The Foodservice Distributor of the Future

Eight business success characteristics that will define a best-in-class distributor of the future

By Kinetic12 Consulting & DMA

Never in the history of the foodservice industry has the distribution community been challenged the way it has been over the past 18 months. And never has there been a more critical time to look forward.

Now is the moment to take stock and examine our organizations to ensure we are preparing and investing for future success. As forward-thinking leaders, we must guard against complacency and continuously evaluate our business models considering today's ever-changing market.

This article outlines eight business success factors that will define best-in-class business practices to move organizations toward the Distributor of the Future. This list is based on interviews and research conducted by Kinetic12 with Foodservice distribution executives.

Here are the eight business success factors that will define the Foodservice Distributor of the Future and a deeper look into each.

1. Technologically Integrated – The pace of technology evolution is accelerating. In the future, every aspect of the business model, from customer behavior analysis to supplier data sharing, will be managed using technology. Those distributors with the scale and vision to build a holistic and integrated business management system will have a competitive advantage.

This was the number one future business success criteria identified by distributors.

The best-in-class tech platform of the distributor of the future will be both customer facing and internally facing. It will support the efficient execution of critical business processes to drive efficiency, speed, transparency and trust, while also enhancing the operator-customer experience.

The following systems were identified as being critical to business success in the future.

Customer-facing systems

  • Customer-facing order & inventory visibility
  • Sales support tools – product data, marketing, merchandising, pricing, insight, inventory, order management
  • Pricing & contract management
  • CRM – customer support

Inward-facing systems

  • Supply chain management, order management, track & trace, crisis management
  • Warehouse management & automation
  • Supplier engagement & data management
  • Financial & asset management
  • Data & insight mining & analysis
  • Customer targeting – CRM: customer data analytics
  • Predictive analytics

2. Real-time Data Transparency – The ability to access data no matter what system it sits in is critical to efficient business management and to building true competitive advantage. The distributor of the future must develop capabilities for seamless sharing of data with employees, customers, suppliers and other partners that inform decision making.

Additionally, the distributor of the future will have built advanced analytical capabilities, including predictive analytics, to provide insight to support customer value platforms, operational efficiency efforts and supply chain visibility, including forecasting, inventory management, order tracking, product traceability, fulfillment rates, substitutions, and delivery times.

A high degree of user trust will be established through systems that secure data and transactions, such as GS1US and Blockchain implementation initiatives, and through a track record of effective crisis management.

3. Multi-Channel Customer-Centric Engagement – Customer-centric is an approach to business that focuses on building the best customer experience possible to build brand loyalty and grow lifetime value. A best-in-class distributor of the future understands this and will have implemented a comprehensive team member culture that puts the customer first -- fully enabled by the right structure, systems and processes.

As the Foodservice industry has evolved, the legacy partitions that have divided it from grocery, mass, drug and c-store have become less important. Distributors have now broadened their scope to a multi-channel approach that leverages their capabilities to all potential segments and customers. This customer-centric engagement strategy must also be customized by segment as a more diverse customer base is built.

Three critical business components will help to define the multi-channel customer-centric engagement strategy: sales, solutions and customer selection.

i. Sales - A highly skilled, technically savvy and empowered distributor sales force trained in solution-selling and problem-solving. It is supported by culinary, insight and marketing services with a high degree of connectivity to top supplier partners and broker sales reps.

ii.  Solutions - A broad and customizable platform of value-added solutions executed through a network of internal resources and 3rd-party providers. Example: An internal team of delivery “unpackers" who unpack and store orders after delivery to the operator. They reduce the work of the drivers who can now be more efficient and reduce the need for as many drivers.

iii.  Customer Selection – A sophisticated customer targeting system that allows for identification of best-match operators (including picking customers based on a cultural fit) and closer management of the chain-street mix to optimize operations scale and profitability.

4.  Last-Mile Flawless Execution Mindset – Flawless execution is “a business framework that equips individuals and teams with the tools they need to successfully drive progress and achievement". The distributor of the future will develop a “last-mile" focus of flawless execution that delivers frictionless service, complete and on-time orders, with a reputation for reliability and flexibility.

Critical to this is a superior level of customer service that involves transparent communication and a goal of providing immediate action to solve problems. This also requires a commitment to highly effective and efficient performance tracking, including publishing KPIs, and course correcting against identified challenges. Only through a best-in-class review and refine process can flawless execution be achieved and maintained.

5.  Efficient, Optimized Portfolio Mix – Broadline distribution in Foodservice has always required a vast portfolio of products.  Effectively managing this complexity requires walking a fine line between meeting customer needs and minimizing operational complexity and the costs of a warehouse filled with thousands of slow-moving items.

As distributors broaden their reach to new segments and innovation evolves, the focus on “Exclusive Brands (EB)" and operator proprietary items must be balanced; otherwise, the drive toward continued SKU proliferation will only intensify.

Success in the future will require a continued evolution of strategic sourcing to deliver a high level of service without increasing warehouse complexity. One approach is the 3rd-party seller model. As of March 2021, Amazon offered more than 75.1 million products. 53% of purchased units were sold through Amazon's platform by third-party sellers. Is there learning here for Foodservice? Clearly the business model for Foodservice distribution is different, but can this 3rd-party seller model be further adapted in the Foodservice industry?

