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Certo Brothers Analysis

Emily Flynn, Jordan Urbanski, Grace Kendall, Dan Harrington, Nick Koetzle, Tyler Morel

Friday, December 8, 2017

MGT 413

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Contents Page

Introduction & History………………………………………………………............ 3

Vision and Values………………………………………………………………….... 4

Mission Statement……………………………………………….………………….. 5

SWOT/TOWS………………………………………………..………………............ 7

Hierarchy of Strategy……………………….……………………………………… 13

Goals and Objectives…………………………………………………………….… 13

Core Competencies…………………………………………………......................... 14

Distinctive Competencies…………………………………………………………… 14

Generic Strategy…………………………………………………………..…………. 15

Strategy Types ………………………………………………………………… 16

Perceptual Map………………………………………………………………………… 17

Porter’s Six Forces………………………………………………………….………… 18

Financial Analysis……………………………………………………………………… 21

Value Chain…………………………………………………………………………… 24

Issues………………………………………………………………………………… 25

Alternatives…………………………………………………………………………… 26

Conclusion…………………………………………………………………………… 29

References…………………………………………………………………………… 30

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Introduction

Certo Brothers is a beer distributing company located in West Seneca. The company

works as the middle-man to deliver their products in Erie county and Niagara county—all

located in New York state. Certo Brothers manages to keep the business family-based which first

began in Niagara Falls in the early 1900’s.

History

Peter Certo opened a small grocery store in Niagara Falls, New York, in 1912. During the

prohibition, Peter Certo brewed his own beer in his garage. In 1933, after the prohibition era ended,

he applied for a distribution license. He was one of the first people to obtain his distribution license

as a wholesaler in the area. In 1986 they were the first to get distribution rights for MillerCoors, in

the counties they are located in Erie and Niagara county. In 1990 they acquired Genesee Brewing

Company. In 2003 they moved to their current location in West Seneca New York. They combined

their three previous locations into their current location in order to accommodate their growth.

Their current location includes a beer tower that hold up to 3 Million cases of beer. In 2011 Certo

Brothers decided to get into wine and spirits. They focused their energy on acquiring wine and

spirits as they are becoming more popular with current generations. This also would be a good

backup plan to have if the demand for beer continues to decrease. Currently, all of the shares of

the company are owned by the Certo family.

Vision and Mission Statement:

A company’s vision statement describes where the company is headed. It explains exactly

where management has decided what direction the company must go in. A company’s mission

statement describes where the company is currently. It focuses on who the company is, what the

company does, and why the company is here.

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Vision Statement

Certo Brothers did not have a formal vision statement before this presentation. Joe Certo

did however provide one:

“To be Western New York’s leading distributor by delivering quality products and

customer service.”

For not having an official vision statement Joe Certo did a decent job at capturing the goals

of their company. It is specific in what they plan to do, and definitively outlines the “what”, being

to become the leading distributor in Western New York. This is a clear goal that can be reasonably

measured using sales statistics and overall market share. It also outlines the “how” aspect when it

mentions “delivering quality products and customer service”. It is not enough to just state your

goal, you need to also outline how you are going to achieve it. This statement does that with

specific and concise language. The vision statement did a good job of being concise, and not

wasting time with unnecessary words or phrases. Vision statements are meant to be short and

sweet, and this one certainly accomplished that. It is easy to memorize and almost every employee

could easily be asked to if ever need be.

Although the vision statement was adequate, there are some things it needs to improve on.

For starters, it doesn’t make sense not adding the word “alcohol” in front of “distributor”. The way

it is written now Certo Brothers could be distributing anything from firearms to pure-breed golden

retrievers. It is only one word, so it won’t impact the overall flow of the statement, and it will make

it much clearer. Here is a proposed rewrite:

“To be Western New York’s leading alcohol distributor by delivering quality products and

customer service.”

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Certo outlines its’ values along with its’ vision statement as well. These values include

customer service, trust, loyalty, and charity. Certo’s values are imperative to their success because

it is what sets them apart from their competitors. The beer distribution industry is a hard one to

differentiate yourself in because so much of it relies on the source of the beer, for example Miller-

Coors. Specifically, the values of loyalty and trust help Certo a lot because they have been

consistent in doing quality work for so long. Almost everyone that has dealt with Certo has had a

positive experience and recommends them to others, and this is what has helped Certo remain

successful with limited marketing.

Mission Statement

However, Certo Brother’s Mission Statement is slightly wordier:

“For the past 105 years, Certo Brothers has been dedicated to distributing high quality

beverages to a wide customer base throughout Western New York (1,3). Today, Through

the growing distribution of beer, wine, and spirits, our production has been able to expand

through our growth (2,5). With this said, it is our responsibility to have a positive impact

on the surrounding communities, through supporting those who have given so much to us

(6,8). Our highly skilled employees are the foundation of our success, helping build Certo

from the ground up, generation through generation, holding true the company’s beliefs of

high quality products matched with high quality service (7,9).”

