July, 1998

From the Editor

Distribution: Eight Wonder Of The World

If you want to see the very pinnacle of human civilization, visit one of the Fancy Food Shows, sponsored by the National Association for the Specialty Food Trade (NASFT). That our society is sufficiently affluent and our systems sufficiently sophisticated to bring all this beautifully wrapped and perfectly packaged product to one place at one time is an accomplishment that exceeds, by far, the difficulty of building the pyramids.

Yet the abundance of product at the show also brings clearly into focus the fact that making beautiful product is not enough. It is, perhaps, distressing to say to the many people who work so hard to produce exceptional product, but, today, high quality product is commonplace. This means that much of what will distinguish the successes from the failures in today’s specialty food industry is not the product itself but access to distribution and an ability to drive sales both to the trade and to the consumer.

The specialty food trade is indeed filled with people who love food – cultured, creative and colorful people who can distinguish subtleties of flavor and are open to new product experimentation. Many a company has been launched based on an individual’s passion for exceptional food. Still, the passion that might fuel a product launch may not be the fuel to sustain and grow a business.

There is no question that distribution is often the key to success in the food industry. Working in my family’s fresh produce operations, we strove to be the leader in coconut importing, although this business was often barely profitable. Why, then, was it such a priority for us? The answer: distribution. Coconuts were shipped in big bags and took up a lot of room in the trucks. This meant that they carried a big share of the freight charges.

By filling up trucks, we could distribute more lucrative imported items, such as Greek figs, Italian chestnuts and Belgian endive to customers all over the country. Without the coconut business, we would have sat with orders for 2 bags of chestnuts to Minneapolis, 4 cases of figs to Cleveland and had no way to fulfill the orders in a timely, economical way.

Visit any convention of smaller retailers and you’ll see the crucial role of distribution. At the National Grocers Association trade show, independent retailers visit with small manufacturers, and distribution is what the whole conversation is about. The retailer says he loves a vendor’s mustard and asks if the vendor is listed with the wholesale grocer the retailer uses in his region. When the vendor says no, the retailer vows to write letters and insist that the wholesale grocer carry the line. After the excitement of the show, such letters are usually never written and, if written, are generally ignored.

Food distribution in the specialty food industry is even more complicated than in other areas of the trade. The top independent specialty food stores distort the picture because they are so intent on having exclusive product that they will gladly single out individual suppliers and accept delivery via UPS or Federal Express.

This method is highly inefficient, even though specialty foods are sufficiently expensive that, sometimes, the retailers can bear these costs. Not only is the expense of freight excessive, but the very idea of having enough buyers to deal with so many manufacturers independently would break the budget of most retailers. For most products, most of the time, most of the retailers and foodservice operators will need to depend on distributors.

When it comes to specialty food distribution, every facet of the industry has to be mindful of the changes the industry is undergoing. Manufacturers have to understand that getting a distributor does not solve the problem of selling the product. With so many products being carried by the distributor, it is difficult to effectively “sell” a manufacturer’s product. If a manufacturer wants a distributor to fill this role, the manufacturer must make explicit this expectation and then provide generous funding to enable the distributor to also become a salesperson. In most cases, the manufacturer needs to have either its own sales force or a broker work closely with distributors to maximize sales.

John Roberts, president of the NASFT, does a seminar on the basics of the specialty food industry in which he puts it this way: “Distributors no longer ‘sell for’ suppliers. Distributors now ‘deliver for’ retailers.”

Put another way, manufacturers have to realize that getting into distributors is essential if one wants to sell to retailers who buy through distributors. But it is not enough. It is a necessary, but not a sufficient condition, to sell to these retailers. After distribution is achieved, the manufacturer still has the hard work of selling the product to the retail base.

This means that marketing and support programs must be intensified as one gains access to distributors.

Distributors have to be careful about over-promising. Distributors are more sophisticated today than ever before. They offer a variety of services, from cross-docking programs, to full-service-packout programs, to full-service without-packout programs and on to warehouse programs. When given substantial control of a retailer’s program, distributors must be aware of food trends, demographic trends, category management and much more. It is a big job.

Most specialty food distributors, however, are in business today because, in effect, they provide drayage services for retailers. They have so many SKUs that they cannot credibly promise a manufacturer a substantial sales effort if the manufacturer doesn’t get involved in marketing.

Finally, retailers have to recognize that distributors simply have too many products to effectively present them all. This means it is a retailer’s obligation to continuously be searching for new products.

Much has been written about marketing partnerships and, indeed, the relationship between the manufacturer, the distributor and the retailer are a perfect example of a need for a true partnership. To achieve this degree of coordination, however, each segment of the industry must face these facts: Manufacturers must understand that their principle obligation is to market their own product; distributors must clearly state the limitations they operate under; and if retailers want to be more than “me too” shops, they must make affirmative efforts to find innovative products and get them in the store.

Much has been written about changes in the distribution industry. Supermarket chains are appointing exclusive distributors; retailers are operating distribution subsidiaries, and much more. The changes are coming and they will keep coming fast. But few and far between are the retailers who actually want to deal with direct ordering and store-door delivery from thousands of manufacturers. So distributors in their various permutations will long serve a crucial role in the specialty food industry.

The mistake is to expect the distribution function to solve the marketing problems of manufacturers and the procurement problems of retailers. That will require a team effort no easier than building a Fancy Food show. Or a pyramid.  FDM