Monarch Beverage Co., Indiana’s largest beer and wine wholesaler, takes its state motto “The Crossroads of America” quite literally. The wholesaler supplies Miller, Coors, Gallo and other top-selling beer and wine brands to the southern two-thirds of Indiana, and through its wholly owned subsidiary, World Class Beverages, sells craft and specialty beers statewide. Beverage Industry’s 2009 Wholesaler of the Year distributes 60,000 cases a day, on average, from its new strategically located 500,000-square-foot facility in Indianapolis.

 

Monarch uses the synergies created by its size to compete against 18 Anheuser-Busch InBev wholesalers in its territory. Indiana state law mandates that alcohol wholesalers only supply from one building, which forces Monarch’s one warehouse to operate efficiently to cover its total geography.

 

“There is an economy of scale there, and it’s really become one of the reasons that we’ve been so successful,” says John Xenos, general manager. “It’s a huge advantage, and I also think there is a direct correlation between scale and size and effectiveness in this industry. Our suppliers certainly appreciate that because we can invest tactically in the things that matter to grow our business, and we’re very willing to do so.”

 

Operating from one building also means that building needs to handle Monarch’s current warehouse needs and leave room for growth. In July, the wholesaler began distributing from its new $46 million headquarters and warehouse. The warehouse holds more than 1 million cases and 3,200 SKUs, which all will be handled through a newly installed automated case picking system.

 

“We estimate that it will pick between 6,000 to 10,000 cases an hour,” says Fred Dufour, vice president of operations. “We currently pick in the range of 3,000 to 5,000 cases an hour. So we improved basic efficiencies, and we’ll do it with less people.”

 

The distributor’s previous facility was built in 1997 with the plan of handing 5 million cases annually, but already was operating close to capacity by the time Monarch moved into it.

 

“Between the times we planned that last building and we moved in, we had an acquisition of over 3 million cases,” says Phillip Terry, chief executive officer. “We had planned for maybe 30 percent room for growth and had already consumed that by the time we moved in the building, so we were a tight fit from the start and then we grew from there.”

 

“We certainly have always been confident that together we could grow our business by taking care of customer needs and growing market share,” Xenos says. “What we forgot to plan for was the consolidation factor, and we have grown primarily through consolidation of five or six acquisitions of other MillerCoors houses in the state of Indiana.”

 

To manage its capacity in the short term, the wholesaler obtained permission to use a temporary warehouse to accommodate storage needs until its new facility opened. Monarch also operated another separate facility for its trucking operation, EF Transit, and another warehouse for its apparel and point-of-sales marketing materials company, Vision Concepts. In 2006, the wholesaler also built new offices in Evansville and Sellersburg, both in Southern Indiana.

 

Monarch has grown to 675 people, 15 million cases of beer and 1 million cases of wine a year. The new facility accommodates Monarch’s volume and leaves room for expansion, and brings the company together under one roof.

 

Mergers and acquisitions

Monarch was founded in 1947 by Edwin French Sr. The company grew through the addition of the E&J Gallo brands in 1971, Miller Brewing brands in 1989 and Coors Brewing brands in 1991. The French family still owns Monarch today, but Terry and Xenos are charged with running the company. Xenos originally came to Monarch in 1990 as a wine sales manager. Before Terry joined Monarch in 1991, he was a practicing attorney, and Monarch as well as its owner and his friend, the late Edwin French Jr., were clients.

 

“We’ve been very fortunate in that the French family, who still owns Monarch, has given us complete autonomy to run this business, and they really never question,” Xenos says. “Even when they don’t always agree or understand, they don’t hinder our ability to use our instincts to guide the company.”

 

The Miller and Coors lines account for 85 percent of Monarch’s volume. While Monarch already distributed Miller and Coors products, the North American joint venture between SABMiller and Molson Coors last summer has benefited the company with, if nothing else, fewer meetings.

 

“We used to have a meeting with each one of them to discuss what the other one is doing because Miller has always been a little bit bigger than Coors in our market,” Xenos says. “Coors was, in 1995, about a three or four share. Today, it’s 18 or 19. Some of that growth has come out of Miller. Certainly a lot, and we hope most, has come out of our competition.”