Starting with what is good about this mission statement, it covers all the bases you are

supposed to in some way. The qualities of a good mission statement are graphic, directional,

focused, feasible, flexible, desirable, and easy to communicate. Here’s a breakdown of how well

the statement fits these.

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The mission statement does a good job of being graphic. When reading this mission

statement, it paints a clear picture in your head of an alcohol distribution company that has been

around for a long time, and places a large emphasis on family and community. The statement

“generation through generation” is particularly meaningful, as it is very descriptive and

representative of what they are.

It is directional as well. “A positive impact on the surrounding communities” and the

“growing distribution of beer” clearly states two directions Certo wants to continue to go in.

The mission statement is focused in a way but isn’t perfect in this aspect. It mentions the

distribution of beer throughout and the community, which are both important. However, the

placement of the community in the middle of the statement seems a little off. Giving back to the

community is clearly an important part of who Certo is and putting it in the mission statement is

important, but putting it in between the sections on the actual business side doesn’t flow right.

Perhaps putting it at the end of the mission statement would’ve sounded better.

The mission statement is definitely feasible. None of what it outlined seems outlandish or

unrealistic. All their goals are definitely obtainable. The mission statement did an excellent job of

being flexible. It mentions their distribution of “beer, wine & spirits” as to cover all basis of what

they do and limit it just to beer. It also mentions expansion without getting specific, which allows

it to cover any area they may want in the future.

It is desirable in a few different ways. Certo mentions the success it has been able to have

with phrases like “high quality service” and “highly skilled employees”. Using phrases like this

makes sense because it makes Certo seem like something every company should strive to be. Also,

the section on “positive impact” is something any company would love to do.

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The part where Certo’s mission statement struggles the most is being easy to communicate.

The statement itself is very long, most people who saw it probably would not read the whole thing.

The amount of words in it take away from the important ones and diminish the overall message.

There are some parts of the mission statement really capture what Certo is about, like “generation

through generation” and “our responsibility to have a positive impact on the surrounding

community”. If you took some of the other parts out it would further emphasize these parts of the

mission, which really serve as an excellent representation of the company.

Mission Rewrite

“For 105 years, Certo Brothers has been dedicated to distributing high quality beverages

to a wide customer base through Western New York. Through our growing distribution of

beer, wine, and spirits as well as our highly skilled employees we have been able to grow

generation through generation and continue to provide high quality products and service.

We also in part owe our success to our surrounding communities, and view it as our

responsibility to have a positive impact on these surrounding communities and give back

to those who have given us so much.”

SWOT/TOWS Analysis

As we dive into our SWOT/TOWS analysis, we will discuss Certo Brothers’ strengths,

weaknesses, opportunities, threats. From those four categories, we determine possible strategies to

improve the company.

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SWOT:

Strengths

Even though Certo Brothers is not a public company, the company has several strengths.

Certo Brothers is unique to beer distribution seeing as there’s only one since they are a family-run

business. One strength to being a family business is knowing they’ve been a successful company

for the past 105 years. With such a long history, Certo Brothers has built up credibility among

reliability and trust with business partners and consumers; they have proven that their products

will always be distributed. Another strength that goes hand-in-hand with a long history is being

the only distributor in the region that acquired MillerCoors—including Molson—and Genesee

products. As the demand for beer grows, as does the overall beer industry, the demand for these

large, specific beer companies will continue to rise which only increases profits for Certo Brothers.

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In addition to being a long-standing business and distributing limited brands, the company has a

knowledgeable staff. Being a family-orientated business, members of the Certo family step-up to

the plate to learn the ins and outs of the company with in-house expertise to educate future

employees—whether or not they are family or outsiders; staff members in this industry must know

specific rules or laws, can help find the best way to get things done in an efficient and effective

manner. Lastly, beer is a popular commodity among consumers that are 21 and older, meaning

they have the advantage of a wide target market. The company has the ability to create business

relationships with bars, restaurants, grocery stores, etc. because possible customers like to enjoy a

beer or two when they grab dinner, go to concert, or watch the big sports game.

