Food Distributors
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Industry Overview
The US wholesale food distribution industry includes about 38,000 companies with combined annual revenue of around $550 billion. Major companies include SYSCO, US Foodservice, SUPERVALU, and McLane Company. The industry is moderately concentrated: the 50 largest distributors hold about 50 percent of the total market.
This industry doesn't include revenue from retail or manufacturing operations.
Competitive Landscape
Demand is driven largely by demographic shifts, particularly trends in population and age, working women, race and ethnicity, household size, and levels of disposable income. The profitability of individual companies depends on a good product mix and efficient operations. Large distributors are advantaged by bulk purchasing and economies of scale in distribution. Smaller companies can compete effectively by specializing in organic, natural, or kosher products or focusing on a geographical area. Average annual revenue per worker for a typical company is $675,000.
Products, Operations & Technology
Major products are frozen, processed, and prepared foods; dairy items; poultry, fish, and meat; fresh produce; and baked goods.
Distributors are classified as "broadline," meaning that they sell to various customers; "product specialists," which sell a limited number of products; "market specialists" that sell to a particular type of customer, such as Chinese restaurants; or "system specialists" that sell to a particular kind of customer, such as hotels. Only about 150 large companies are broadline; the remaining wholesalers typically specialize in a specific market. Foodservice customers have surpassed grocery stores as the largest customer base for food wholesalers. Both SYSCO and US Foodservice sell mainly to foodservice institutions and chain restaurants; others sell mainly to supermarkets and grocery stores. Some large food retailers operate their own distribution operations.
Operations revolve around the logistics of getting food items from food producers to hundreds or thousands of retailers. 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 deliver daily to customers using a fleet of trucks, which can be owned, leased, or contracted. Suppliers include farmers (fruits and vegetables, dairy); food manufacturers; 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. A few large distributors are vertically integrated. Supplier side vertical integration occurs when wholesalers run their own crop or livestock farms, processing, and packaging facilities. Vertical integration can incorporate retail business, as some large wholesalers own and manage grocery outlets.
Major inputs include diesel fuel, electricity, pallets for receiving and storage, and vehicle repairs. 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, a large foodservice provider, 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. Depending on the products carried, warehouses may need to be climate-controlled or refrigerated.
To track prices, purchases, shipments, and product inventory, food distributors rely heavily on computer and communication technology and highly automated warehouses. Daily or weekly orders from large customers are typically electronic via private electronic data interchange (EDI) or Internet systems. Recent technological advances include wireless devices to track retail sales; radio frequency input device (RFID) tags that follow cases or kegs as they travel through the supply chain; and GPS that automatically determine truck routes and communicate with central dispatchers.
