food wholesaling & distribution ag bm 102. introduction economics of transportation require an...

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)

PlayerMarket

Share (%)

Sysco 12

Food Service USA 8

Performance Food Group 3

Gordon FoodService 2

Others 75

100… 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