Weaknesses

For starters, Certo Brothers is a private company located only in Buffalo, NY. Location

challenges the company seeing as they may have a long drive to the facilities where they distribute

the beer. Long drives can be timely and extremely costly. Like location, another weakness of Certo

Brothers is their struggle of expansion. As they try to acquire Wright Beverage Distributing, that

too will put a dent in their financials and could be too time consuming. Location of the distribution

company is so close to the Canadian border consumers may prefer drinking at places that are close

to the border or even in Canada. As Certo Brother gains more popularity, one thing they lack is a

website. Nowadays, it is extremely common that most companies have some type of website to

inform potential business partners, or even the consumer. No one can see what products CB offers,

business hours, or if they have any merchandise. They may have their foot in their door of social

media, but that still lacks the professional, informative website that most people prefer to use—

especially if not everyone uses a specific social media platform. Building size is a weakness that

Certo Brothers can certainly control—but one thing they cannot control is how many shipments

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of alcohol they receive. Adding more space to their recent additional would put a dent in their

financials.

Opportunities

Beginning with Microbreweries, Certo Brothers just acquired the rights to distribute to

Four Mile Brewery. Microbreweries are a great way to distribute the products in smaller towns or

cities. Speaking of cities, one in particular that is becoming more up and coming is Buffalo. As

Buffalo gains popularity, such as Canalside and Elmwood which are adding more breweries, there

will also be an increase in restaurants, or bars which allows Certo Brothers to begin partnerships

with new clients giving them the opportunity to broaden their horizon. Sports partnerships,

specifically the Buffalo Bills and the Buffalo Sabres would be a quick and easy way to distribute

the company’s products seeing as people love to drink at sporting events.

Threats

Certo Brothers needs to consider what investments will have a positive and negative affect

in the long run. On the list of weaknesses, the first one is competition. Although CB is growing

exponentially, their biggest competitor is Labatt Blue beer which is a well-established brewery in

the Buffalo area. Considering they are public company that sells over millions of Labatt products

each year, they threaten Certo Brothers by taking future customers or even potential partnerships.

Second, the beer industry as a whole has been declining since 2011. More importantly, Americans

are consuming less alcohol with volume slipping by 3.5 million nine-liter cases in 2015 to 3.39

million nine-liter cases in 2016—a 1.5% decline (Kell, 2017). However, since the beer industry is

taking a downturn, there happens to be a rise in wine and spirits. Even though Certo Brothers

distributes some wine and spirits, it’s definitely not as prominent as beer is to the company’s

profits. Next, a major substitute to drinking alcohol is marijuana; the correlation between the

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legalization of marijuana shows an increase in drug use as beer consumption decreases. Another

substitution to not drinking beer would be to drink non-alcoholic beer. This is a positive way to

steer people away from drinking alcohol, but still get that traditional beer taste. Competition and

substitution are two huge outside forces working against Certo Brothers. Fourth on the list is

weather. When Winter rolls around, snow and ice will push back shipping and driving; trucks

could get stuck in the snow delay distribution especially if there is a time limit. The last threat is

knowing some laws threaten Certo Brothers’ distribution. For example, consumers must be 21 or

older to purchase any alcoholic beverages; rapid changing of laws can change distribution protocol

on the who’s, what’s, where’s and when’s.

TOWS:

Strengths-Opportunities

Certo Brothers can acquire more microbreweries as they rise in popularity. Due to the

company being around for the past 105 years, they have earned that credibility and trust to form

business partnerships with microbreweries. Other businesses can see that CB is well-established,

successful, and would be beneficial to work with. Certo Brothers distributes to Erie county—the

location of the Buffalo Bisons who do not currently have a business relationship with Certo

Brothers. Creating a relationship with the Buffalo Bisons means more distribution of MillerCoors

and Genesee in Erie county.

Weaknesses-Opportunities

With an increase of shipments of alcohol being delivered to CB, they lack available storage

space. Lack of space is to be partially blamed on the deliveries of microbreweries which keep

rising in the beer industry. Decreasing space can only lead to one thing: expanding the size of the

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building. Although building onto the building may be costly, it’ll be worth knowing Certo Brothers

is increasing their demand.

Strengths-Threats

Wine and spirits are slowly, but surely rising in the alcohol industry which is the perfect

opportunity for Certo Brothers to embrace this change. The increase in wine and spirits is to be

blamed on the millennials. Millennials’ taste buds are changing from beer to favoring wine and

spirits causing decline in the beer resulting in decreased volume (Jelski, 2017). Staff and

employees of Certo Brothers should be educated about wine and spirits especially if there is an

incline of kinds of shipments. Opposite to distributing alcohol, distributing non-alcohol beers

could have a positive impact on the company. Certo Brothers could put more of an emphasis on

Genesee non-alcoholic beer or Coors’ non-alcoholic malt beverage.

Weakness-Threats

Creating a website would desperately help Certo Brothers. Most business nowadays are

keeping up with technology changes, and having a website is one of them. Competitors are bound

to have a website because it’s part of creating a business; keeping customers and business partners

updated leaves them satisfied. If competition can show off their products, there is a potential risk

that viewers may just go to their website just because it’s there. Next, expanding the company

through acquisition would be one step closer to beating competitors. If Certo Brothers increases

distribution, this proves they are a highly demanded business giving them a reason to further their

acquisitions.

