If the prediction from a recent Nielsen report that up to 70 percent of groceries in the U.S. will be purchased online by 2023 doesn’t ring alarm bells, the growing presence of Amazon and others in the sector should at least indicate that a sea change is under way. Traditional food service distribution faces one of its biggest challenges to date with the emergence of global, digitally driven competitors poised to cannibalize the sector. Independent food service distributors must act quickly to remain competitive by exploring the benefits of a data-driven distribution model. Thankfully, the digital transformation journey is less complex than many challenges the sector has conquered to date.
Why food service distribution must innovate
Although the backbone of the food service distribution sector remains the family-owned grower-shipper, both the market and the consumer have changed. For a start, food service operators are increasingly lured toward the mega distributors such as Sysco and US Foods, which are able to accommodate their needs with slick, one-stop, cost-effective delivery at scale. Independent distributors whose sole business focus is on food distribution are most threatened, and must ultimately choose between acquisition by a larger corporation or diversifying product offering to compete.
But perhaps the bigger challenge comes from consumers who now demand a personalized, real-time, transparent experience. Independent distributors have traditionally consolidated their competitive position through relationship building, customer service, and reliability. In the digital age, alas, these qualities are something of an anachronism. Empowered with the ability to compare prices and availability in real time, food service operators will sacrifice loyalty where there is a clear benefit to margins that are already excruciatingly tight.
Food service distributors do not need to reinvent the wheel to adapt, however. Rather, they need to incorporate the global momentum toward digital transformation into their operations. That means releasing the potential of data.
New territory, familiar principles
Even today, many independent distributors manage to get by with paper-driven invoice systems, Excel-powered forecasts, and printed product catalogs. The goal is for the business to grow not in spite of its back-office system, however, but because of it. By implementing a data-driven approach, distributors can improve efficiency, cut waste, and customize delivery—without having to invest heavily in the expertise or software to do so. Today, there is an abundance of third-party Enterprise Resource Planning (ERP) providers, such as Epicor or Fusionware, that integrate into the existing structure at affordable rates. Each provides the support and expertise to prioritize innovation where it will deliver the best immediate ROI, allowing distributors to implement digital transformation at a pace that suits the business.
What can a data driven approach achieve?
By leveraging the potential of real-time data, food service distributors can graduate from meeting their customers’ needs to anticipating them. Quite simply, from individuals with smartphones to global corporations, we now leave a trail of data in our wake: our location, our habits, our preferences, and our expenditure. A distributor that can collect, analyze, and respond to this stream of data is automatically empowered.
Today’s ERP systems offer the ability to:
- See consumer spending in real time
Imagine sales reports that give visibility of product line performance not just by month or quarter, but by hour. Every bar code leaves an imprint, and modern ERP systems feed back that information without delay, allowing the distributor to monitor performance by location, promotion, and price point.
- Move from push to pull supply
Thanks to granular retail sales reporting and continuous data synchronization, distributors can better manage inventory with supply. Both excess inventory and out-of-stocks are symptoms of supply chain deficiencies, and information is the culprit. By having complete visibility of sales performance, distributors can respond quickly to fluctuations, shifting inventory to areas of higher demand, and staying ahead of surges during promotions.
- Improve traceability
With a digitally powered inventory, each product is easy to locate at each stage of the supply chain, whether on the pallet or the shelf. That means that should a product recall be needed, the distributor has sufficient traceability of each item to respond quickly. Given the reputational damage a product recall can cause, the benefits of being able to remove items swiftly from the supply chain can far outlast the immediate damage.
- Empower sales teams
How can you equip your sales teams to compete with distributors who offer online ordering at the touch of a button? The answer is to give them online ordering in their hands, whether by mobile or tablet, and let them focus on relationship building to grow sales. Thanks to cloud storage, today’s sales rep can access a digital catalog of the entire product range from a remote location, along with current sales figures, allowing them to pass on up-to-date offers and flexible customer payment terms.
- Automate, segment
Digital transformation offers far more than real-time reporting on existing sales. Distributors can access powerful analytics tools that break down performance by product line and category, allowing distributors to forecast sales accurately and plan accordingly. In today’s customer-centric marketplace, this means the ability to drill down on a granular level, diversifying and differentiating according to data rather than instinct.
Likewise, data-driven supply is designed to generate business intelligence through automation. Algorithms can identify patterns with formidable precision, eliminating the capacity for human error or oversight.
- Reduce waste
Waste is critical in particular to Direct Store Delivery distributors handling items with a short shelf life, but even wholesalers can cut back on storage and shipping costs through better visibility of inventory. Data-driven distribution supports the lead taken by the Foodservice GS1 US Standard, a collaboration of 130+ manufacturers, distributors, and operators, in reducing waste within the industry. By aligning supply seamlessly with demand, data-driven distribution helps reduce pressure on the bottom line through wasted inventory.
As one commentator observed, food service distribution is entering an Amazon-dominated world. That may not yet be true in terms of market share, but there is little doubt that the operations model promoted by Amazon is the inevitable destiny of food service in the digital age. Whether Amazon and similar operators created the model or responded to the demand is a matter of conjecture, but either way traditional distributors must adapt with readily accessible product information, delivered instantly, to a customized audience.