Wholesale Grocers

Will Grocers Use Third Party Logistics for Outsourcing their Transportation Needs in Future?

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Will Grocers Use Third Party Logistics for Outsourcing their Transportation Needs in Future?

 

Transportation costs are a major reason for growth in price level of products from manufacturers to retail stores. While large nationwide stores like Walmart, Costco, Safeway, Seven Eleven and many more have their own transportation, distribution and warehousing facilities, small stores rely on local distributors for their merchandise. Food products required by grocery stores are also in great demand by restaurants, hospitals, schools and other finished food retailers. In the midst of food distribution the parties involved have to also be careful about selling their finished products within a certain period of time as they are perishable and cannot be stored for long.

To reduce distribution costs grocers and convenience stores have varying strategies for both warehousing and transportation to retain competitiveness. To keep a cap on transportation requirements grocery wholesale distributors are using both third party carriers and their own private fleet for distribution of merchandise to their list of retailers. This hybrid transportation methodology helps both transporters to improve their distribution techniques and minimize wastage. Increasingly even food hubs close to large farms which work as cooperatives to collect and distribute food from local farmers use their own distribution trucks for local areas and sometimes transportation facilities of convenience store brokers to send it to distant markets.

 

Why third party logistics are profitable for grocery chains and convenience stores chains

 

  • A growing number of large transportation truck drivers are retiring or moving on to more lucrative job opportunities. New generation is not keen about taking long distance driving as a profession due to the hazards involved and easy availability of job opportunities. This is forcing stores to offload their low-profitable areas to third party distributors which are working for other stores in the area.

 

  • Flexibility that third party trucking companies provide in food distribution is invaluable especially during harvest time and peak holiday season when grocer has to use their own trucks for large number of pickups from farms to manage local demand. Similarly when demand is low then grocer can reduce number of third party deliveries and also maintain customer demand without wastage.

 

  • Retailer chains which have operations on a national level will be unable to maintain their deliveries on their own at all seasons and often use third party carriers to reduce cost of transportation from manufacturer to store to provide competitive prices to their customers.

 

  • The use of third party logistics also helps reduce potential risk of labor conflict and total shutdown as with potential threat of these logistics providers the laborers are also worried about losing their contracts.

 

  • With lesser trucks and merchandise to manage the grocery retailer is also safe from increased capital outlay and expenditure.       Though it can make them vulnerable to same delivery issues which the third party distributor is exposed to the amount saved from assets purchased can be used to expand store outlay and make it more appealing.

 

Though convenience stores and grocery store chains understand that using external transportation facilities may add to the overall cost of merchandise, the benefits accruing from this system far outweigh the expense as they can achieve better productivity from hybrid transportation system. The recent increase in labor costs followed by transportation costs due to high rates of fuel has reduced the grocers’ margin forcing them to relook at the supply chain network to reduce operational costs for having profits. To keep their business profitable retailers have to measure the costs of distributing their products by themselves or through third party logistics providers.

 

Types of third party transportation management providers to retailers – Depending on the type of product there are several types of transportation management providers that specialize in food distribution like wholesale food suppliers and those that deliver apparel, shoes, cosmetics, accessories, cleaning products, tobacco and several others. These distributors are small and large which distribute goods either within the state or on national level on the basis of their expertise and profitability. While some third party distributors focus on small parcel shipments which are carried over large distances through their network of trucks and warehouses large bulk carriers transport goods by rail or ships which are then loaded on trucks and moved to retailers and grocery store distributors.

 

Manufacturer distributors – In this setup the manufacturer or point to point wholesale distributor take the responsibility of distributing the finished product directly from production point to convenience store chain or grocer. This type of delivery is possible when the whole truckload is bought by the retailer store which saves the transportation cost of moving from one retailer to other making deliveries.

 

Central distribution center to retail stores – Instead of having their own transportation service to supply finished products to retailers, manufacturers have a finished goods warehouse or distribution center. This is then moved to other locations by wholesale grocery distributors and convenience store brokers through their own transportation facilities by breaking them into smaller individual orders for distribution to retailers.

 

National distribution channels- These are centers where small manufactures and producers bring their individual finished products which are packed and ready for delivery. These distribution centers are sometimes run by food distributors, wholesalers, manufacturers’ cooperatives, and also by retailer groups to have a uniform delivery system. These products are then distributed to retailers which are a part of this association in small quantities for sale in vehicles which are generally owned by the distribution agency itself.

 

Grocers know that minimizing logistics and transportation costs can help maintain operational costs. As distributors add their own markup to products handled and delivered by them it can affect overall price a retailer charges from end customers. If a large wholesale retailer can take delivery of products from manufacturers’ factory or distribution center then they can provide lower price depending on transportation costs. In the use of third party logistics retailers have to look for multi-client distribution services which travel nationwide to distribute food and other convenience products to large and small retailers in a profitable manner. Like manufacturers, retailers also set up cooperatives to setup their own distribution network or engage third party distributors to complement their operations.