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Hierarchy of Strategy:

The hierarchy strategy consists of a three-tier strategy division: corporate strategy, business

strategy, and functional strategy. Together, these three strategies describe how Certo Brothers

manages their business.

Corporate Strategy

Certo Brothers’ corporate strategy involves MillerCoors who decides who has their

distributions rights. Since they are the middle man MillerCoors makes decisions about what

products CB can distribute and to whom and how they do it.

Business Strategy

Business strategy emphasizes their cooperative strategy that deals with sponsorships and

events. The company does not do any individual marketing, however, the brands they work with,

like MillerCoors, instruct them to use signs, packaging, or specific products.

Functional Strategy

Functional strategy relies on the knowledge and expertise of the owners, and employees of

Certo Brothers. Employees must distribute products in specific locations abiding are rules and

regulations.

Goals and Objectives:

Certo Brothers strategic goals should be to continue to increase its market share by using

various techniques. These techniques include acquiring other companies, expanding into broader

markets, and expanding our product variation in existing markets. These techniques should allow

Certo Brothers to continue to grow as it has done in the past.

Beyond moving into new markets, Certo Brothers is currently stuck within the boundaries

of its current territory. This restricts the financial goals for the company because beyond acquiring

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another territory, growth can only go as far as having Miller Coors products in every location that

sells beer in the Buffalo area. Because of this, Certo’s financial goals are to continue in a fair

financial position in their partnership with Miller Coors, allowing them to distribute the products

for the lowest cost, while keeping margins high enough to continue operations as normal, and

hopefully continuing to grow. This will allow the company to gain the positive public image that

small businesses like themselves are looking for, while financially growing at a rate to attain the

necessary capital to make an acquisition into a new territory

Competencies:

Core and distinctive competencies emphasize the company’s strengths and how they are

unique to their specific competitive market.

Core Competencies

Certo Brothers’ core competencies include the ability to have both sustainable and

competent distribution instruments as well as methods. Being able to deliver products around their

distribution range in a timely and efficient manner is “boilerplate” for a distribution company. If

Certo could not deliver products within the bounds of their service area then they would simply

fail. Distribution instruments include items such as trucks, holding equipment, and forklifts.

Distribution methods include actions such as the manner the routes are taken

Distinctive Competencies

Certo Brothers distinctive competencies include quality and wide range of products,

knowledge and experienced staff that has been in the industry for a long time, and a very strong

community presence. Certo existing and conducting business in Western NY for as long as it has

is something that competitors cannot replicate. Certos’ well-established community and business

relationships give it an edge over competitors that allows consumers to perceive and interact with

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Certo in a certain perception. A perception that can be associated with trust, family values,

knowledgeable, and familiarity.

Certos’ strong community presences pull its’ weight because a business may be in the

minds of the consumer with good product, but it may it may not be in the heart of the consumer

with actions of positive change in a community.

The products that Certo distributes is a distinctive competency because the products that they

distribute in their service area is specific to them. Consumers and retailers, of the products they

distribute choose those brands because they see the value.

Generic Strategy

Below is a map depicting the generic strategies of the various brands that both Certo

bothers distributes as well as competitors.

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Strategy Types:

Defender

Rather than seeking new growth opportunities and innovation, an organization that follows

a defender strategy concentrates on protecting its current market(s), maintaining stable growth,

and serving its current customers/clients. This is typical of businesses that have matured and who

have transitioned to adopt a less aggressive style of management and have chosen to defend its

market share from other competitors in the industry. For these reasons, we consider Certo Bros. to

appropriately fit into the defender category. Certo Bros. have had their distribution license since

1933, withstood the test of time, and can certainly be described as mature. Also, as management

ages they are more apt to employ a more conservative management approach and protect their

investment, than rather add risk or uncertainty. Similarly, Certo Bros. location may also play a role

in remaining and maintaining defender status. Considering their current plant location, the only

option of expansion would be east of their existing territory—roughly around the Rochester area.

Realistically, that area is distanced too far east from the West Seneca distribution to be able to

effectively manage with respect to logistics, equipment, trucks, personnel, etc. It would require

Certo Bros. to scale their business operations to a size much greater than its current state. We

believe this is unrealistic. Rather, we imagine Certo Bros. will maintain a conservative

management approach and defend their current market share—thereby, appropriately fitting into

the defender category.

Forward Integration

Certo Brothers integration strategy is a forward integration strategy, however it is a little

bit different than in some other companies. This is because Certo doesn’t have physical ownership

of anything downstream in the supply chain, rather a monopoly on the products they distribute.

