Never in the history of the foodservice industry has the distribution community been challenged the way it has been over the past 18 months. And never has there been a more critical time to look forward.
Now is the moment to take stock and examine our organizations to ensure we are preparing and investing for future success. As forward-thinking leaders, we must guard against complacency and continuously evaluate our business models considering today’s ever-changing market.
This article outlines eight business success factors that will define best-in-class business practices to move organizations toward the “Distributor of the Future.” This list is based on interviews and research conducted by Kinetic12 with foodservice distribution executives.
Here are the eight business success factors that will define the Foodservice Distributor of the Future and a deeper look into each.
1. Technologically Integrated
The pace of technology evolution is accelerating. In the future, every aspect of the business model, from customer behavior analysis to supplier data sharing, will be managed using technology. Those distributors with the scale and vision to build a holistic and integrated business management system will have a competitive advantage.
This was the No. 1 future business success criteria identified by distributors.
The best-in-class tech platform of the distributor of the future will be both customer facing and internally facing. It will support the efficient execution of critical business processes to drive efficiency, speed, transparency and trust, while also enhancing the operator-customer experience.
The following systems were identified as being critical to business success in the future.
- Customer-facing order & inventory visibility
- Sales support tools—product data, marketing, merchandising, pricing, insight, inventory, order management
- Pricing and contract management
- CRM—customer support
- Supply chain management, order management, track and trace, crisis management
- Warehouse management and automation
- Supplier engagement and data management
- Financial and asset management
- Data and insight mining and analysis
- Customer targeting—CRM: customer data analytics
- Predictive analytics
2. Real-time Data Transparency
The ability to access data no matter what system it sits in is critical to efficient business management and to building true competitive advantage. The distributor of the future must develop capabilities for seamless sharing of data with employees, customers, suppliers and other partners that inform decision making.
Additionally, the distributor of the future will have built advanced analytical capabilities, including predictive analytics, to provide insight to support customer value platforms, operational efficiency efforts and supply chain visibility, including forecasting, inventory management, order tracking, product traceability, fulfillment rates, substitutions, and delivery times.
A high degree of user trust will be established through systems that secure data and transactions, such as GS1US and Blockchain implementation initiatives, and through a track record of effective crisis management.
3. Multi-Channel Customer-Centric Engagement
Customer-centric is an approach to business that focuses on building the best customer experience possible to build brand loyalty and grow lifetime value. A best-in-class distributor of the future understands this and will have implemented a comprehensive team member culture that puts the customer first—fully enabled by the right structure, systems and processes.
As the Foodservice industry has evolved, the legacy partitions that have divided it from grocery, mass, drug and c-store have become less important. Distributors have now broadened their scope to a multi-channel approach that leverages their capabilities to all potential segments and customers. This customer-centric engagement strategy must also be customized by segment as a more diverse customer base is built.
Three critical business components will help to define the multi-channel customer-centric engagement strategy: sales, solutions and customer selection.
Sales: A highly skilled, technically savvy and empowered distributor sales force trained in solution-selling and problem-solving. It is supported by culinary, insight and marketing services with a high degree of connectivity to top supplier partners and broker sales reps.
Solutions: A broad and customizable platform of value-added solutions executed through a network of internal resources and 3rd-party providers. Example: An internal team of delivery “unpackers” who unpack and store orders after delivery to the operator. They reduce the work of the drivers who can now be more efficient and reduce the need for as many drivers.
Customer Selection: A sophisticated customer targeting system that allows for identification of best-match operators (including picking customers based on a cultural fit) and closer management of the chain-street mix to optimize operations scale and profitability.
4. Last-Mile Flawless Execution Mindset
Flawless execution is “a business framework that equips individuals and teams with the tools they need to successfully drive progress and achievement.” The distributor of the future will develop a “last-mile” focus of flawless execution that delivers frictionless service, complete and on-time orders, with a reputation for reliability and flexibility.
Critical to this is a superior level of customer service that involves transparent communication and a goal of providing immediate action to solve problems. This also requires a commitment to highly effective and efficient performance tracking, including publishing KPIs, and course correcting against identified challenges. Only through a best-in-class review and refine process can flawless execution be achieved and maintained.
