The Rewards and Risks of Expanding Distribution

After 181 Years, Local Beer Stops Playing Hard to Get (Wall Street Journal)

Brewer Looks to Expand DistributionCompanies that are successful in a local or regional market often find that to grow further they must expand beyond their core area.  For many companies this is a key point in its history.  Deciding whether to move beyond its comfort zone is often a make or break decision that will impact the organization for years to come.

If expansion is managed correctly, the company can expect to see continued growth, while poorly managed expansion can drain resources that may ultimately affect the health of the company.

In the age of Internet communication and low-cost package haulers (e.g., FedEx, UPS, USPS), growing distribution is a much easier task for companies selling products requiring little care in package handling.  But, products needing careful handling are a different story.  For these products, expanding distribution is a job the company often must handle on its own.

One company facing this situation is beer manufacturer, Yuengling.  For years, the company has been primarily known as a regional brewer.  As discussed in this story, Yuengling wants to grow beyond its Eastern U.S. home region.  After a successful move into Southeastern states, it is now looking to expand into the Midwest.

As noted in the story, Yuengling appears to face several challenges as it moves west.  What is important to understand is that the challenges are not just about product handling.  Gaining wider distribution is about much more than being able to transport product.

Yuengling could encounter difficulty attracting drinkers as it advances westward, where many haven’t heard of the brand. Competition from small-batch “craft” brewers also is likely to be stiffer in some states than it was in some of the markets in the Southeast that it entered in recent years.

In addition to the financial strains that may occur with a poor expansion strategy, what are the other potential risks when expanding distribution?

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