Foodservice Outlook, 2020 (3 of 3)

This is a continuation of my earlier posts, describing my thoughts and comments about the 2010 IFMA President's Conference. This post wraps up my discussions regarding FS-2020.

I was immediately brought back to reality when I subconsciously heard Bill say, “Costs and prices always go down.”

What? Huh?

Did I hear that correctly, or was I still working on my new distribution model? Thankfully, as if he heard the panic in my thoughts, he repeated himself…”Costs and prices always go down.”

Bill, I love you, but what the heck are you talking about? My ingredient costs have gone up. My warehousing costs have gone up. My labor costs have gone up. My freight and fuel costs have gone up. My packaging costs have gone up. The only thing that has gone down in the past year is my profit margin.

I looked up to find Bill moderating a panel of industry leaders, discussing the talking points from his presentation. Apparently the panel was back to discussing buying groups, and Bill was trying to make the point that as manufacturers (or distributors) once you lower your pricing, it is hard (if not impossible) to raise it again.

First, I need to offer some constructive criticism of the panel. We were at an IFMA conference - IFMA, as in the International Foodservice Manufacturers Association. Notice the Foodservice Manufacturer's portion of the name. Bill’s panel consisted of 3 operators and a distributor discussing the potential future and shape of the foodservice industry.

Personally, I thought a key component of the foodservice industry was missing from the panel…a foodservice MANUFACTURER. It would have been great to hear the thoughts from a global food manufacturer like Kellog’s or Nestle, but really any manufacturing perspective of the potential future of our industry would have been appreciated.

Despite the lack of a manufacturer on the panel, the panel offered some insightful comments. One sentiment repeated by all the panelists was - the sales process is changing.

Let me repeat that because I think it's important...THE SALES PROCESS IS CHANGING.

Consumers are not interacting with brands in traditional fashion. They are talking about our brands in social spaces like Facebook and Twitter. They are finding foodservice operators on sites (and mobile apps) like OpenTable, Yelp!, and FourSquare.

Conversations ARE happening, and people ARE talking about our brands. The "new" sales process needs to focus on engaging those customers and participating in the conversations.

If our industry of foodservice manufacturing is going to survive (and succeed), we need to figure out how to engage with the customers. If we can figure out how to engage with the customer and operator in the same conversation, even better.

Foodservice Outlook, 2020 (2 of 3)

This is a continuation of my earlier post, describing my thoughts and comments about the IFMA 2010 President's Conference.

I left off the first post describing Bill Hale's discussion of cost controls and efficiency...as relevant to the foodservice distributor. Bill had posed the question on whether it was more or less cost effective to have more trucks on the road distributing from fewer distribution centers.

Although my first instinct when I heard the question was to check my email, Twitter and Facebook accounts…I decided to listen instead. Actually, I couldn't get a strong wi-fi signal inside the conference room, so really the decision was made for me.

It turned out that listening was the better option. Even though I didn’t hear an answer that directly addressed concerns from the manufacturers standpoint, the ensuing discussion did get me thinking about the issue from our perspective.

As a manufacturer, I would much rather ship into 6, 12 or even 20 distribution points rather than say 82 individual distributor houses. I can manage my freight costs with more certainty. I can achieve better economies of scale by shipping (and thereby producing) more products at one time. And, it is easier on my receivables and cash flow.

The problem with my "solution" occurs from the distributor level, as far as I could predict. By having fewer distribution points, distributors will be shipping over longer distances. This means relatively more trucks with higher fuel costs and considerably more logistics planning.

But, could it work?

As Bill continued to speak about FS2020, my mind began building a distribution network that worked from a manufacturer’s perspective.

First, the organization would have a much leaner employee base with an increased focus on logistics instead of management. There would be a core group of personnel at each of the distribution points whose main focus was to facilitate the inbound and outbound shipments. Orders and AR/AP could be handled at a corporate location and delivered electronically to the few distribution centers and supplier partners, again minimizing the work force, preventing duplicate efforts and increasing efficiency.

Every distributor needs a sales force, but why not outsource it?

Instead of foodservice brokers working for manufacturers, why not have them handle the sales for the distributor? I mean, brokers maintain relationships with operators anyway. I would assume the cost for a distributor to reach an operator would decrease dramatically by utilizing a broker with existing relationships. As for chain account business, manufacturers already have people focused on selling the chain accounts. Why duplicate the efforts at the distribution level?

Plus, unlike the current manufacturer/broker relationship, a distributor would not necessarily have to exclusively align themselves with particular broker. A distributor could open up the marketplace to competition, and competition should help sell more items. If you’re a broker authorized to sell for a distributor, you can sell anything in the distributor book, and, you’ll get paid on everything you sell. Sales could be tracked by broker codes, making it easy to track commissions.

From a manufacturing perspective, since our broker fees were eliminated, we would be able to offer more distributor programming monies...which, since those monies would now be spread over a smaller executive base would translate into larger profits for distributor shareholders.

Yes, my mind wandered for a few minutes, and I am positive I missed the entire focus of Bill’s point. And yes, I know my scenario requires manufacturers and distributors to develop real partnerships, working openly to financially benefit these two sides of our industry and become more efficient.

But I couldn’t help wondering…what if??

--To be continued-- (Part 3 will post on Friday, November 19th)

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)