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This gives the company a bit of muscle when negotiating with prospective liquor stores, restaurants

and other locations. If a company wants to have Miller Coors products in their location, they have

to go through Certo Brothers to get it, leaving the distributing company having the upper hand in

the situation. This kind of forward integration is different from other companies because Certo did

not have to invest a monetary cost in any of these buffalo area places to gain a step up in ownership

power, rather using the internal partnerships they made with Miller Coors to gain power

downstream and eventually resulting in increased profits.

Perceptual Map

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Porter’s Six Forces Model of Competition

“Porter’s Six Forces Model of Competition” is an effective means of measuring the

attractiveness of a particular industry. ‘Porter’s Forces’ measures the level of threat against an

industry in six categories—other stakeholders’, buyer’s bargaining power, threat of substitute

products, supplier’s bargaining power, threat of new entrants, and rivalry among existing firms.

The lower the threat level of an industry, the more attractive and profitable an industry is overall.

Other stakeholders’ with respect to Certo Bros. include the company’s owners, employees, and

union representatives of the employees. The company’s owners are all related members of

family—this mitigates a potential threat because the business is family owned and has been a part

of their livelihood for many generations. In other words, the family is likely to share a similar

passion for the business, preserve the company, and continue to watch it be passed on for more

generations. In contrast, employees and the union that represent them can cause a threat to the

business. For instance, Certo Bros. must compensate their employees at the prevailing union wage

and maintain quality work relationships with those parties. For those reasons mentioned, ‘other

stakeholders’ is mild to moderate threat.

The threat of ‘buyer’s bargaining power’ includes those parties that Certo Bros. distributes

their product—which include, grocery stores, gas stations, restaurants, bars, and event centers.

More particularly, buyer’s include Wegmans, Tops, Rite Aid, New Era Field (Buffalo Bills

Stadium), and KeyBank Center (Buffalo Sabres Ice Arena) to name a few. The larger a buyer is

(consumer/purchaser) the more pressure they may have on Certo Bros. profit margins. This can be

a considerable threat. Another threat in this category is that the switching cost to use other products

is very low. On the other hand, Certo Bros. buyer’s are highly unlikely to backward integrate and

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become beverage distributors—that is, Certo Bros. buyer’s all specialize in other forms of business

and do not control the proper capital to become a distributor.

The ‘threat of substitute products’ primarily consists of recreational drugs, wine & spirits,

and non-alcoholic beverages. Wine and spirits may be the greatest threat to the beer industry.

According to industry analysis, wine and spirits are steadily stealing market share from the beer

industry. Usually this would be considered a considerable threat; however, Certo Bros. has

mitigated that threat and has acquired the rights to distribute wine and spirits (disaster averted!).

Another substitute product is the growing rate of recreational drug use, exacerbated by the passing

of state legislation. Likewise, recreational marijuana use is increasing and posing a serious threat

to the beer industry. The quality of substitutes with respect to wine and spirits and marijuana is

another major threat to the beer industry. Wine and spirits provide a wide variety of quality that

matches anyone’s taste—from the connoisseur to the “double up for a buck” wino. Similarly, the

recreational marijuana user has a variety of choices with respect to quality—such as, a high-quality

sativa strain for an uplifting high to an Indica strain that produces a stoned effect to a hybrid strain

that is a blend of the two former strains. For the reasons mentioned, the ‘threat of substitute

products’ is a moderate to high threat to the beer industry.

‘Supplier’s bargaining power’ includes the threat of beer manufacturers that supply

beverage products to Certo Bros. Supplier’s range in scale (size) from large publicly held

corporations (MillerCoors) to small local microbreweries (EBC). Certo Bros. are a certified

MillerCoors distributor and they are restricted from price negotiations due to the nature of that

relationship. However, price negotiations are more probable between Certo Bros. and smaller local

breweries such as Ellicottville Brewing Company (EBC)—where Certo Bros. would hold the

leverage as they are much larger in scale (size). A major benefit to Certo Bros. is that their delivery

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territory is highly protected—thus, suppliers are blocked from forward integrating into the

beverage distribution industry. This protection highly assists in mitigating a threat from

suppliers—and for that reason, we consider this category to be a low threat against the beer

distribution industry.

‘Threat of new entrants’ is by far the lowest threat against the beer distribution industry.

Laws restrict direct competition in that only a single beer distributor is permitted to distribute an

area. In other words, two or more beverage distributors of similar products are restricted from

overlapping a single area. A territory is the right to only one beer distributor. Furthermore, there

is only one way that a beer distributor can expand its existing territory—that is to acquire another

already existing beer distributor. An acquisition results in the acquiring company taking control of

the acquired entities territory—this is the only means of expansion/outward growth. Certo Bros.

has recently (in the past four years or so) acquired another existing MillerCoors distributor. The

acquired company was ‘Salamanca Beverage’ of Little Valley, NY—and coincidently they too

were a family owned distributor owned and operated by three brothers, the Stark family. The cost

of the acquisition was $9 million and Certo Bros. became the beneficiary of newly owned

territory—which included all of Cattaraugus County and parts of Chautauqua County. For these

reasons, we consider barriers to entry extremely high in the beer distribution industry—thus, the

‘threat of new entrants’ is extremely low.

