Foodservice Outlook, 2020 (1 of 3)

I recently attended the 2010 IFMA President's Conference in Palm Springs, California. This is the second year I have attended, after officially joining the association last year. It is one of the better networking events of the year for the foodservice industry, bringing together executives from the foodservice manufacturing, distribution and operator industries.

Because of the length of the post, I am splitting the post up into 3 entries. This is part one of three.

First, Bill Hale of the Hale Group moderated the event. For those who don’t know Bill, he is an industry veteran and one of the nicest gentlemen you will ever meet. He has a great sense of humor and has probably forgotten more about supply logistics than most of us will learn during our entire career.

Bill opened the event with a vision for the future of foodservice. He called it FS2020. I am sure the entire deck will be available shortly, but here are the points I keyed on.

First, Bill described a future with “flatter” distributor sales organizations. Thru the course of discussions, I came to assume he meant that distributors are going to learn how to do more with less people, given the state of the economy and job market.

Bill also went on to prognosticate we will see more buying groups and co-ops within the next decade, noting a significant shift to volume purchasing. “Volume counts”, he quipped. Again, I believe he was talking about end user’s and operators getting together to purchase like items in bulk quantities in order to obtain better pricing from their distributors. But will that affect manufacturers? I think so, yes.

As a manufacturer, we do have to think about the surge of bulk buying groups and how they will affect our current pricing models. Manufacturers have faced this for years as we have watched the consolidation within the foodservice distribution community. Once upon a time we could develop individual distributor-location pricing models that covered the outbound freight cost to deliver our products to various distribution points across the country. Clients knew if they were buying a product manufactured on the East Coast of the United States in their home state on the West Coast, the product was going to cost them more money than if they were located on the East Coast.

Today, with the consolidation of the industry and need for single distributor pricing, manufacturers find themselves “averaging” their freight costs. In some instances, such as distributing close to home, you pick up some margin. In other instances, like shipping cross-country, you lose some margin. This shift costs us manufacturers time and money because we have to make the investment to track, analyze and forecast fuel costs. In our small little manufacturing company, this investment can cost us as much as 1.5% of revenue in a given year.

Actually, this discussion on pricing and freight costs becomes a nice segue into another of Bill’s key points…cost controls and efficiency. Once again, Bill’s presentation focused on the distributor as he posed the question on whether it was more or less cost effective to have more trucks on the road distributing from fewer distribution centers.

--To be continued-- (Part 2 will post on Wednesday, November 17th)