March/April, 2001

From the Editor

Changing The Rules Of Distribution

The old National Food Distributors Association, now named the Specialty Food Distributors Association, has done a mercy killing on its annual trade show. The once proud event, for decades so successful that it was held twice each year and was responsible for the introduction of countless products into the specialty food industry, has been dying a slow death for years.

It is actually a credit to the specialty food distributors that the show was allowed to die. It certainly could have been saved. Had supermarkets been invited in, had broad-line wholesalers such as Fleming, Supervalu and Sysco been invited in, if Wal-Mart, Kmart and Target been invited in – in other words, had the association changed to reflect the new dynamics of the specialty food industry – that show cold have not merely survived but thrived. But, of course, it wouldn’t have been the same show or the same association.

Usually organizations survive long after their original purpose is defunct, so the March of Dimes marches on, though polio is thankfully long ago subdued. But the board of directors of the NFDA was less interested in institutional life for the show and the organization than in representing a particular group. When the group couldn’t support a show, it preferred to kill the show rather than have it generate into something beyond its original purpose.

The funny thing is that the show didn’t die because the distributors failed; most distributors were sold for more than their original family owners ever dreamed they were worth. And, even today, in highly consolidated form, the specialty food distributors sell more specialty food than they ever had before.

The NFDA show had to close, because no matter how many cases of product pass through the doors of specialty food distributors, they no longer are the portals of access to the specialty food marketplace that they once were. In fact, they are rapidly becoming little more than drayage companies with warehouse and cross-docking facilities. The products they sell are not determined by their own buyers, but by their customers – the big retail chains.

In the end, specialty food distributors will find themselves in trouble because it is unlikely that they will be more efficient at drayage than self-distributing supermarkets as more and more supermarkets consolidate.

As long as distributors had important roles in identifying hot new items and particular expertise in merchandising specialty foods, there was a chance that these types of special expertise could provide a compelling reason to work with them. Equally, as long as supermarket chains were small, the logistics capabilities of large specialty food distributors were compelling. But as the distributors became so big that they lost their regional and ethnic product expertise, and as the retailers became so big they acquired better logistics capabilities than the distributors, well, that pretty much set the stage for where we are.

First the big news was that some chains were going to exclusive distributor arrangements. This turned a traditional notion – that competing distributors would be pushing competing products – all on its head. Laid bare was the obvious conclusion that the person to sell was the retailer and that the retailer would buy through a distributor only if it thought that method more efficient.

But the writing was on the wall. Once the retailer was determining which products to buy, everything else was just a financial calculation. Is it cheaper to have a distributor do resets and merchandising on specialty food? Is it cheaper to have the distributor operate the warehouses, the trucks, etc.?

The instant the calculation shifted to make it more efficient for retailers to self-distribute, one could count on it happening, just as retailers self-distribute everything from the most delicate champagne grape to cans of vegetables. In fact it looks as if the industry is going full circle. In the ‘70s many chains had a specialty food buyer, but by the late ‘90s that job barely existed and specialty foods were bought by dozens of category managers.

But as self-distributing of specialty foods is catching on, that means people have to manage new functions. Due to the low volume nature of specialty foods, it seems unlikely that the items will be treated as simply one more slot in the main warehouse. More likely the model is more like the way chains treat produce, with separate warehouses, buying staffs and managerial talent.

So the big chains will wind up with vice presidents of specialty foods or specialty foods directors. They’ll have buyers and merchandisers and warehouses dedicated to the procurement, distribution, marketing, merchandising and management of specialty food offerings. Some deals will be negotiated on a national level with large national players while regional merchandisers and buyers will accent local offerings to deal with regional favorites and match the ethnic makeup of particular stores.

Manufacturers will find their own way. Some companies or lines will focus on small retailers, such as gift basket shops and ship direct. Others will go for the high volume business at supermarkets, warehouse clubs and discount stores.

As for the distributors? Well some might be bought out by big retailers that want an in-house solution fast – without having to build warehouses, etc. Others will function as in-house distributors on a contract basis. Some will survive independently to serve the remaining chains. Others will close.

The association lives on, but what once was at the heart of this industry is no more; the future is in retail specialty food self-distribution. Maybe someone should start an association?  FDM