The distributor of the future must also employ best-in-class principles of category management, which requires close collaboration with strategic suppliers.

Although there is no silver-bullet solution, best-in-class portfolio management will require creative multi-partner solutions involving new thinking and new technology.

6.  Collaborative Strategic Supplier Engagement – Collaborative engagement starts with the realization that supplier strategies go two ways. Many supplier relationships are still transactional in nature. While these relationships have their place the value of a closer relationship with select suppliers is a smart approach to supplier engagement. Many suppliers have deep resources and insights that can provide tremendous value. Maximizing this value starts with deciding with whom to align.

A best-in-class distributor understands that optimizing supplier value starts with a segmentation model to assess each relationship's current and potential value. They have effectively segmented suppliers to understand which are strategic versus transactional and then leverage strategic supplier capabilities into areas such as category management, insights, innovation and joint selling efforts. Critical to successful supplier engagement is the belief in mutual benefit, grounded in transparency and a commitment to collaboration.

7.  Winning Culture & Engaged Labor Force – The relationship among team members and the distributor organization has a direct impact on their performance, work quality and retention. Building a winning culture of engagement and empowerment is a critical business factor for any company. This is especially important for Foodservice distribution given the labor-intensive model with multiple direct customer touch points including sales, drivers, customer service reps and newer services like culinary and restaurant consulting and support services.

According to the latest Gallup report, only 36% of employees are engaged in the workplace, 51% of employees are disengaged, while 13% are actively disengaged. Clearly there is significant opportunity for improvement.

The distributor of the future will build a culture that attracts the best people and an engagement strategy that optimizes their performance and promotes retention. Critical to this effort is flexibility related to work life balance, a progressive commitment to diversity, equity, inclusion, training, and a team environment that embraces genuine TLC with the evolving needs of today's workforce.

8.  Strategic Partnerships – Strategic relationships allow businesses to expand their services and customer base without the time, expense or risk of launching new services themselves. For distributors, building a network of out-sourced services for their operator customers is an effective way of providing differentiated, one-stop services.

A best-in-class distributor of the future will have proactively built a network of external partnerships with associations, redistributors, agencies, and suppliers and leveraged those relationships for smart-outsourcing of non-expert functions and to scope and build new business adjacencies and services. They also understand the value of external connectivity in promoting industry health and overall industry success.

Looking forward, the Distributor of the Future can be defined by the eight business success factors outlined above and is taking action today to plan and invest both thoughtfully and aggressively to build these best-in-class capabilities. In the words of Amazon founder Jeff Bezos, “In today's era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility."


Report: Plant-Based Menu Items Skyrocketing at U.S. Restaurants

With what seems like a new plant-based development each week, it's no surprise that meat alternatives are now a $14 billion market, according to Tastewise's new Q3 Market Report: Alternative Proteins.

The Food Institute reviewed the report and took a closer look into some of the most eye-opening stats:

Menus Tap into Plant-Based

U.S. menus have significantly tapped into the alternative meat market, with a +1,320% increase in menu mentions since pre-pandemic. Notably, from May-July 2020, there was a 158% spike in menu mentions of vegan meat across the country. This was largely due to Starbucks' June 2020 addition of the Impossible Breakfast Sandwich.

The addition prompted further growth in the category and other companies soon followed suit. Beyond Meat signed partnerships with fast-food giants McDonald's and Yum Brands in early 2021, while Good Catch's plant-based seafood landed itself on the menu at Bareburger, and Jack in the Box unveiled the Unchicken Sandwich.

These are just a handful of the many new plant-based additions over the past year or so. However, Dunkin', which was the first major restaurant chain to offer Beyond Meat's sausage alternative, pulled the Beyond Sausage breakfast sandwich off its U.S. menu in June. The item did not sell as well as the chain expected.

When it comes to where plant-based has the most menu penetration, New York City holds the top spot, followed by Los Angeles and Portland, Oregon.

Trends to Watch

Sausage is the top meat that consumers are trying to replicate with plant-based products, at 34%. Soy is the primary ingredient for sausage replication, but walnut chorizo is an up-and-coming ingredient to watch for sausage replication. There was a 72% increase in interest in walnut-based sausage over the last three months, with 82% being in the form of chorizo.

Sausage was followed by chicken (23%), bacon (10%), and beef (8%), while more niche meats, like lamb, salami, and jerky appear to be items to keep an eye on.

Jerky is especially seeing growth opportunity. One brand to watch in this category is Country Archer Provisions, which recently launched a plant-based jerky line. The line uses oyster mushrooms for its products, which the report notes is an emerging ingredient. Mushroom jerky was up 14.6% year-over-year.

Top Motivators for Eating Plant-Based

The report found that health and sustainability are the top two reasons for eating alternative meat. Though health is the number one reason, sustainability is rising faster, up 58% year-over-year.

Specific health-related reasons people choose alt meats for include protein, fiber, as well as saturated fat, cholesterol, and anti-aging.

