The U.S. food service distribution industry is a $225bn business with a crucial role in producers' supply chains. Nevertheless, the sector is under fire like every other. Manufacturers are passing along a greater share of their commodity and production costs, while on the other end, restaurants are focusing on lower-priced items in answer to consumer demands. Add in new sources of competition, such as supermarkets and convenience stores, and the industry faces a slew of challenges in this difficult year. A recent analysis by West Monroe Partners LLC examines some of the trends that are shaping the industry. Bottom line: they must cut costs, improve productivity and increase competitiveness.
The business consists of three primary parts: broadline food service, representing a wide range of products from manufacturers; specialty, serving niche markets where extensive knowledge of the product is essential, and system distributors, whose customer base consists mostly of chain restaurants with centralized purchasing. Revenues for the industry as a whole declined by 3 percent in 2007, notes West Monroe, although broadline distributors have grown faster than the market as a whole. One of the industry's biggest challenges is the recent decline in consumer confidence, possibly leading to a reversal of the trend toward higher spending on food away from home. "Some major industry players have witnessed double-digit declines in gross profit margin over the past several years," the firm says.
The industry is responding to these trends on multiple fronts. Food service distributors are refocusing their product and branding strategies to confront the new breed of competition, which offers prepared food in a retail setting as an alternative to dining out. They are exploring concepts built around lower-priced items, such as less-expensive cuts of meat and seasonal produce. They are investing in systems technology to boost the efficiency of their supply chains. Perhaps the most promising source of improvement, according to West Monroe, lies with labor. Its recommendations include elimination of indirect activities that are often the product of inefficient processes, application of engineered labor standards, training of managers at all levels to direct the workforce, training of employees to work in an optimal fashion, implementation of pay or incentives for performance, and rationalization of SKUs. That last step can lower inventory costs, shorten pick paths and boost worker productivity, West Monroe said.
Timely, incisive articles delivered directly to your inbox.