The threat of ‘rivalry among existing firms’ includes competitors in overlapping territories

that distribute different/other beer products. With respect to Certo Bros., their biggest and most

direct competitor is Try It Distributing, Inc. Sanzo Beverage Company, Inc. is another competitor

of Certo Bros., but is a less direct competitor with respect to overlapping territory. Certo Bros.

distributes MillerCoors products, Heineken, Blue Moon, and Boston Beer products. Whereas, Try

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It Distributing and Sanzo Beverage are distributors of Budweiser products, Yuengling, Shock Top,

and Rolling Rock products. Each distributor is high on the scale of product differentiation,

meaning that they each provide a wide array of beer products and brands. Certo Bros. and their

competitors are in healthy positions because competition is restricted between distributors of

similar products. Also, and maybe the most important, there are very few beer distributors that

control a large area: Certo Bros., Wright Beverage, Sanzo Beverage, and Try It Distributing. In

other words, profitability is high and there are enough profits to satisfy everyone. For that reason,

the threat of ‘rivalry among existing firms’ is low. Overall, this would be considered a four or five-

star industry with respect to profitability and attractiveness—that is, because the overall aggregate

threat against the beer distribution industry is relatively low according to the “Porter’s Six Forces

Model of Competition.”

Financial Analysis

One of the largest factors that goes into the beer distributing industry are how the

companies get regulated. Regulation gets broken down at both the state and federal levels. These

regulations may be on things like how to keep spirits and beer separate, health inspection and code

regulation, or making sure accounting for inventory is done correctly. But beyond these

regulations, this industry is home to more than 135,000 jobs across the country with great benefits

for people who live in these communities. For instance, because of the industry’s small business

nature, high executives often play critical roles within the local community that they distribute to.

This public image is crucial to the nature of the alcohol industry, which often suffers from negative

media exposure. In the case of Certo Brothers, these factors are driving forces into how the

company performs and how that reflects in the financials of the company.

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Certo Brothers’ was not provided the financial statements by Certo Bros. for personal or

privacy reasons. However, team Certo Bros. did produce a set of mock financials in their financial

statement presentation part of the class presentation. The following is a recreated version of team

Certo Bros. financial presentation prepared in our own words and individual interpretation. Team

Certo Bros. presented their financial analysis from the viewpoint to two standards—a “high

performer” and a “low performer”. Beginning with the profitability ratio of return on assets

(ROA), a beer distributor is said to be a high performer at a return of 26%, whereas a low performer

experience of return on assets at 2.4%. This profitability ratio represents management and how

efficiently they are at utilizing their assets. The return on asset (ROA) ratio can be the difference

between a quality well managed company and a management team that is not operating lean. For

the beer distribution industry, there a wide spread between a high and bad performer. A 26%

return on assets (ROA) is highly respectable for any company, even that of a high growth tech

company. Whereas, a low performer at 2.4% return on assets is equivalent to an airline provider,

or other industry that is highly capital intensive. The next profitability ratio is return on equity

(ROE), where in the beer distribution industry a high performer is 36% and a low performer is

6.0%. This too is a large spread between a high and low performer—and there could be multiple

reasons why this is the case. For instance, some companies could have a small portion of

equity/shares of ownership relative to the overall size of the company—that would result in a high

yielding return on equity (ROE) because net income is spread over only a few shares of ownership.

Whereas, if the beer distributor is large and has many owners/shares of equity, then net income is

spread over many investors who receive fewer/smaller returns on equity (ROE).

Liquidity ratios measure how well a company can cover their liabilities that are near due

in the future. Typically, a company would like to have a current ratio of at least 1, but not over 2

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because that could mean that they have too much idle cash and foregoing better investment

opportunities. With respect to the beer distribution industry, a high performer has a current ratio

of 2.9 and a low performer has a current ratio of 1.6. Considering the nature of the industry, a

higher ratio of around 2 is reasonable because it is the inventory that is the primary revenue

drivers—which should be adequate that you are carrying enough current assets to cover your

current liabilities twice.

Activity ratio measure how quickly or how many times a company can turn something over

in the course of a year—generally higher is better. With regards to inventory turnover in the beer

distribution industry, a high performer can turn their inventory over 13.8 times in a year, where a

low performers inventory turnover averages 12.7 times per year. Although there is not a

considerable variance, a high performer can squeeze one additional cash cycle out of a year than

can a low performer—which helps contribute to the bottom line and ultimately net income.

