Audio Interview: Architect Tony Houtz Discusses Today’s Distribution Center with Industry Veteran Dave Irvin

Tony Houtz, Cushing Terrell: Can you tell me a little bit about your background and experience with distribution and fulfillment centers?

Dave Irvin, Eagle Beverage: We’re basically just a distributor. We’re primarily Anheuser-Busch. We have probably 25 to 30 other brands of beer we carry. We also carry a large NA portfolio, probably about 30 suppliers on that. Then we’re a large wine distribution center, too. As a distributor, we’ve got about 40 to 50 suppliers on that side. Myself, I’ve been in the business since ’86, worked for a different wholesaler until ’91. Came to work for my boss and partner in ’91, and then became part owner in the late ’90s. We’ve grown from a small, 300,000-case a year distributor to now about 1.2, 1.3 million — slowly getting bigger. We’ve got a pretty good chunk of central Montana up to the border and down through the central part of the state.

Tony: What is it that really intrigues you about the industry right now?

Dave: We went through this whole shift for years with the micros just growing steady, you know — call it “the yellow beer” kinda taking a nosedive. The Bud Lights, the Budweisers, the Coors Lights of the world pretty stagnant, taking a dip. There’s also a lack of on-premise business right now. Around here, we’ve seen the outdoor activity is just crazy. People are campers; people are even renting campers now and the woods are full of people on Thursday night. Unless you go up and put a camper in a spot Thursday night, you may not find someplace to camp Friday nights. So it’s this whole outdoor thing going on. I don’t know if it’s because we had cabin fever. It’s phenomenal. It’s changed for the large packages of domestic beer.

Tony: That’s an interesting view or look at that. And your distribution isn’t directly to the consumers there. You’re moving through your local convenience stores and things like that. That’s where you’re seeing that increased volume, right?

Dave: Right. We can’t sell direct to the public, it’s through stores or bars. We just are seeing the package business through the stores is unbelievable, with what’s going on right now.

Tony: That’s interesting. Overall, we’ve seen there’s been scaling back warehousing inventory in favor of metrics that help companies to produce just over the level of demand. But how does that relate to your industry? What do you see as far as inventory and stock?

Dave: Well, right now, Anheuser-Busch, and I’m hearing the same from Miller and Coors, they’re having a hard time keeping up with the larger packages. We’re just having a lot of shortages and outages on large packages. Right now, we’re running out of stuff constantly. I’m hearing the same thing from the other guys. The breweries, traditionally, can’t keep up with demand and production when summertime and 4th of July hits. We start ramping-up in May, even as early as April, but this year, the whole COVID thing was goofy. It changed things. Part of it is that we never had that chance to ramp-up because the whole country was shut down, the breweries were limping along, but because that build-up never happened and also the surge in the larger packages, we’re just having a lot of problems with inventory levels on the larger packages, where we keep running out of the stuff.

Tony: You can’t really store long-term. You can’t store beverages long-term because they have a shorter shelf life than other products, so it’s not like they could stock-up from five years ago?

Dave: No, you can’t. Well, AB… It was 120 days on their packaged beer on most of it. They added, what was it, 60 more days to the shelf life during the COVID thing, and we haven’t gone away from that yet. We’ve still got a lot of extra days on the shelf life, but that tops out at about six months. You can’t really build up much.

Tony: You have a reputation for handling both the smaller types of quantities, as well as the larger quantities. In fact, your whole company has built a business around that. How do you leverage back and forth between these larger clients or these larger product shipments and distributions, and the inevitable deadlines and the burdens that come with that, making sure that you meet those needs as well as keeping room for the smaller people who need to rely on your distribution network to get their product out?

Dave: We’re pretty scheduled as far as our routes. We also handle AB, a large brewer. They have a ton of products. They have large-volume products and they have small, niche products. We carry all that and it works well when a little small niche brewery comes in and he’s got some ciders or some bourbon cask beers and we handle those too, whether small quantities or big quantities. It just makes it tough, logistic-wise, to bring in quantities from some of these brewers when they handle small niche, brands, but we make it work. And we actually have a truck ourself that runs around the state twice a month to pick stuff up and picks up beer for our distributors too with these brewers. We’ve got a network with our own trucking system, but we handle big, large-volume products and small, niche products. A lot of the small, niche products, they’re not the volume, but there’s a higher profit per case on those, so it helps that out a little bit.

Tony: Absolutely. As far as distribution is concerned at a bigger scale, we’ve seen obviously large, online retailers are taking control of their own distribution chains. They see that as being an important thing. The Home Depots of the world, or Walmarts, Amazons, Targets, companies like that where they’re really trying to control their distribution, getting their goods to their stores. But also, they serve as a backbone for other manufacturers to get their goods to consumers directly or closer to them without storefronts in every community. Have you seen any of that on your side? Is any of that affecting your business? Do you compete against any of those types of distribution networks or are you kind of protected a little bit?

