Distribution makes (and breaks) champions 🏀
Prime Future 165: the newsletter for innovators in livestock, meat, and dairy
✨Become a premium Prime Future subscriber to continue accessing weekly content. Free subscribers will only have access to ~1 edition per month.
Huge shoutout to many of you who have become premium subscribers already and are making Prime Future a sustainable thing. ✨
If you follow college sports in the US, you know that the self-proclaimed Conference of Champions, the Pac-12, is on a ventilator after 8 of its 12 schools jumped to other conferences.
Arguably the 100-year-old conference is knocking on death’s door, in large part, because of one of my favorite commercial topics: distribution.
But before we get to that, let’s look at 2 unrelated make-or-break examples of the power of distribution, and why it matters for producers of physical and digital products, from cows and sows to hardware and software.
(1) Sound distribution strategy can be a mega accelerator for new ventures.
One way to do this is by taking key risks off the table, like Walmart is doing for Sustainable Beef.
As one article put it:
"Last month Walmart announced plans to open a plant in Olathe, Kansas, that will turn large cuts of beef into meatcase-ready steaks, filets, and more for its Midwest stores. Walmart’s new Kansas plant will buy its beef from a soon-to-open Nebraska-based meatpacker called Sustainable Beef.
Several ranchers formed Sustainable Beef to create a new outlet for processing and selling their cattle in an increasingly consolidated market controlled by four major meatpackers. Last year, Walmart acquired a minority stake in Sustainable Beef for an undisclosed sum and promised to buy most of the beef it produces."
Ask anyone in the meat business and they will tell you that the most challenging part of running a packing plant is balancing the carcass, or selling the entire carcass at maximum value for the individual components.
That challenge is infinitely more difficult for small plants and for new plants. It’s why most new processing plants fail within a few years.
But by having Walmart as an investor in Sustainable Beef and a committed customer, Sustainable Beef has taken a ton of risk off the table for the fledgling business.
Except, it's not just that Walmart will guarantee product off-take for the plant, virtually eliminating the #1 risk of any new plant. It's also that the customer acquisition cost (CAC), or cost of sales, should be negligible. (But not zero because the plant will still need to develop customer relationships for items that don't sell at retail, including 'the drop'.)
Distribution is a mega advantage for the mega-packers. Think of how quickly the big 4 were able to flip the switch at the beginning of COVID to shift more product from foodservice channels to retail. Single-plant companies, and new packers, don't have that distribution flexibility.
In his fantastic book Zero to One, Peter Thiel says:
"Superior sales and distribution by itself can create a monopoly, even with no product differentiation.
The converse is not true.No matter how strong your product—even if it easily fits into already established habits and anybody who tries it likes it immediately—you must still support it with a strong distribution plan."
Here's the thing - this principle holds true for tech companies and meat packers, but what if it is also directionally true for seedstock producers selling elite genetics, for commercial producers selling livestock, for producers selling meat direct to consumers?
I recently had a conversation with a cattle feeder who is trying to crack the code of how to become less of a price taker and move closer to a price maker. The holy grail for those in commodity production.