Foodservice 201: Intermediate Insights

As foodservice programs become more complex and intricate, operators will begin utilizing a wider variety of suppliers, manufacturers and distributors, including broadline foodservice distributors. Intermediate operators typically are seeking to expand their programs and elevate quality, while at the same time maximizing product margins, reducing out-of-stocks and selecting the right assortment of fresh foods with the longest possible "freshness" shelf life.

KEY CONSIDERATIONS

Convenience store operators can achieve a competitive advantage by utilizing a high level of strategic sourcing capabilities to better procure foodservice product and programs. Streamlining procurement processes and sources can remove costs from the supply chain and increase profitability, but it takes discipline, expertise and focus.

Operators at this level will find it extremely difficult to source their foodservice programs through convenience store distributors alone, according to the experts. The main reason is that operators should be looking for menu items and products that will differentiate them from other convenience stores and put them squarely in the restaurant business. The more uniquely different the foodservice offering, the more difficult it will be to source the products through convenience store distributors.

Volume per store is a key driver in getting foodservice distributors to service a convenience store chain. The higher the volume, the more easily a store can absorb distributor minimums per location. Large numbers of cases delivered per stop is most attractive to foodservice distributors, which drives their economies of scale. Some experts recommend consolidating food purchases, coffee, paper and janitorial supplies to meet broadline foodservice distributor drop minimums per store.

Distributors also will evaluate the specific markets in which a retailer operates, as well as the store density within those markets. High-density markets are the most attractive since they increase the distributor's revenue per mile driven. They will scrutinize the retailer's product mix segmented by dry, refrigerated and frozen products as well. Other delivery requirements include the frequency of delivery, delivery time scheduling and product temperature zone requirements. The more temperature zones a retailer has, the higher the distribution complexity and costs.

A simple way to streamline procurement and distribution costs and find efficiencies, according to experts, is to make sure you have:

• A foodservice strategic plan updated annually;
• A procurement strategic plan matched to the above plan, also updated annually, to target new specific foodservice products and/or programs; and
• A defined and standardized companywide procurement process that includes foodservice.

Some experts also recommend hiring procurement/supply chain consultants to improve competitive purchasing and drive costs out of the procurement process. Often as a chain grows through acquisitions, its legacy processes and procedures, as well as its suppliers, should be synchronized and reviewed. Procurement specialists also can serve as valued resources to the procurement team on a go-forward basis, one expert noted.

COST CONTROLS

Broadline foodservice distributors can be tapped for significant services, including recipes and other culinary support, and strong private label programs, which are high quality and extremely price competitive.

These distributors, however, are heavily focused on dollars per drop, turns and markup, all of which drive their bottom-line profits, according to the experts. Unlike convenience store distributors, they are not accustomed to breaking cases and delivering small quantities per SKU. Operators at the intermediate or advanced level who may have only a handful of stores may see markups of 18 to 20 percent or more, some experts said.

Lack of pricing transparency among large foodservice distributors makes it nearly impossible for retailers to see the true cost of goods. This means distributor invoice prices, upon which they base their markup, rarely correlate to the price they paid for a product, one expert said, who likened the process to "negotiating a used car deal." This is of the largest disadvantage to smaller and more inexperienced operators who will get charged more than larger operators.

To avoid getting squeezed, some experts recommend having at least two distributors, which forces these suppliers to compete and precludes them from raising prices indiscriminately.

"Look at consumer research to determine trends and what products to source. Look at other successful operators to see what items they are selling and how they deliver them."

— Jerry Weiner, Rutter's Farm Stores

HOT TIPS

• At this level, it is extremely difficult to source foodservice programs through convenience store distributors alone.
• Operators should look for menu items and products that will differentiate them from other convenience stores and put them squarely in the restaurant business.
• Procurement/supply chain consultants can help improve competitive purchasing and drive costs out of the procurement process.
• Broadline foodservice distributors have significant services, including recipes and other culinary support, and strong private label programs.
• Buyer beware: Lack of pricing transparency among large foodservice distributors makes it difficult to see the true cost of goods.