Food service distributors

Different Types of Food Distributors in the Retail Industry

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Different Types of Food Distributors in the Retail Industry

 

Today convenience stores have grown beyond regular gas, cigarettes and beer stores to full-fledged multi-utility stores selling food products and a host of convenience items. Though both convenience stores and grocery stores have different business formats, both depend on middlemen like convenience store distributors and grocery wholesale distributors to carry out their business and replenish stocks. These distributors are specialized in carrying a wide assortment of products and are a vital link between manufacturers and retailers.

 

While they provide nationwide markets to manufacturers they also help retailers to find high demand products which will bring in more customers and will also provide high margins on sales.

 

The processing and distribution of food products is a specialized activity and requires inputs by specialists at various levels to make it fruitful to the producers. There are different levels within the food distribution chain like beverage distributors, wholesale food suppliers, wholesale grain distributors, vegetables and fruits distributors, dairy and meat products distributors. While large retailers like Wal-Mart, Safeway, Albertsons and others have their own distribution centers where manufacturers deliver their products, wholesale clubs like Sam’s and Costco pick up directly from wholesalers and manufacturers as it suits them.

 

The food distribution sector links food supply between producers, retailers and consumers. This complex sector includes supermarkets, food wholesale suppliers, grocery distributors, fruit and vegetable processing units, restaurant chains, ready to eat food manufacturers and distributors and food brokers. The food distribution industry comprises of several thousand food service establishments with sales of several billion every year which also provides employment to skilled and unskilled personnel in retail and distribution. A large part of food products are distributed through traditional food distributors channels to small and large convenience store chains, independent stores and grocers along with regular supplies to small and large restaurant chains.

Middlemen in food distribution channel

 

Food distributors – They purchase processed and packaged products directly from manufacturers and also from wholesale grocery distributors and either sell or distribute it to retailers like convenience stores and grocers or to food service companies and other distributors. Food distribution by this group is limited to a middleman’s role of picking up from one person and giving it to another direct seller or reseller.

 

Food brokers – These middlemen act as manufacturers’ representatives and facilitate relationship between retailers and manufacturers. Their main function is to help retailers find new products which will enhance their product line and assist manufacturers in finding suitable outlets to sell their products at a profit. As they do not take physical possession of the food products they do not have any ownership over their distribution and supply.

 

Grocery wholesale distributors – This group of middlemen are quite similar to distributors of other convenience products but as they do not interact with retailers they are not entitled to carry out stocking activities or provide advice on setting up retail shelves.

 

Food service distributors – (www.wholesalegrocersdirectory.com) These are specialized middlemen with detailed knowledge about markets and demand patterns which enables them to manage supply efficiently. They focus their expertise on servicing customers which are into food service like fast food restaurants, regular and boutique restaurants, ready to eat food manufacturers and service canteens in hospital and schools.

 

Food distribution pathway has several small diversions which help in fine-tuning the product and making it ideal for consumption by the customer. Different distribution paths are adopted by food distributors to get the products to retailers which are dependent on product type, market need, type of retailer and selling skills of manufacturer. While some prefer selling their limited products like fruits, vegetables, dairy products and other farm products in local farmers’ markets and also to brokers, few manufacturers fail to sell their products as they are unable to effectively promote them in the markets. Generally perishable foods like seafood, meats, dairy products along with fruits and vegetables have few middlemen between producer and retailer as compared to processed food products like jams, fruit juice, cheese, and other groceries.

 

Direct store distributors – Distributors which act as conduit between wholesalers and retailers like convenience stores and grocery stores are called as direct distributors as they have a special relationship with retailers and provide them advice about store layout and product positioning on shelves. These grocery distributors are middlemen who specialize in selling only grocery items and these grocery store distributors generally work with manufacturers or wholesalers to maintain quality of their products as ordered by retailers.

 

Grocery wholesale distributor – They have direct business relationship with several manufacturers as a whole as they buy goods in large bulk quantities which improve their buying power in the market. They have large warehouses where the goods are broken up into smaller pallets for distribution through brokers and agents and distributors. Wholesale distributors give discounts to distributors or retailers who buy large number of items from them and take the responsibility of picking up the goods from warehouses directly as this saves on distribution costs.

 

Online food distributors – With the boom in online sales of ready to eat food products through fast foods outlets and restaurants, even grocery chains and convenience stores are slowly exploring this purchase and sales option. Wholesale food distributors are increasing their online presence to help retailers and brokers to make their bulk purchases online so that their orders are replenished if their delivery trucks are in that neighborhood. Packaged food items can be sold on wholesale like soups, snacks, cookies, canned products, spices, seasonings, baby food, tea, dry groceries and pet food. Through purchase from online food distributors retailers are assured of low prices and are saved from waiting for regular distributor to make their deliveries.

