CHICAGO -- While a direct-store-delivery system for beer might appear antiquated, in the long run the benefits of a DSD system far outweigh its shortfalls, according to a consultant and a beer industry executive.
"An efficient DSD system has numerous advantages," said Charlie Kapp, director of national trade development at Miller Brewing Co., Milwaukee.
"DSD can lead to high profits, and it offers the potential for win-win alliances. It provides the frequency for high service intensity, and it is the best method for handling both velocity and variety extremes within the category. Proper DSD handling also attracts the right shopper," he said.
"Beer is among the best performing categories in the store, and if managed aggressively it offers the potential for share gain from other channels," Kapp added.
Kapp and Matt Krentz, vice president of Boston Consulting Group here, spoke about the effect of DSD and category management in the beer category at this month's Food Marketing Institute convention here.
"Because much of the labor and delivery costs are borne by manufacturers, to totally understand the value a DSD system provides, retailers really need to look beyond their traditional measurement criteria to understand the value of the category," Krentz said. He added that supermarkets are the second-largest distribution channel for beer and account for one-fifth of total beer sales.
Krentz explained that a conventional 150-store supermarket chain saves $4 million to $5 million a year on labor through the use of DSD in the beer department.
"DSD provides a very large amount of in-store labor. The distributor provides the average supermarket with 162 minutes of service time, and over 50% of the time [83 minutes] is spent shelving and merchandising the category. The average supermarket gets two to three deliveries per week," he said.
"As a result, beer has a much lower labor cost for the retailer. DSD also saves the retailer on delivery and warehouse costs, which amount to almost 6% of sales. Overall, when added up, the retailer's return on beer is 3.7 points higher than the average store category. Because of all the in-store labor provided by the distributors, the retailer would realize lower returns through the warehouse than through the current DSD system," Krentz said.
"Beer has an operating profit of almost 5%, which is well above most categories. Other DSD categories, like snack foods, cookies and crackers also deliver higher operating profits," he added.