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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