Profitability ratios measure how profitable a company is at various stages of operations.

For instance, the gross margin percentage indicates how much money is leftover after paying for

the cost sales (synonymous with COGS for a manufacturing company). With regards to the beer

distribution industry, a high performer has a 26.7% gross margin and a low performer has a 27.3%

gross margin. The spread that separate the two is very marginal—but also surprising because the

lower performer is indicating that they have more left over after paying for the cost of revenue

than a high performer (very odd). In either case, 27% gross margin is very low regardless of

industry. However, the nature of the beer distribution industry helps them better overcome a small

gross margin because as we have already seen they have a higher inventory turnover than most

other industries. In other words, beverage distributors like Certo Bros. have a business strategy

designed around volume—which allows them to get away with smaller gross margins. Total

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operating expenses relative to gross sales is another ratio that measures a company’s profitability.

According to the beer distribution industry, a high performer has total operating expenses of 20%

and a low performer have total operating expenses relative to sales of 25.5%. This provides some

insight into the overall scale of a company—that is, a high performer is utilizing their economies

of scale by an average of $0.05 less per dollar of sales generated than is a low performer. 5.5%

difference in total operating expenses can make a dramatic difference at net income. Net income

is the ultimate measure of profitability of a firm, regardless of industry. Net income is the amount

leftover after taxes from each dollar of sales generated. However, team Certo Bros. analysis did

not provide this figure.

Value Chain

For Certo Brothers, the value chain starts with their core operations. This segment of the

value chain goes hand and hand with the distribution process because Certo is a distributing

company. Within this, the company has to bring the product from the Miller-Coors truck, stock

and organize through the distribution warehouse, and then back out on the road for shipping to the

many locations they may have to go. This could be anything from a liquor store to the local

Applebee’s to the local bar. The tricky part about this is that all of the customers require different

quantities of alcohol. Therefore, the organization and repackaging of the original shipment from

Miller is so important.

The next step of the value chain process is the sale and marketing segment. Though all

parts of the value chain are important, this segment seems to fall off the wayside. Most of this is

because being that the company has the local stronghold on Miller-Coors products, the only thing

that would change their sales are increased demand for the beer. As far as marketing goes, the only

real kind of marketing Certo does beyond their Facebook page is having labeling on all of their

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trucks and keg mobiles. These work very well for getting the name out when they are parked for

events like Ellicottville Oktoberfest and other private parties.

Certo Brother’s is able to add value to their business through the service they provide to

the businesses that they distribute to. Being able to have the delivery drivers give that personal

touch to each stop on their route makes your everyday delivery to a Certo Brothers personal

delivery. Keeping a tight niche geographic market works to Certo’s advantage in this area of the

value chain because they can keep in touch with all customers and make sure they are getting

everything they need, when they need it.

In the supporting activities section of the value chain, Certo brothers can list human

resource management at the top of the priority list. This segment goes complements the importance

of quality service for the company and maintaining that consistent service from the delivery to the

phone call is paramount. On top of that, keeping up with system development for an ever- growing

product line is a must for a company like Certo. If they don’t make sure their employees are geared

up with the right system or technology to get the job done efficiently and effectively, the whole

operational side of the business will suffer.

Issues

In recent years the consumption of beer around the world has declined. This is partly

correlated to the world economy. As countries become wealthier, people can afford to consume

higher priced alcohol, which are generally wines and liquors. Changing taste also play a role in the

decline in beer consumption. Millennials tend to prefer wine and liquors over beer. The image

below shows the change in percentage of alcohol consumption in 2016.

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Alternative: Geographically Isolated Beer

With craft beers consumption increasing by 15% from the past year, one alternative

direction for Certo Brothers to move would be to increase their brand distribution of new or

geographically isolated brands. There are many craft beers that are isolated to their geographic

locations for a multitude of reasons. If Certo made efforts to acquire new and geographically

isolated craft beers from different parts of the country that people from western New York do not

have access too, it would increase deferrization of product and therefore increase competitive

advantage.

An example of a geographically isolated beer brand would be Austin Beerworks. Their

favored products are being reviewed and chatted about more and more on the internet. If Certo

Brothers’’ became the first in Western New York to distribute a new and exciting beer that is

geographically isolated, it could increase profits as well as competitive advantage.

Alternative: Website

The lack of a website is a glaring issue for Certo Brothers. In today’s society the internet

is everything, and not having an online presence doesn’t make sense regardless of the business you

are in.

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That’s where we will start when analyzing this issue. Obviously, a website isn’t as

important to a beer distributor as it is to a business like a restaurant or a clothing store. Most of

Certo’s customers are going to be directed to them by word of mouth and their general hold on

their specific areas due to government regulations. So, in that sense it hasn’t necessarily impacted

them in any sort of significant way, it is more the potential opportunities they’re missing out on.