 

Additionally, when Monarch plans for budgets each year, it is not double spending now, Xenos says. “It’s all under one umbrella, MillerCoors, so the focus becomes how do we reach more consumers, and how do we grow incremental volume vs. our competitor,” he says. “So those synergies have really given us a great advantage.”

 

Along with the ability to focus on its true competition, Monarch is able to pick up both Coors and Miller products from a brewery in Trenton, Ohio, which is two hours away, instead of pulling its second-largest product from Colorado.

 

“The logistics of getting our two biggest products are real easy right now, and we’re the trucking company for it, so it’s made inventory planning and acquisitions so much easier,” Terry says.

 

Monarch also acquired three Southern Indiana distributorships in Jasper, Corydon and Columbus related to consolidations from the MillerCoors merger. These transactions filled out Monarch’s territory in the southern two-thirds of the state.

 

In addition, InBev’s purchase of Anheuser-Busch, which came with a requirement by the U.S. Department of Justice to sell InBev’s interest in Labatt Brewing in the United States, led Monarch to be appointed the distributor for the Labatt brands in its territory.

 

The rise of economy brands

The economy has challenged the wholesaler a bit this year. For its overall growth, Monarch is up a little less than 2 percent for the year, but profit margins are down three-quarters of a point because consumers are trading down, Xenos says.

 

“What we’re seeing is that 24-pack Miller Lite consumer, who buys a 24-can pack for say $14.99, we’re seeing those people trade down to items like Miller High Life or Keystone Light 30-packs for $12.99,” he explains. “So they are getting six more cans of beer for $2 less.”

 

Monarch also is seeing some reciprocal effect on its higher-end products, with its import and micro beers faring well, but not at the same growth rate as previous years.

 

“Where micros have grown in the 20 to 25 percent range and imports have grown 10 to 12 percent annually, imports are relatively flat and micros are up in the 7 to 8 percent range,” Xenos says.

 

In addition, the wholesaler is noticing some fallout from higher priced spirits brands. “We’re actually seeing some people going from spirits or even fine wines back into the beer category, so that has helped us a little bit,” Xenos says.

 

The consumer trade-down in wine has not been quite as dramatic, he adds. “They are trading from the $19 and over down to the $14 to the $9.99 range a little bit, but still the wine business is healthy, the margins are healthy and the volumes are very good there,” Xenos says.

 

As consumers are changing where they spend their dollars, some channel shifting has occurred as well. The on-premise segment, which is normally 27 percent of Monarch’s total volume, has been challenged because on-premise business is down. “We’re seeing that a lot of that business is converting over to grocery stores and certainly liquor stores in our market,” Xenos says.

 

More share also is going to the supermarket and large club stores, says Scott Shipley, vice president of sales. The liquor store channel still remains Monarch’s largest channel and represents around 40 percent of Monarch’s total volume.

 

“Liquor stores here act like a c-store in other markets,” he says. “Cold beer, which is normally sold in convenience stores nationally, cannot be sold in convenience or grocery stores in Indiana. The only people that can sell cold beer in Indiana are liquor stores.”

 

Monarch operates with specific sales teams by channel and it is all done with a pre-sell system.

 

Igniting growth

Craft beers continue to be a growing portion of Monarch’s portfolio. Sierra Nevada Brewing Co.’s products continue to make gains, and in April, Monarch introduced New Belgium Brewing Co.’s Fat Tire to its territory. The company introduced Spoetzl Brewery’s Shiner Bock the year before. In its Indianapolis market, Three Floyds Brewing Co., Dogfish Head Craft Brewery Inc. and Bell’s Brewery beers also are growing in popularity, and are also a part of World Class Beverages, a micro- and craft beer company within Monarch.

 

Although World Class Beverages is part of Monarch’s beer division, it manages itself as a separate company with six people under the leadership of Jim Schembre, who joined Monarch after the acquisition of his distributorship in 1995. World Class Beverages formed in 2001 when Monarch purchased Bon Vivant Libations, which had accumulated a portfolio of small micros and craft beers.

