The Reese Group: Regional Appeal on a National Scale

Introduction

The Reese Group, originally founded in 1902 by Napier Reese, is the leading independent, regional broker in the United States.  With brands represented in 90% of all major retailers, The Reese Group has strategically positioned itself to become the fourth national consumer goods broker in the near future.  Originally a one man shop based out of Franklin, TN, Reese Brokerage specialized in local Middle Tennessee brands across several key retailers in the early 1900s.  As the supermarket industry expanded through the late 1990s, Reese made its name by increasing its footprint with popular regional manufacturers in key wholesalers and supermarket chains throughout Tennessee.  However, the entire brokerage industry suffered turbulent times during the massive supermarket consolidation of the late 1990s and early 2000s.  Consumer goods brokers numbered approximately 7,500 in 1995, but less than 200 remained by 2003.  This, along with major retailer consolidation, forced non-national CPG brokers to either innovate or exit the market.

Business Model

National Broker, Regional Brands: The Reese Group determined early in its lifetime regional brands often outsell national brand equivalents (NBE) in their local operating area.  The business model focuses on delivering regional brands in areas where they are well known to directly compete with NBEs in the same category.  Additionally, The Reese Group expands regional brands’ operating areas through gradual introduction to independent retailers while still sourcing other regional brands in surrounding geographies.  This approach protected The Reese Group during the period of mass consolidation previously mentioned and ensures a national footprint even with the inevitable defection of some manufacturers.

Customer Service: The Reese Group has based its entire business on the loyalty of customers when excellent customer service is provided.  With little to no manufacturer costs when switching brokers, there is typically high turnover of CPG brokers every year by top brands.  The Reese Group maintains much lower turnover of brands than the industry average.  The dedication to servicing all aspects of their manufacturers needs from in-store displays and trade promotions to consumer behavior analysis and planogram optimization has truly set The Reese Group apart from their other regional competitors.

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Competition Driven Value Creation: With the major consolidation of the broker industry, there was opportunity for the major CPG brands to price gouge customers with limited options represented in most retailers.  The Reese Group capitalized on these rising prices by introducing non-top 3 national brands and regional brands back into most retailers at lower prices, gaining market share quickly and forcing new pricing strategies for many big 3 CPG brands.  Additionally, with the expansion of dollar stores throughout the U.S., Reese saw an opportunity to create and introduce “dollar zones” in traditional supermarkets.  By introducing competition to markets, The Reese Group generates and captures significant value for consumers in all classes of trade.

Technology Driven Innovation: While large CPG firms and the three top CPG brokers invest heavily in technology and data already, very few brokers representing regional brands have scaled enough to afford to invest in these areas.  Additionally, non-national CPG firms typically do not have the resources to invest in these areas either.  However, since The Reese Group has penetrated 90% of the retailer market, they are better able to receive scale benefits from investing in retail reporting technologies and consumer data sources, such as MV Retail or IRi.  Reese is better able to drive sales and customer satisfaction through their enhanced capabilities, leading to top regional brand sourcing and the reputation as an industry innovator for small CPG manufacturers.

Operating Model

Flat Organization Structure: The Reese Group is able to significantly drive performance by operating with a flat organization structure, giving their business managers significant authority to make decisions within their markets and relating to their brands.  In order to truly respond to a customer’s needs, it is imperative that concerns are addressed quickly and with broad market knowledge.  Using the flat structure, The Reese Group has achieved high performing human capital assets in all of its markets and across numerous CPG categories by developing employees through experience rather than endless training.  Additionally, given the CPG industry is heavily relationship driven, the flat structure allows business managers to cultivate meaningful relationships with retailers, wholesalers, and manufacturers without prior approval from executives not in the market.

Investment in Human Capital: Going hand-in-hand with a flat organization structure is proper investment in human capital.  The Reese Group has an extensive hiring process that analyzes potential employees on a number of criteria, including fit within the company and industry.  Additionally, their is a significant training period  after employees are hired in which they are assigned to business managers in local markets and executives in headquarters to learn the intricacies of the industry.  The Reese Group also pays its employees above industry averages for almost all positions to ensure top talent recruits.

Investment in Technology: Probably the most differentiating operating model The Reese Group uses compared to its other regional CPG competitors is their investment in technology.  The Reese Group has made sizable investments in three main areas of technology: 1) retail reporting and asset deployment systems, 2) data and analytics systems and operators, and 3) space management and planogram systems.  These three areas allow The Reese Group to fully integrate with manufacturers, retailers, and consumers through technology.  Additionally, they are able to better detect trends occurring in markets, developing solutions to problems and opportunities as they arise.  Operating as a national broker for regional brands, The Reese Group’s investment in these systems gives small manufacturers the same tools that large CPG firms have when entering a market.

Expansive Office Footprint: The Reese Group employs the strategy of having many decentralized offices in numerous locations instead of large more centralized offices in order to focus on smaller areas of operations.  While most see the Southeast as two or three large markets, The Reese Group has further divided the region into nine smaller districts, increasing costs comparatively, but drastically increasing local market knowledge and success sourcing and introducing regional brands.  While this will elongate The Reese Group’s expansion nationally, it also ensures they are able to successfully achieve their primary business model.

Conclusion

The Reese Group’s business and operating models, as outlined above, shows significant alignment and execution throughout their history.  With near constant turbulence in the CPG industry, it will be interesting to see how they adopt their models to fit the ever-changing industry.  For now, I predict they are poised for success!

Sources:

http://www.foodbrokers.org/food-brokers-association.html

http://www.reesegroupinc.com/index.php

The Reese Group internal documents