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KSA Foodservice Distribution Update

August 2008

Conducting Distributor-Operator Business Reviews:
8 Ways for Distributors and Operators to Increase Profitability

By Bill Beattie

You don’t need to hear again that in today’s economy everyone’s getting squeezed and costs are rising.

What you do want to hear is how successful distributors use regularly scheduled business reviews to partner with their operator customers to drive costs out of the system and capitalize on hidden opportunities. In Keiter Stephens Advisors’ analysis of foodservice distributor financial performance, we look for ways our distributor clients can improve profitability on the operator side while also improving their overall satisfaction. We then urge distributors to prepare and conduct business reviews with operators to strengthen the business relationship.

Why should foodservice distributors conduct regular business reviews? It’s the first step in showing an operator that you not only care about their business today; you care about their business growth tomorrow. Working together with operators, you can spot areas that can decrease costs on both sides of the table, or show operators how to showcase and promote interesting or differently packaged menu items to increase their sales.

Preparing for the Review

Before you begin the review process with your customers, set the stage by making it clear to all involved that this is a top-level meeting to be held between operator management and your sales manager/s, Vice President or President (depending on the significance of the account). Select customers with the greatest potential for improvement. Schedule an appointment when the operator lead can concentrate – don’t just drop in. Plan for every review carefully; you are preparing for a business meeting, not a sales call. Have all of your facts and figures organized and ready to present. Finally, after the meeting, follow up with a written summary of agreed upon actions to show that you are conscientious about improving both the relationship and their business.

Below is a starter list of 8 topics for you to consider covering in the business review:

Expand Delivery Windows

Delivery windows are the times during the day when an operator is willing to accept deliveries. Sit down together to review the financial impact of the traditional 2 hour delivery window, and contrast the current arrangement with a broader (say 4 or 6 hour) delivery window. The delivery times operators chose at the beginning of the relationship may not be the best financial decision today for either party.

Reduce Delivery Frequency

Today’s labor costs behoove both distributors and operators to carefully review the frequency of delivery: fewer deliveries save labor and fuel costs on both sides. In tandem, operators can consider where they should consolidate suppliers to drive down labor costs; more broadline distributors operate specialty produce and center of the plate divisions than ever before. Operators can take advantage of these synergies to reduce the number of trucks at the back door and drive down ordering, receiving, unpacking and accounting costs by consolidating their grocery sources.

Weekly Load Rationalization

Every distributor has a slow delivery day during the week. Work with your customers to determine if they can help you balance out your delivery loads. One of our clients shifted a number of chain customer’s deliveries to slow Mondays and the chain got a lower pricing formula.

Payment Arrangements

Determine ahead of the business review meeting if you can reduce the operator’s costs if they agree to accelerate their payment terms (i.e. 30 days to 15 or 20 days, for example), Discuss setting up automated payment (ACH) where you trigger payment from the operator’s bank account automatically. Because these measures save time on collections, reduce interest expense and improve distributor capital availability, you may be able to pass on a reduction to the operator.

Category Management

Extra SKUs take up the most expensive real estate in the foodservice distributor’s world. Often we find that owners will think they need to expand their existing warehouse or build a new one when what they really need to do is better manage their SKUs. Extra costs associated with carrying extra SKUs include: item set up, purchasing, receiving, storage and accounting. Distributor DSRs need to be trained to explain to the operator the advantages of buying from the distributor’s standard offerings (they need to make it worthwhile to the customer; extra items and pick facings are extremely expensive).

Leveraging Order Entry Systems

Consider urging your operators to increase their use of order entry systems and move your DSRs to regularly scheduled, and perhaps less frequent, customer visits focusing on specific topics for deepening the relationship -- like those contained in this column. The critical functions of the DSR should be to find and keep good customers, using all of the tools at their disposal.

Menu Planning and Supply Analysis

Operators should tap into your in-house resources for valuable services that can increase their business. Distributors can work with operators to help them consider more value-added, processed products to drive up yield, improve consistency, and drive down labor costs. Distributors can push these ideas out to operators through regular DSR training meetings, or through their food shows (i.e. at food shows, show operators 1000 products that can reduce labor in their operation, drive down costs, and improve consistency of the end product delivered to consumers.)

Operators might also consider working with a market research firm like Food Insights – that works with operators ranging from small mom and pop restaurants to large multi-unit chains like Brinker and Perkins – conducting consumer research, product development and testing to show operators the optimal combination of items to put on a menu to drive profitability.

Now is the time to help drive new solutions – your customers’ business growth or loss is yours too.

Involve Vendors in Creating Solutions

If an operator is having a packaging problem, the DSR can bring in a packaging vendor (who has likely heard the same problem 25 times and already knows how to create the solution). The vendor will be pleased to be involved, and the operator will benefit from having both parts of the supply chain upstream driving the solution.

The foundation of the business review process is that the operator-distributor relationship is just that, a relationship – and all relationships require maintenance and fresh approaches periodically to keep them healthy. This is the time for you to sit down, peer to peer, and say “I have business problems and so do you, let’s meet and figure them out together.” Business reviews are not a one-time fix or a placebo. It will take a rigorous, ongoing effort to work through the numbers and the business opportunities together to demonstrate measurable progress.

Driving customer profitability is a partnership – and you’re in this to make it a winning relationship for everyone involved!

Please call me at at 804-565-6018 or email me at bbeattie@ksadvisorsllc.com if you have questions or would like to discuss this further.

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