5. Efficient, Optimized Portfolio Mix
Broadline distribution in foodservice has always required a vast portfolio of products. Effectively managing this complexity requires walking a fine line between meeting customer needs and minimizing operational complexity and the costs of a warehouse filled with thousands of slow-moving items.
As distributors broaden their reach to new segments and innovation evolves, the focus on “Exclusive Brands (EB)” and operator proprietary items must be balanced; otherwise, the drive toward continued SKU proliferation will only intensify.
Success in the future will require a continued evolution of strategic sourcing to deliver a high level of service without increasing warehouse complexity. One approach is the third-party seller model. As of March 2021, Amazon offered more than 75.1 million products. 53 percent of purchased units were sold through Amazon’s platform by third-party sellers. Is there learning here for foodservice? Clearly the business model for foodservice distribution is different, but can this third-party seller model be further adapted in the Foodservice industry?
The distributor of the future must also employ best-in-class principles of category management, which requires close collaboration with strategic suppliers.
Although there is no silver-bullet solution, best-in-class portfolio management will require creative multi-partner solutions involving new thinking and new technology.
6. Collaborative Strategic Supplier Engagement
Collaborative engagement starts with the realization that supplier strategies go two ways. Many supplier relationships are still transactional in nature. While these relationships have their place the value of a closer relationship with select suppliers is a smart approach to supplier engagement. Many suppliers have deep resources and insights that can provide tremendous value. Maximizing this value starts with deciding with whom to align.
A best-in-class distributor understands that optimizing supplier value starts with a segmentation model to assess each relationship’s current and potential value. They have effectively segmented suppliers to understand which are strategic versus transactional and then leverage strategic supplier capabilities into areas such as category management, insights, innovation and joint selling efforts. Critical to successful supplier engagement is the belief in mutual benefit, grounded in transparency and a commitment to collaboration.
7. Winning Culture & Engaged Labor Force
The relationship among team members and the distributor organization has a direct impact on their performance, work quality and retention. Building a winning culture of engagement and empowerment is a critical business factor for any company. This is especially important for Foodservice distribution given the labor-intensive model with multiple direct customer touch points including sales, drivers, customer service reps and newer services like culinary and restaurant consulting and support services.
According to the latest Gallup report, only 36 percent of employees are engaged in the workplace, 51 percent of employees are disengaged, while 13 percent are actively disengaged. Clearly there is significant opportunity for improvement.
The distributor of the future will build a culture that attracts the best people and an engagement strategy that optimizes their performance and promotes retention. Critical to this effort is flexibility related to work life balance, a progressive commitment to diversity, equity, inclusion, training, and a team environment that embraces genuine TLC with the evolving needs of today’s workforce.
8. Strategic Partnerships
Strategic relationships allow businesses to expand their services and customer base without the time, expense or risk of launching new services themselves. For distributors, building a network of out-sourced services for their operator customers is an effective way of providing differentiated, one-stop services.
A best-in-class distributor of the future will have proactively built a network of external partnerships with associations, redistributors, agencies, and suppliers and leveraged those relationships for smart-outsourcing of non-expert functions and to scope and build new business adjacencies and services. They also understand the value of external connectivity in promoting industry health and overall industry success.
Looking forward, the “Distributor of the Future” can be defined by the eight business success factors outlined above and is taking action today to plan and invest both thoughtfully and aggressively to build these best-in-class capabilities. In the words of Amazon founder Jeff Bezos, “In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility.”
Tim Hand and Bruce Reinstein are partners with Kinetic12 Consulting, a Chicago-based Foodservice and general management consulting firm. The firm guides multiple best practice projects and forums, and consults with leading Foodservice suppliers, operators, PE firms and associations on strategic initiatives. Their previous leadership roles at Foodservice manufacturers and restaurant chain operations provides a balanced perspective and insight into how the industry is evolving and what must be done to stay relevant.
DMA has delivered customized, national distribution solutions via a network of prominent “super-regional” distributors for more than 30 years. Members include Ben E. Keith Foods; Cash-Wa Distributing; Cheney Brothers, Inc.; Gordon Food Service; Harbor Foodservice; Martin Brothers Distributing, Inc.; Merchants; Nicholas and Company; Saladino’s; SGC Foodservice; and Shamrock Foods.