Dave: We’re pretty well protected, Anthony. We’ve got laws. The beer that goes into stores has to go through us. There’s a little bit of online shopping for wines, wine clubs and what-not. Supposedly, they get wine sent directly to the consumer. That’s going on and they’re supposed to be on the honor system for paying the state taxes. We watch that really close, but there’s not a whole lot of that going on in Montana that we can tell because of the laws. Our association watches that really close. Part of it is because if it gets shipped direct, there’s no way for the state to grab the tax. And that ends up putting the state on our side to help us enforce those laws and make sure it doesn’t happen.

Tony: What kind of trends have you seen relative to the future or what you think the future of distribution might be? Are there things that have either taken place due to COVID-19 or just the regular pace of life and the modernization that we’ve seen over the past decade really starting to move the future of distribution? Whether it’s towards greener ways of moving products or whether there’s different ways to kind of streamline the system? What have you seen?

Dave: You know, we’re trying to consolidate, make the loads bigger, less driving, less fuel consumption. I guess that would be the greener and more efficiency. We’re moving to the traditional 12-bay, roll-up door trucks and moving more to end-loaders where the pallets are pre-picked. Just trying to be more efficient and use less energy, i.e. gasoline or fuel. We’ve seen a few startup small distributors start up with wines and maybe some niche beers, but with our area, it’s so doggone sparse with a lot of miles. It’s hard for those guys to make it to work and make it profitable.

Tony: What would your advice be when it comes to managing speed of delivery and efficiency? What are the things you look for with your team there when you’re monitoring how you can be more efficient or how you can deliver more effectively — either internally, within the warehouse itself, or out on the routes?

Dave: We try to accommodate as many stops and routes as we can, especially if you’re long ways away, try to route in the best you can so that truck is getting the most efficient use, but the problem is that sometimes there’s only so many hours in the day. We don’t do any overnight trips, but yeah, we’re constantly evaluating.

Tony: It sounds like that’s the most pressing strategic or operational issue is just locating where the need is for the product and then how do you get the routes to the place where it needs to be. Is that correct?

Dave: Yeah, you’re looking at geography all the time, even in town. We had a new Walmart get built on the east end of the town. That changed a whole bunch of stuff out that way. One large store, and it takes away from four or five other stores.

Tony: As designers in the industry, we recognize that there’s been increasing attention paid to distribution and fulfillment centers, I was speaking to someone recently who looks to invest in different corporations and he’s always looking at distribution and how their distribution chains are strong and how they hold up under difficult circumstances before they want to invest with those companies. So, we’ve even seen it being more important during this whole safer-at-home type of mandate thing. What impact have you seen in your industry? How have you dealt with your internal teams through the whole pandemic safer at home? How has your team functioned?

Dave: For the most part, a lot of our sales never came in, but we’re well into phase two now and we’re still kinda cautious. I don’t know what’s right or wrong anymore to be honest with you; we’re all kinda like, well, whatever your comfort zone is, but we actually kept everybody going, we jumped in and got some of that PPP money to keep ourselves whole. And we, for the most part, saw a slowdown for routes because a lack of the bars, but our stores picked up and maintained, not too far off of a flat period from March through April, as far as sales go. But with the lack of the routes, we had a lot extra people around and we ended up doing a lot of housekeeping around the building and around the property that needed to get done. Not dealing with the general public, we’re still just dealing with the stores. We’re a little different than a fulfillment center; we never do home delivery or that kinda stuff. That’s really not our MO.

Tony: That’s great that you were able to basically keep your team together through that whole situation, and keep everybody on staff. And you’re back to much more of a full over route now than you were before, correct?

Dave: Yeah, we are. The thing right now for all of us is we’re not seeing the tourism from out of state. This stay-at-home vacation thing and this camping business stuff has been interesting. It’s just been crazy. It’s making up for the lack of tourism right now. Because we have Glacier National Park, too, as one of our areas. And we’re still well above last year’s sales, even without that park even really running yet.

Tony: That’s impressive. It’s interesting how markets shift like that, right? We go through this massive change in the way people are shopping and the way people are accessing their goods and what they’re doing with their free time. And yet still, you’re seeing that shift; that need for the product is still there.

Dave: Yes, like I said, the move from the micro beers to more of the domestic beers, that’s what we’re seeing.

Tony: Yeah, and you seem to do okay with retention of employees and keeping some experienced people both in the office as well as out in the field.

Dave: You know, we kept everybody working through this whole COVID thing. That whole time was pretty scary. We said we’re not going to let anybody go; we’re going to keep everybody busy. And we made that promise and we did that, and we were lucky to be able to do that.

