Distributors: Are They Meeting Vendor’s Expectations?
With the consolidation of the food and beverage distribution industry, coupled with increasing pressure on vendors to enhance margins, are these fewer distributors meeting the expectations of their vendor customers? What are the key issues affecting the distributor-vendor relationship?
Most manufacturers are fairly pleased with the performance of their distributors, both in the retail and foodservice channels. The main strengths of distributors, according to vendors, are the distribution and building awareness of new products, expanding geographic coverage, and making sales calls to key accounts. Jerry Maynard, Vice President of Sales for NUMI, a leading supplier of organic tea, says that distributors “offer many marketing programs that help to drive volume and they do a commendable job in concert with manufacturers to build brands.”
However, there are several areas in which vendors believe distributors can improve. The foremost issue on the minds of vendors is the increasing cost of doing business with large distributors. Distributors need to be more transparent with their vendor customers, submitting manufacturer charge backs (MCBs) promptly, reducing the slotting fees paid by manufacturers, and providing original tear sheets for proof of performance.
Another area which frustrates vendors is the seemingly “closed mind” of many category buyers. Only when a product has demonstrated success in the market place do some distributors decide to take on a product. Vendors would prefer that distributors buy into a new product at launch time, expand distribution for quicker penetration, and fill the consumer/customer demand.
Foodservice operators are not as sanguine as vendors about current distribution models. With consolidation has come not only increasing costs paid by small operators, but also larger minimum order quantities. Large distributors such as Sysco and Gordon Food Service seek large drops in a relatively small area to increase their margins. They are not willing to deliver outside a defined geographic area, particularly for small orders. Vendors want to expand distribution to these small independent operators, but distributors are not willing to increase their costs to provide this service.
How do distributors feel about vendors? Many believe that vendors are unloading more tasks to distributors while also reducing marketing funds, thereby decreasing distributor margins. They believe that the vendor’s sales objectives are often misaligned with their marketing spending (rebates, trade allowances, trade shows, payment terms and conditions).
Vendors may have a valid reason for decreasing their spending with distributors. Technomics, Inc. reports distributor sales representatives (DSRs) are spending less time with customers. In a typical 55-hour week, DSRs spend only 15 hours (27%) of their time with customers. Time spent with each of their customers only equals about 20-25 minutes. Vendors may ask, what can be achieved with MY product – perhaps one of hundreds listed in the distributor’s product catalogue – in such a short time? In particular, small vendors with low sales turnover receive the least attention by distributors.
Not only are DSRs spending less time with operator customers, but also they have fewer customers. Three years ago the average number of customers managed by a DSR was 55. Today it is only 45, an 18% decrease. Furthermore, the number of “face to face” sales calls by distributors has decreased from 25 to 20 in the same three year period, a 20% decrease. This decrease in “face time” with customers has coincided with an increase in administration work by DSRs, which now takes up 49% of their working time.
Despite the erosion of “face time” with customers, foodservice operators still feel the DSR plays a valuable role in the selling process. Operators trust DSRs more than vendors (52% vs. 21%), and perceive them in a consultative role.2 Unless vendors are willing to staff a large direct sales force, they must continue to rely on the DSRs to market and sell their products to small, independent operators.
Given today’s distribution landscape, is there an alternative to the current U.S. food and beverage distribution model? The options for both vendors and small operators are increasingly limited. With fewer but larger distributors marketing a full range of products, and an increasingly smaller number of distributors willing to deliver to remote operators with small drop sizes, the current distribution model will be exacerbated in the future. New distribution models, while encouraged by both vendors and operators alike, may take time to emerge. Even if new creative distribution solutions materialize, they will face stiff competition from large distributors that now benefit from the current, high-cost model with increasingly less competition.
–Peter M. Guyer
Peter M. Guyer is the Founder and President of ATHENA MARKETING INTERNATIONAL (athenaintl.com), an international marketing, consulting and business development firm serving food and beverage manufacturers. Tel. (206) 749-9255.
1 Distributor Intelligence Service 10/5
2 Technomics, Inc.