 

Schembre’s idea to ignite consumer interest was to create World Class Beverages, a company that promotes and sells low-volume, high-margin craft and specialty beers statewide. Its Web site, worldclassbeverages.com, and its sponsored Web site, Indianabeer.com, are generating more than 750,000 hits a month.

 

The Web site allows consumers to learn about any style or brand of beer that World Class Beverages’ carries, and retailers, bars or restaurants that carry the brands can be found by searching by zip code.

 

“So now what’s happening is that we’re getting retailers calling us saying, ‘How do I get on your Web site?’” Xenos says. “… From that standpoint, it’s a complete paradigm shift from the traditional thinking of how to sell beer.”

 

Currently, microbrews represent about 2 percent of Monarch’s volume, but it’s an important 2 percent, Xenos says, because he believes it will grow.

 

“We’re selling about 250,000 cases of microbeers a year, and we believe the potential is to do about 1 million,” he says. “From that standpoint, it opens avenues for us to build and grow volume and share in the future.”

 

Bell’s Brewing line of beers offers an example of that growth potential. The line is distributed under World Class Beverages, but is growing large enough to be sold under Monarch’s regular beer division, Shipley says. And World Class Beverages is not just for Monarch either. It has become an association of beer distributors located throughout the United States that are dedicated to the promotion of craft and specialty beers.

 

As a company, Monarch puts emphasis on exposure and marketing. The company has sponsorships with the Indiana Pacers and Indianapolis Indians, and provides beer at the Indianapolis Motor Speedway and Verizon Wireless Music Center.

 

Monarch launched a new Web site, monarch-beverage.com, which was designed to reach younger adult consumers, says Dave Rogers, vice president of marketing. The company also is on the social media sites Facebook, MySpace and Twitter.

 

“We’re trying to reach a more direct relationship with our consumer than just going through the retailer,” Terry says.

 

Gaining ground

Monarch’s new headquarters has relocated the company from near the Indianapolis airport to the northeast side of Indianapolis. The new location will reduce the driving distance each day to receive and deliver products. The space also allows for building expansion if needed, and Monarch does anticipate growth. This year, the company expects its World Class Beverages division and wine portfolio to grow, and its focus moving ahead is going to be on improving efficiency.

 

“We’ve got a nice footprint and a nice group of suppliers,” Terry says. “Our goal going forward is to become the most effective marketer and the most efficient logistics company. Rather than to continue to grow by acquisition, the opportunities are going to be effective marketing and more efficient backroom operations.”

 

“The new challenge of today is how do you manage the increased cost — fuel, benefits, insurance, marketing — if your business is not going to grow?” Xenos asks. “So I think learning to become more internally efficient — if you can save two or three or four percent in the back of the house, that certainly gives you more money to spend on the front end, if need be, with resources that are going to help you grow your business.”

 

With no other MillerCoors wholesalers in its primary footprint, Monarch does not anticipate continuing its acquisition growth pattern of past years in its home state. The company is one of the 11 MillerCoors wholesalers that make up KEG1 LLC, a knowledge exchange group that shares best practices and has evolved into a buying group as well. KEG1 acquired some Texas distributorships, of which Monarch is a partial owner.

 

With a new completely automated warehouse, which the company says has one mistake every 50,000 cases, Monarch’s new automated picking system also provides growth opportunities.

 

“We’re delivering a perfect pallet, and we have an ability to deliver more than just what we carry because this automated picking system will pick more items than we carry,” Xenos says. “It affords us an opportunity to do some shared service types of things with some of our competitors, and I believe that will appeal to many of our retailers who would like to consolidate deliveries and make sure they are more accurate and timely.”

 

Monarch plans to continue to embrace change, new ideas and new opportunities.

 

“I’m not exactly sure what Monarch will look like in 10 years in terms of what types of products we’re going to be carrying,” Xenos says. “Certainly, beer and wine, but there may be some non-alcoholics. Who knows what there may be?” BI