Tony: I’m an architect, obviously, and I always like to ask questions about our buildings and our facilities and how they’re operating and what’s working. But for you, is there any major frustration points for distribution and fulfillment centers, or in your case, distribution? Is there something that just really drives you crazy when you walk into a warehouse and it’s set up a certain way or there’s something that’s obvious that just gets in the way? Do you have any of those at your current facility now?

Dave: We always could use more room but we just built an additional warehouse, so we’re sitting pretty good, but we’re always looking at ways of reorganizing it and making efficient use of space.

Tony: So, what advice would you give me regarding designing distribution for the future?

Dave: You know, we’ve got good vertical but we run out of the local square footage to store the stuff and to have it picked. We are always running out of room and we’re constantly juggling that, trying to make more room for new items.

Tony: Because you run your SKUs, and then your inventory for that SKU is vertical, right?

Dave: Yeah. The backup’s above there, but we’re running out of floor space. You want to pick an order, you need two cases of something, you don’t want to run a forklift up to get it. You want it on the floor so you just drive by it, throw it on the pallet, and away you go. We’re running into that because SKU proliferation is just crazy right now.

Tony: Yeah, and I would venture to guess that with everything that’s going on and people trying to find alternate avenues to explore and engage the market, be entrepreneurial, or to take care of their own families if you will, that there’s probably not going to be fewer SKUs as we move into the future, there’s going to be more.

Dave: Yeah. It’s that younger generation: the variety. There’s not a whole lot of loyalty. Back when our parents were alive and whatever, one person drank one beer for 30 years. but that’s not the way it is now. These kids will start bouncing from beer to beer an you’ve got to bring it on and try it. You never know which one’s going to be a hit or not.

Tony: Right, which is why our bigger companies are putting out multiple SKUs under one umbrella, right? So, if we were to just end with a look to the future and dream about what would be a perfect situation in regard to getting goods from manufacturers to consumers, what would that look like? Would that still involve a warehouse and a trucking center, or what do you think?

Dave: Well on our side, Anthony, yeah. There’s laws that say they can’t have a brewery send beer directly to a store. That’s going back to Prohibition. So, for right now, I’m not seeing any changes in that. But we do talk about that as far as deliveries, but our system is pretty founded on three separate tiers: you got the manufacturer, you got the distributor, and you got the retailer. That’s pretty locked in.

Tony: I hadn’t really heard that Prohibition take on the distribution part of it. What you’re saying there is that the way the laws are set up isn’t just to protect the tax; it’s not just set up to protect the distribution chain. If the state wanted to get involved, they know who’s handling it and what’s going on. But it also helps the customer and the retailers to stay in a competitive environment. Is that correct?

Dave: Yep. Prior to Prohibition, there was so much corruption. The brewers could own bars, and they got to the point that the large brewers had the nicest bars. And some small startup guy, he couldn’t sell his beer to that bar because it was owned by the brewery. Or a store was owned by the brewery. It was all vertical, and there was no way for a small guy to get going, and there was a lot of other things that went on. Those vertically-integrated bars, they had the cheapest beer.

Tony: That’s really interesting because some people would argue, “Hey, this would be a lot cheaper or more efficient if the breweries had storefronts.” That’s kind of like what a micro tries to do, right?

Dave: Yep, but even a microbrewery to have a brewpub, that’s kind of getting into that vertically-integrated and that’s something that, it was supposed to be a sampling room. Now they’re nice taverns and stuff. We watch that really close because that’s getting not a whole lot different than prior to Prohibition. But it’s an accepted deal and everybody’s working around that, and just trying to get to the point where a large brewer can have a bar. That’s why there’s some limits on how big you can be and how much cases you can produce before you have to give up your on-premise sampling. There’s good reasons for that.

Tony: Yeah, and ultimately that protects the consumers. It might not be the 100% most efficient way to deliver, but it does protect the consumers in the long run because that variety could take a major hit, kinda like in Prohibition where you end up with monopolies.

Dave: Yeah. That little guy, he just can’t make it. He just can’t make it work because he can’t get his beer anywhere. So all of a sudden, you’re stuck with the big boys, that’s all you got.

Tony: That’s interesting. All right. Well, is there any other questions or any thoughts you have for me?

Dave: No. It’s good to talk to you and good to think about this stuff. I don’t take much time sometimes to think about this stuff.

Tony: That’s crazy. It kinda makes you step back and that’s where I was at. A little while ago, I stepped back and I’m thinking about this like, “Man, there’s a lot of moving parts going on right now. They’re in the news and impacting a lot of people around there. I need to talk to somebody who knows the inside of distribution a little bit better than I do.” So, I really appreciate you taking the time to share.

Dave: There’s a lot of guys smarter than I am, but I just know from what our perspective is.

Tony: Excellent. Well, if you need to build another warehouse, give me a call.