Food Wholesaling & Distribution AG BM 102

Introduction Economics of Transportation require an intermediary between processing and retailing Too many products, too many stores – 27 pizza shops in State College according to phone book The efficiency of this stage is a key to retailing success – WalMart is the model

Food Stores Chain Stores – Weis Independents – IGA Convenience Stores - Sheetz WalMart

Mixed Load of Produce

Restaurants and Food Service Sysco McDonald’s Hoss’s

The food service distribution sector is highly fragmented... Broad-based Food Service Distribution (2000) Player Market Share (%) Sysco12 Food Service USA8 Performance Food Group3 Gordon Food Service2 Others … and includes hundreds of specialized smaller meat distributors. Source: Industry Interviews, Food in Canada

Proposed merger Sysco & US Foods meger – fell through in June 2015 FTC would not approve

Warehouse

Economics of Transportation Full truck with one origin and one destination has very low cost Each stop adds costs Driver time a big expense – time limits Try to get full loads to warehouse and full loads to stores Works for supermarkets – not for other stores Convenience stores

Distribution Economics Build loads at warehouse – minimize deliveries to stores Deliveries take driver time – also time at store – too many vendors get expensive Warehouse has room for inventory – store doesn’t Non perishable stuff can be stored LIFO vs FIFO

Powdered Milk

Traditional View Buy items on sale – 6 month’s of Pork n’ Beans Store in warehouse until needed Only perishable products are not storable

Modern View Warehouse is a transshipment point Warehouse in Mexico City – only one day’s inventory WalMart – item long gone before the bill is paid Efficient Consumer Response – Buyer and seller work together to minimize inventories – everyday low prices or specials don’t require immediate delivery

System’s Approach Distributor and Vendor work together to minimize costs & share savings Transportation is used efficiently, but total cost is measure of effectiveness Includes inventory costs, handling costs, product deterioration, time of all involved, etc.

Slotting Fees & Promotional Allowances A new product may involve a $25,000 payment to get it on computer Plus 10 free cases per store Cooperative ad with retailer and products sold at discount If product doesn’t sell enough after 3 months it is dropped

Concluding Comments Wholesalers and distributors an important link in system Efficiency requires their existence Practices evolving with systems approach Generally very efficient