. We’re looking at quality control and accounts receivable by account. The sales rep has the history of what was ordered last time, as well as what the distribution should be for the account.”
In September, Mesa is taking its technology to the next phase by moving into a new portfolio selling program. While this may limit some of the SKUs sales reps are allowed to sell at certain venues, it will open up retailers to new beers that better represent the image or clientele of the location, Gagliardi says. “It’s about being in the right place that generates the best velocity by brand and most dollars for the retailer,” he says.
In the on-premise department, Mesa has promotional account managers who divide the county between the north and south, and manage promotions along with account managers in the marketplace. All point-of-sale materials are inventoried and tracked through a POS manager. “It’s amazing how much POS we carry, and how much money goes into it,” Gagliardi says. “We are very careful, because POS is a critical marketing element.”
POS is a team effort, Kight says. Mesa has its own in-house sign department that is used by its sales force. Through this in-house department, using programs provided by suppliers, Mesa executes retail plans specific to each channel. “We have a team that starts at 5 a.m.,” Kight says. “We are the last individuals who touch the product before the consumer picks it up. A lot of effort goes into merchandising to make sure we are building displays and executing to the standards our suppliers expect.”
Liquid Investments is involved in numerous community events. Along with the San Diego Padres, the company sponsors the Sacramento River Cats and distributes to NASCAR’s Infineon Raceway in Sonoma County and numerous colleges and universities, including San Diego State; the University of San Diego; Univer-sity of California, San Diego; and Sacramento State. Liquid Investments, in conjunction with Heineken USA, sponsors San Diego’s Street Scene, a two-day event featuring 50 acts at Qualcomm Stadium drawing more than 75,000 people; as well as Copa Tecate, the largest amateur Hispanic soccer tournament in the United States at Raley Field in Sacramento. “You could probably spend every night going to events if you wanted to,” Gagliardi says.
Liquid Investments’ Vice President of Marketing Pat Conners, who has been with the company for more than 22 years, oversees local brand development and marketing initiatives, works with suppliers and their agencies on media buys, special events, sports and entertainment properties, and implements the company’s charity and community involvement. Conners works with Pete Leesha, the director of marketing for Northern California, as well as Kristy Dielke, community affairs manager for Liquid Investments.
Detailed distribution
A certain dynamic exists running five different operations under the Liquid Investments corporate head. During the past year, suppliers started asking Liquid Investments to look at its yearly planning for the total company, instead of by each division. Suppliers wanted to know what volume to expect from Liquid Investments for the total year.
In turn, Gagliardi and all of his general managers will meet with a supplier to set objectives for total Liquid Investments, including ways to grow the overall volume faster and the opportunities that are out there for the distributor and the supplier. By planning farther ahead and utilizing all the company’s resources, the goal is to impact the overall business for the supplier, which also means more cases sold for Liquid Investments.
“When you get everyone in the room, you get better ideas, as well as assisting our operations side in coordinating supply chain,” Gagliardi says.
Liquid Investments spends most of its money on sales activities, but watches its expenses and provides equipment to drivers and operations to improve cost effectiveness in these areas as well. “We are a very efficient distributor in terms of delivery and operation,” Fowler says.
And even though Fowler and Gagliardi have more than a decade difference in age, when looking at the business, both usually end up in the same place. “The journey as to how we get there is somewhat different,” Fowler says. “He is very analytical and I am more gut.”
But Fowler does think what defines the company is that it is never satisfied. “It’s continuous improvement,” he says. “Most of it is incremental change. However, if you don’t like to win and you don’t like to compete, then this isn’t the right business to be in.”

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