Some of you may have been there calling on foodservice distributors and operators. If you were, you probably pulled on more “screen doors” than fancy glass or wood corporate doors. The business was basically in the streets. Chain accounts represented less than 30% of
manufacturers and distributors volume. Most were even sensitive to that percent growing, out of concern that the potential loss of a big customer may harm their overall volume/profit structure. Distributors, with their blanket DSR coverage, owned the street and held the street operator cards close to their chest. Manufacturers were doing everything to reach and sell operators and create pull-through leverage with the distributor. Some of the methods we all explored were DSR ride-with, direct mail campaigns, coupon rebate programs, growth/loyalty incentives, and other tactics; most of which have diminished compared to today’s reach efforts.
Chain growth exploded and Manufacturers turned to large volume customers to grow their business; and why not? One could call on large entities (with fancy wood or glass doors) that could guarantee (be careful here) multiple unit usage, with far less selling effort and measurably less marketing and sales support money. Big volume . . . Big money . . . Less expense - right??? WRONG! It seemed that every other manufacturer also wanted this new volume therefore, competition for the business, coupled with chain operators’ understanding their leverage, created low margins for the distributor and the manufacturer. It is estimated, by industry experts, that multi-unit contracted business today may account for as high as 65-70% of total foodservice operator purchases but represent less than 15% of the profits. Just about a 180 degree turnaround from our earlier “Salesville” days.
What to do, Oh, What to do? Lace up your boots and hit the streets! Easier said than done! Manufacturers are finding it very difficult, especially with today’s challenging economic conditions, to put enough assets in place to compete for this low margin/high profit business. On the other hand, street operators have found that, in order to compete against large chains across the street from them, they must “unionize” so to speak and become more like the large chains. . . become part of some “buying group” to achieve better pricing; act like a chain themselves. A lot of other profit seekers also got the message. Many formed GPOs (Group Purchasing Organizations) whose business, among other things, is to act as a chain headquarter purchasing agent for masses of operators. The concept started in healthcare and other non-commercial segments that combined smaller multi-unit groups together for leverage. This seems to have worked pretty well. Now these groups are simply another big “chain” demanding special attention and pricing.
The latest purchasing move appears to be in a handful of entrepreneurs that are putting together large purchasing organizations catering to the “less-than-multi-unit” independent operators (the street). Before - the “sacred cow” of the distributor . . . but now the operators are demanding pricing that the distributor does not want to give up from their margins; thus, manufacturers are asked to step up and support pricing concessions to gain this profitable business.
My company,
Answers Systems, provides the tracking and administrative execution for manufacturer allowances to both chains and street business. We receive, verify and settle claims for manufacturers and operators on both sides of the equation; therefore, this unique position gives us the opportunity to speak with some authority because we see ALL the programs out there. If we move away from the rather large GPOs discussed earlier and concentrate on the ones aiming at the street operators, then we see that there are basically two kinds of purchasing groups; One type GPO will use rebates, that manufacturers provide, on basically ANY participating distributors’ operators that are not part of another contracted program. Many times the identity of these operators may be held by the GPO. It even gets “ugly” when some of the operator participants are also members of yet another purchasing entity and thus the purchase payments may become subject to “at least”
double dipping, because the manufacturer has little or no way to track the units multiple-participation.
A second, and certainly more “palatable” organization actually makes the operator enroll, thus utilizing some leverage to create single purchase allegiance from the signing operator. They also identify these unit purchasers to their supporting manufacturers, along with new SKU gains, increase/ loss of business, etc. This progressive handful of entrepreneurs has become marketers for their manufacturer partners, who otherwise have difficulty reaching street operators themselves. The group usually has a very structured manner in which they disperse rebate funds of their participating manufacturers. Incentives are generally aimed at a combination of: The distributor house, Sales Managers, DSRs and the operator. This formula of less-profits for the purchasing group, in lieu of spreading funds to the participants that create the sell, is appealing to the manufacturers and seems to have cemented some strong relationships with the local distributors. The last fitting piece identifiable with this group is that they make some strong efforts to work with their manufacturer partners in the “after-sell” arena of reporting necessary analytics and helping to identify opportunities for additional growth.
Reading between the lines, one would surmise that these type organizations might be on the cusp of creating collective street operators that will become the next “chain” buyers . . . and you are probably right. This is probably more the reason for the manufacturer to align themselves with the purchasing organization that is applying some of the more progressive marketing techniques to their proposition.