 

In undeveloped markets food distribution is still carried out through traditional channels of multiple middlemen which lead to wastage and products being marked up at a high level when consumers buy them. These countries also lack proper transportation, storage, warehousing and processing facilities which lead to high inventories at the manufacturer level. The maturity in European, US markets has encouraged global retailers and distributors of food products to focus their attention on undeveloped markets in Asia, Australia and Russian Federation.

distribution

Emerging Trends in Wholesale Distribution

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Emerging Trends in Wholesale Distribution

 

In the supply chain network of distribution from manufacturer to retailers, wholesalers play a major role and occupy the middle position between manufacturers and convenience store brokers or retailers. This group was never emotionally attached to the products which it was distributing to retailers or distributors as its services were limited to caretaker duties. With growing trend of large format retailer stores with nationwide chains which are setting up their own warehousing and distribution networks it is increasingly becoming a challenge for wholesalers to retain their importance in the distribution chain.

 

With growing number of convenience stores turning into food and beverage distribution outlets the supply chain networks are becoming more complex to maintain this demand. While customers are seeking better products at lower prices, manufacturers’ cooperatives and farmers are demanding better prices for their products which are squeezing the wholesale distributor from both sides.

 

The wholesale distribution sector has annual sales figure of $5 trillion which has fallen by a trillion since 2011 and is expected to grow at a compounded rate of 6 percent in forthcoming years. During next five years the revenue of distributors will grow by 50 percent while retailers will grow by 40 percent as the national economy has grown by 30 percent irrespective of the tough economic conditions. Though a few key industries like tourism and automobile have slowed down due to increase in gas prices the retail industry has remained steady.

 

Challenges in today’s competitive markets for wholesalers

 

Manufactures are seeking profitable ways to get their products into c-stores and want to keep distributors to the minimum. In this endeavor they are taking the help of grocery wholesale distributors and other convenience store distributors which move the goods directly to the retailers. Customers are also demanding more customized delivery systems to have better products which reach them at home at a competitive price. Global competition from low cost products is making it difficult for retailers to store local made products at low prices if the cost of distribution is high.

 

How to get products into c stores in time

 

The biggest challenge before manufacturers and distributors is to get their products into their preferred stores in time before customers are given a better alternative at a lower price. Wholesalers play an important part in this exercise by being able to identify the right storage facilities and finding the right distributors for their products. To combat this issue there are convenience store brokers associations and distributor groups who take the responsibility of marketing and distribution of products from manufacturers to retailers. They get the latest products and display them before consumers at convenience stores and grocery stores directly which are a part of their member distribution chain and then maintain regular supply depending on demand.

 

 

Technological challenges

 

Managing inventory and storage along with regular replenishing of stocks and being able to have updated information about stocks available in the warehouse is a challenge most wholesale face in their business. While this can now be managed with information technology the wholesaler has to identify the right solution which will be appropriate for his current and future needs. The right software solution should be able to manage customer orders, track inventory and generate shipping assignments for trucks that move out to distributors. Wholesalers also have to invest in software for automating standard tasks like making packing lists for pallets moving out of the warehousing along with drawing up invoices and comparing them with customer order lists to avoid mistakes.

 

Challenge from large retailers

 

Now that fuel prices have stabilized distributors are safe from one challenge to now face large retailers like Walmart, Safeway, Costco and others who are bypassing them to directly take delivery of products from manufactures. They have set up centralized collection centers wherein manufacturers supply their truckloads of produce which is repacked and distributed to the retailers’ stores which are spread across the nation. The distribution of these products from collection centers can be done either by these retailers themselves or through third party distributors.

 

Challenges of export/import

 

The wholesalers take responsibility for export of goods across Japan, Canada, Mexico, China and locations across Europe which has suffered due to economic upheavals and natural disasters. The long trucking dispute between US/Mexico also led to loss of several million as traffic from both sides of the border came to a standstill during this period.

 

Emerging trends in wholesale distribution

 

In spite of these challenges the wholesale distribution sector has been able to manage industry requirements and adapted itself to requirements of business and industry. While technologically wholesale distributors are able to improve their efficiency external challenges are forcing them to adopt new trends to improve bottom-line and manage growth.

 

Distribution channels driven by demand

 

This refers to distribution which is driven by demand as goods move down quickly through the supply chain due to ready demand. In today’s customer driven markets the manufacturers do not push goods towards buyers and retailers manage their inventories based on consumer demand. This helps in allocation of products across a widespread geographical area as manufactures and wholesalers are now aware of pockets which have demand for their products. Channel partners comprising of wholesalers, distributors, brokers and retailers share data about consumer demand which helps maintain inventory supplies.

 

Direct interaction with customers

 

With the assistance of internet, wholesale distributors are able to improve their business activities as they are able to directly connect with retailers and customers. The innovative wholesalers are managing supply chains by using internet to interact with buyers to understand changing trends and using collaborative tools like virtual trade-shows. Online business environment requires wholesalers to use their website as promotional tool for lead generation and sharing information.

Now warehouse management systems are sophisticated tools which constantly help top wholesalers to stay ahead of competitors through effective strategy. The national association of wholesale distributors works with more than 100 wholesalers to access and analyze business information which can help managers to make business decisions which will meet unique challenges and provide long term solution.