Industry Insights: Food Distribution
Food wholesalers are under intense pressure due to industry acquisitions, consolidations, and shrinking profit margins. The previous five-year period saw big increases in the cost of food, and was also a time of tremendous industry change as the traditional supply chain began to transform. Channels that once held distinctly different functions in the supply chain (i.e. manufacturer, wholesaler, retailer) started to morph and take on new roles. As a result, wholesalers are feeling the pressure.
So how do wholesalers compete in this new environment where manufacturers and retailers are forming direct supply agreements in order to trim costs and boost profitability? Industry research shows that wholesalers can improve their market position over the next five years by adopting some, or all, of the following four practices:
- 1. Add niche products to the product mix
- 2. Expand sales and service into new channels such as restaurants and food service
- 3. Provide value-added services for retailers
- 4. Adopt leading-edge technology to automate processes
With slowing growth and smaller margins, wholesalers need to up their game over the next five years in order to secure and improve their market position. Wholesalers need to tighten supply chain processes, gain operational efficiencies and cut costs. As a result, food distributors should consider adopting new strategies to stay competitive in this post-recessionary marketplace. Fortunately, new research is pointing the way to help wholesalers thrive despite these negative market trends.
Below are four steps wholesalers can take to shore up their market position despite pricing and other pressures. Industry Insights:
Niche Markets Offer New Revenue OpportunitiesUnderserved markets offer unique opportunities for food wholesalers to grab market share while boosting margin results. Industry reports indicate that Hispanic consumer preferences are underrepresented in the nation's grocery aisles. Meeting the food preferences of ethnic consumers such as Hispanics and Asians can secure your position with retailers, help retailers gain loyalty with end consumers, and increase your company's bottom line.
According to the Wall Street Journal, Hispanics make up one in four people under the age of 18 in the U.S. While the United States Census Bureau reports the Asian population grew faster than any other racial group in the U.S. over the past decade. The population gain in Asian and Hispanic communities is an opportunity for wholesalers to grow their business by better serving the diverse food requirements of these markets. Without a doubt, the food wholesaling business will see a shift in consumer preferences. Increasing your selection of traditional Asian and Hispanic foods can secure your market position as U.S. demographics continue to change. Filling the needs of these markets is a smart strategic choice.
Expansion into New Food Outlets Improves Market PositionOver the past five years, traditional sales channels such as grocery stores and supermarkets have seen intense competition and dwindling profit margins due, in part, to consumer shifts in buying behavior at warehouse clubs, mass market retailers and convenience stores. Warehouse clubs, mass merchants and convenience stores are also more likely to have self-distribution business models that cut out the traditional wholesaler. Industry experts expect that trend to continue through 2018.
On the other hand, restaurants, fast food chains and other food outlets are expected to rebound over the five-year period to 2018 as the economy bounces back. The improved outlook for dining out offers an opportunity for wholesalers to expand their business into a new channel, or grow their current footprint if they are already serving this market. The positive outlook for the restaurant channel offers an opportunity for food wholesalers to form new relationships with rapidly growing restaurants, fast food chains and other food outlets. Wholesalers will find this channel is an area ripe with possibilities for growth.
Value-Added Services Help Wholesalers Stay RelevantIn order to hold on to their market position, wholesalers are beginning to look to value-added services to strengthen relationships with retail customers. Fruit and vegetable wholesalers have already experienced success in this area by adding pre-cut fruits to their product mix. Wholesalers are picking up on this trend and beginning to offer services for ripening, sizing, repacking, and consumer packaging. Still others are beginning to offer advertising services to retailers, to assist them in promoting their products. Experts suggest that wholesalers who can successfully deliver relevant add-on services will fare better over the next five-year period.
New Technology Enhances Operational Efficiency and Cost ControlAmong the top technology advancements driving operational improvements for food wholesalers are advanced logistics systems and inventory tracking. In addition, industry watchers are keeping a close eye on EDI and radio frequency identification (RFID). Food wholesalers that adopt these technologies will improve operational performance and service to their customers, thereby giving them a better chance at improving their market position.
Advanced logistics systems can help wholesalers move goods efficiently to ensure perishables arrive on time for maximum freshness. Inventory tracking and control systems can help with sales monitoring and data visibility. And continuous replenishment practices that link supplier, wholesaler and retailer can reduce stock outs and aid in demand planning.
Electronic data interchange (EDI) is a mature technology being used throughout the consumer goods industry. Retailers rely on the technology to send and receive information from their suppliers to ensure goods arrive when they're needed and store shelves are fully stocked. The benefit of RFID in the food chain is a hot topic in the industry. Some observers believe that RFID may someday replace bar codes as the primary method of identification and tracking of goods.
Wholesalers need advanced systems, like enterprise resource planning (ERP) software with integrated logistics, warehousing, financials, EDI and RFID tools to help them manage their supply chain from beginning to end. With increased competition, higher food prices and narrow profit margins, ERP systems can help wholesalers improve stock control for better turnover, improve warehouse and logistics efficiencies to ensure perishables arrive fresh, and rein in costs to improve profitability.