Also, there are other beer distributors that have websites. Take try-it distributing for example, a

main competitor of Certo.

(Source: Try-It Distribution)

Try-it has a website that is easy to use and aesthetically pleasing. The website is also

surprisingly interactive, something that enhanced the experience well using it. The header sections

are relevant and each contain interesting and informative information inside them. There is no

reason Certo Brothers couldn’t do something like this.

As mentioned earlier Certo isn’t necessarily losing customers because it lacks a website.

They’ve obviously been very successful and continued to grow without it. But let’s imagine

scenarios where Try-It benefits from their website to show what Certo may be losing out on.

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Let’s say a larger distributor, perhaps national, is looking to acquire a distributing company

in Western New York. This large distributor doesn’t have the benefit of word of mouth the way

local restaurants and events do, so a lot of their opinion may be based on what they see while

researching. If they happen upon Try-It’s website, this could be an extremely appealing aspect.

There is a ton of information on the website and the large distributor could learn enough about

who Try-It is to legitimately pursue purchasing them.

Here’s another potential scenario Try-It’s website may benefit them. Let’s say someone

moves to town and opens a restaurant or another sort of business and decides to have an event

where they want to provide alcohol. Like the large beer distributor, they may not have the benefit

of word of mouth and must rely on their own research. If they looked for beer distributors and

happened upon Try-It’s website there’s a good chance they would be attracted to do business with

Try-It.

That is the type of thing Certo is missing out on. They have such a large presence in

Western New York it doesn’t make sense not having one online. Business owners are becoming

younger and younger, and word of mouth may not always get the job done.

Another reason to do it is because it is actually very easy. Creating a website by yourself

is a feasible thing to do, especially with young employees or interns who may be more

technologically inclined. But if you wanted to go all out, hiring an external website designer

wouldn’t even cost a significant amount.

In one google search one can find dozens of web design companies that do work in Western

New York, including a company called Bark.

They offer designers starting at $349, which is extremely insignificant regarding Certo’s

+7bottom-line. There total cost would most likely be around that amount because beer distributing

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companies do not need too fancy of websites. Following the design of Try-It would suffice nicely,

with sections such as “About Certo Brothers” and “Upcoming Events”.

A website is a no-brainer direction for Certo Brothers to go in. There is almost no downside

regardless of how you choose to design it, and the potential could be momentous for the future of

the business. Certo Brothers has survived through generations and generations, but it’s time to start

adapting to the one who will be running the industry soon.

The trade-off to doing this would be the money and time spent creating the website.

Regardless of the low costs a website may entail, they are still costs. Furthermore, the time and

energy put into creating the website may be even more of a loss than the financial side, as there is

the possibility it has no benefits to them at all. The question Certo has to ask themselves when

looking into this alternative is whether or not they are willing to put energy into something that

has the possibility of providing no value.

Conclusion

Overall, the company movies forward, it has become evident that it is important for Certo

brothers to maintain its level of familiarity and business practices. The company must also consider

the importance of change and how to adapt to trends, handle competition and meet consumer

preferences. The companies’ strengths heavily outweigh the weakness, however there is still room

for improvement. The company should gain a website as well as consider strategies that bolster

their competitive edge.

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References:

Jelski, C. (2017, July 26). SND: As Millennial Tastes Shift, Wine and Spirits Edge Out Beer.

Retrieved November 21, 2017, from Wine Spectator website:

http://www.winespectator.com/webfeature/show/id/As-Millennial-Tastes-Shift-Wine-and-

Spirits-Are-Edging-Out-Beer

John Kell. (2017, June 1). Incredibly, Americans Drank Less Alcohol in 2016. Retrieved

November 20, 2017, from Fortune website: http://fortune.com/2017/06/01/americans-drinking-

less-alcohol/

Sorini, M. (n.d.). Understanding the Three-Tier System: Its Impacts on U.S. Craft Beer and You.

Retrieved November 21, 2017, from Craft Beer website: https://www.craftbeer.com/craft-beer-

muses/three-tier-system-impacts-craft-beer

“What Is a Beer Distributor?” NBWA: America's Beer Distributors, 12 Jan. 2017,

www.nbwa.org/about/what-beer-distributor.

Incredibly, Alcohol Consumption in America Dropped in 2016. (2017, June 1). Retrieved

November 20, 2017, from http://fortune.com/2017/06/01/americans-drinking-less-alcohol/

Around the world, beer consumption is falling. (2017, June 13). Retrieved November 20, 2017,

from https://www.economist.com/blogs/graphicdetail/2017/06/daily-chart-8