Why do Buying groups or FoodService Companies want your data? There are many reasons for that, and today we’ll explore how a few of those reasons can (or cannot) profit your business. They almost all want to see your data, some as a right to sell to them or getting vendor rebates.

You want my data? Pay to Play!

Most distributors belong to a “buying group” such as UNI-PRO, Bellissimo ,Goldbon, Federated, Frosty Acres, etc. I don’t want to be unpopular but the truth of it is they make their money by soliciting manufacturers like Kraft, Heinz, Hormel etc. to get rebates for the distributors who sell their products and keep a little for themselves. They also get involved in co-packing creating their own labels for their distributors to buy at attractive prices.

This is all very well and good but at the end of the day you have to report these sales to them to receive your money. These are known as deals and rebates in the industry. To get these you have to provide them data to prove what you’ve sold. This reporting can present a whole other layer of accounting for distributors. It is common practice to do this. Distributors are further challenged to determine a net net profit for commission purposes.  It goes like this:

Orange Juice Cost $25.00/case
Vendor Rebate $5.00/case    Paid after sale is proven
Net Cost $20.00/case

Distributor is required to sell to Food Service institution for $22.00/Case to get their rebate.

Profit is -$3.00/Case in profitability report.    
  Net Profitability is +2.00/Case

Difficult to keep track of and you don’t see your profit till it is all reported and paid from the buying group.

If that wasn’t confusing enough Technomic talks about where the real profitability is in the independent restaurant or grocery store because these selling restrictions for the DSR. their article. Foodservice Distribution 2.0: Algorithms Optimize the Value Chain.

That only get worse on the distributors profits when he has to “buy the rights to sell” his customers. John Hopkins University did a study of this  practice and its effect on food prices. a.k.a “buying on contract” This delivers cheaper food to institutions but cost the distributor/ processor to pay to play. Compass and Sodexo and Aramark are big players in that part of the food industry. Ever see the price of a hot dog at a Phillies game? Now you know why. Of course you need to report to Compass and Sodexo your data if you want to sell to their member institutions. These guys are immense. They want your data monthly. One of my smaller protein guys had to finally drop institutions from the X foodservice company becasue he was making no money.

They comprise over 45 % of the  $72,000,000,000 industry.

Almost all of my customers have to report to these food service Companies That’s what it means to “pay to play” making Margin Management more difficult and reducing your ability to compete. The profitability is to be found in the self-operated institutions where they buy from whomever they want.



Issue 598 - Setting the Standards

 

We'll keep following last week's thread about Inventory Management and Profitability.   Food is a very unique industry, so making sure we measure ourselves against our industry cousins is important to understand the standard we are measured against. Got to know the other guy's score to see if you are a winner. Again focusing on inventory value and getting it right is one of the two key elements of our T&E analysis.

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