The business health of distribution is tied directly to the business health of its operator customers. When one grows, the other grows and vice versa. It’s been a growth scenario for a number of years, but recently, it’s been the opposite. As operators struggle to survive this recession, so do distributors.
Even giant Sysco Corp. hasn’t escaped the grim reality of the downturn. The $37.5 billion company has recorded sales growth every quarter since day one, but recently it reported a decline in its second fiscal quarter of 2009. This revenue decline was only 1 percent, but it affected the bottom line to the tune of a negative 10 percent.
So what are Sysco and other distributors doing to weather the storm? According to a recent survey by Technomic Inc., they are doing a number of things ranging from finding operational efficiencies to reassessing relationships with vendors and customers.
Technomic, the Chicago-based consulting firm, publishes a monthly electronic newsletter called Distributor Intelligence Report—in the spirit of full disclosure, I am chief editor of the report. This recent survey focused on how distributors are dealing with the downturn.
Distributors are taking a harder look at operational efficiencies, which can be found at every level, from the warehouse to the delivery fleet to administration. The difficulty here is that this efficiency initiative has been going on for some time, so there are not a lot of new savings to squeeze. As a result, distributors are looking elsewhere, specifically at vendor and customer relationships.
What vendors can expect: Eight in 10 survey respondents said they already are negotiating pricing harder with distributors. Two-thirds also are focusing on vendor rationalization. The other third either plan to do this in the next few months or might consider it in the future. Vendor rationalization is the musical-chairs game of supply. Any number of foodservice manufacturers may be out of the game with some distributors.
What operators can expect: On the customer front, distributors say they will be increasing drop sizes. About half are going to reduce or eliminate marginal or unprofitable customer accounts. Nearly eight in 10 distributors said they already are shortening customer-credit terms, which will separate the “marginal” accounts from the profitable. At the same time, close to two-thirds of the respondents said they are concentrating business-building projects for their customers, such as providing business reviews.
Savvy distributors are doing everything they can to deal with the downturn, with cost-saving and cost-controlling initiatives in every area of the supply chain. For those who succeed, their business will be stronger when we come out of this recession.