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Food Wholesaling & Distribution
AG BM 102
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Introduction
• Economics of Transportation require an intermediary between processing and retailing
• Too many products, too many stores – 27 pizza shops in State College according to phone book
• The efficiency of this stage is a key to retailing success – WalMart is the model
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Food Stores
• Chain Stores – Weis
• Independents – IGA
• Convenience Stores - Sheetz
• WalMart
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Mixed Load of Produce
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Restaurants and Food Service
• Sysco
• McDonald’s
• Hoss’s
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The food service distribution sector is highly
fragmented ...
Broad-based Food Service Distribution (2000)
PlayerMarket
Share (%)
Sysco 12
Food Service USA 8
Performance Food Group 3
Gordon FoodService 2
Others 75
100… and includes hundreds
of specialized smaller meat distributors.
Source: Industry Interviews, Food in Canada
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Proposed merger
• Sysco & US Foods meger – fell through in June 2015
• FTC would not approve
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Warehouse
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Economics of Transportation
• Full truck with one origin and one destination has very low cost
• Each stop adds costs
• Driver time a big expense – time limits
• Try to get full loads to warehouse and full loads to stores
• Works for supermarkets – not for other stores
• Convenience stores
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Distribution Economics
• Build loads at warehouse – minimize deliveries to stores
• Deliveries take driver time – also time at store – too many vendors get expensive
• Warehouse has room for inventory – store doesn’t
• Non perishable stuff can be stored
• LIFO vs FIFO
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Powdered Milk
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Traditional View
• Buy items on sale – 6 month’s of Pork n’ Beans
• Store in warehouse until needed
• Only perishable products are not storable
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Modern View
• Warehouse is a transshipment point• Warehouse in Mexico City – only one day’s
inventory• WalMart – item long gone before the bill is paid• Efficient Consumer Response – Buyer and seller
work together to minimize inventories – everyday low prices or specials don’t require immediate delivery
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System’s Approach
• Distributor and Vendor work together to minimize costs & share savings
• Transportation is used efficiently, but total cost is measure of effectiveness
• Includes inventory costs, handling costs, product deterioration, time of all involved, etc.
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Slotting Fees & Promotional Allowances
• A new product may involve a $25,000 payment to get it on computer
• Plus 10 free cases per store
• Cooperative ad with retailer and products sold at discount
• If product doesn’t sell enough after 3 months it is dropped
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Concluding Comments
• Wholesalers and distributors an important link in system
• Efficiency requires their existence
• Practices evolving with systems approach
• Generally very efficient