Food Distributors
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Industry Overview
The wholesale food distribution industry in the US includes about 35,000 companies and has annual sales over $600 billion. Large companies include SYSCO, Nash Finch, and US Foodservice. Most companies in the industry have annual sales under $50 million. The industry is moderately concentrated: the 50 largest distributors hold about 50 percent of the total market.
Competitive Landscape
Industry demand changes due to shifting consumer tastes, but is limited overall by the 1 percent annual growth of the US population. The profitability of individual companies depends on good merchandising, and efficient operations. Large distributors have a cost advantage by purchasing in bulk, but also need to operate a more complicated distribution network. Smaller companies can compete effectively by specializing in products or geographical areas. Many small companies have exclusive distribution rights to imported specialty goods.
Products, Operations & Technology
The industry sells frozen foods, dairy, poultry, fish, meat, fresh produce, baked goods, processed and prepared foods, and related items. Only about 150 large companies deal in a broad line of food products, while the others specialize.
Operations revolve around the logistics of getting food items from thousands of food producers to thousands of customers. Some distributors operate only locally (such as milk distributors). Many distributors receive products from all over the country but distribute only regionally.
Typically, distributors consolidate shipments from suppliers at regional warehouses and make daily deliveries to customers using a fleet of trucks, which can be owned, leased, or contracted. Warehouses that handle large quantities range from 300,000 to 900,000 square feet. Large distributors may have several tiers of warehouses and may run separate warehouses for fast and slow turnover items. Large companies may buy and stock 50,000 items. Performance Food Group, for example, stocks 44,000 products and sells to 33,000 customers. Most small distributors concentrate in one product segment, have warehouses of 50,000 to 200,000 square feet, and may carry only a few thousand items.
Suppliers include farmers (fruits and vegetables, dairy); food processors; and importers. Supply contracts are common. Distributors usually have a staff of buyers but may also work with food brokers and other distributors.
Some distributors also sell nonfood items like drink dispensers, cleaning supplies, and tobacco products, and services like inventory control systems, financing, equipment installation, menu planning, restaurant design, and management services. A few large distributors are vertically integrated, running their own crop or livestock farms, processing, and packaging facilities.
To track prices, purchases, shipments, and inventory of thousands of products, involving hundreds or thousands of suppliers and customers, food distributors rely heavily on computer and communications technology and highly automated warehouses. Daily or weekly orders from large customers are typically made electronically via private electronic data interchange (EDI) or Internet systems. Truck fleets are often outfitted with onboard computers that automatically determine routes and communicate with central dispatchers.