Interestingly, animal rights declined as a motivator for alt meat (-14% year-over-year), while climate change concerns have stepped up (+83%).

Many consumers don't want to give up the sensory and social experience of eating animal meat once they've decided to eat alternative meats, revealing a market for products that replicate the experience authentically. Food Institute Focus

Loyalty Programs Gain in Food Industry; Grocers Align with Subscriptions

Loyalty programs continue to gain traction across the food industry as restaurants and retailers implement new offerings to capitalize on customer allegiance.

The increase is widely tied to pandemic-induced spikes in digital commerce along with consumer's growing appetite for personalized omnichannel shopping experiences.

“The biggest innovation in loyalty is around dynamic pricing and promotion to reward the right customers for the right behaviors," Jonathan Treiber, CEO of promotions marketing platform RevTrax, told The Food Institute. “These innovations leverage shopper insights, data science, and digital technologies to optimize profit and sales for a brand at a consumer-level."

Clash of the QSRs

In 2021, the share of consumers using a restaurant loyalty program increased by 12% from January through April, according to a recent report from Paytronix and PYMNTS. Additionally, 47% of diners now use at least one loyalty program.

Accordingly, some of the biggest names in fast food — from Burger King, McDonald's, and Wendy's to Popeyes and Jack in the Box — have implemented loyalty programs over the past twelve months.

Overall, it seems the benefits of customer loyalty are worth fighting for. In addition to driving higher order frequency and ticket sales, digital loyalty platforms enable companies to collect customer data and distribute content to drive deeper engagement, reported Forbes (Aug. 20). Full Story

Shoppers Prioritize Rewards

In IRI's 2021 Consumer Connect survey, 51% of respondents said shopper loyalty programs somewhat influenced where they decided to shop, while 22% said it was extremely influential.

The survey also revealed that personalization is a key to consumer loyalty, with 85% of respondents wanting to select their own benefits and rewards, and more than 70% wanting to personalize the way they earn based on their purchases or preferences.

Furthermore, retailers that combine loyalty programs with multiple options for making purchases, such as online ordering or click-and-collect, can improve their chances of capturing consumers' allegiance, Joan Driggs, vice president of Content and Thought Leadership at IRI said in a press release. Food Institute Focus

Oklahoma City Most Likely to Lead Restaurant Recovery Charge: Report

As the U.S. restaurant industry pushes towards pandemic recovery, a new report from Lending Tree shows some cities are bouncing back faster than others.

For the study, researchers examined four key metrics from the 50 largest metropolitan areas between January 2020 and June 2021:

  • Consumer spending at restaurants and hotels
  • Job postings in leisure and hospitality
  • Employment
  • Time spent away from home at retail and restaurants

The survey also took into account the number of restaurant workers in a local area relative to the national average and the 2019 cost-of-living data from the U.S. Bureau of Economic Analysis.

Top Performers

Half of the top ten fastest recovering regions are in Southern metropolitan areas, with Oklahoma City leading the list due to a strong employment recovery and a sizable pool of restaurant workers. The top areas are:

1.  Oklahoma City, OK

2.  Boise, ID

3.  Tampa, FL

4.  Omaha, NE

5.  Tulsa, OK

6.  El Paso, TX

7.  San Diego, CA

8.  Fresno,CA

9.  Jacksonville, FL

10. Detroit, MI

While other strengths varied across metrics, there was a particularly notable spike in the percentage of job postings in areas like Boise (116%), Detroit (113%), and Tampa (43%).

The report further notes the higher performance of some cities are due in part to state regulations where restrictions on dining out have been more lax or nonexistent compared to states that mandated extended shutdowns.

Challenged Regions

Some of the lowest ranking recovery scores overlapped with the most expensive metros. Cost of living in the U.S. is highest in San Francisco and San Jose, CA. New York, which has the third-highest cost of living, comes in at No. 40.

The metros with slowest recovery are:

1.  Washington, DC

2.  San Francisco, CA

3.  Oakland, CA

4.  San Jose, CA

5.  Miami, FL

6.  Phoenix, AZ

7.  Baltimore, MD

8.  Sacramento, CA

9.  Atlanta, GA

10. Portland, OR

LendingTree chief credit analyst Matt Schulz notes that heightened competition areas like San Francisco and New York make it even tougher for restaurants to thrive.

“High rent is part of it, no question, but the sheer amount of restaurant options that are available in those areas plays a big role, too," Schulz stated in the report. “That's true even in the best of times. Factor in a pandemic, and it all just gets exponentially more difficult." Food Institute Focus


Store News:

  • McDonald's says nearly all its paper packaging now comes from sustainable fiber. In its latest sustainability report, the chain said 99.6% of the paper bags, wrappers, napkins, cup carriers and other fiber-based materials it used to package meals came from recycled products, reported Reuters (Aug. 20). Full Story
  • Meanwhile, McDonald's and Saweetie unveiled a new merchandise collection to celebrate the Famous Orders collaboration. The Saweetie Meal is currently available at participating restaurants through Sept. 5. Full Story
  • Maggiano's Little Italy is adding another virtual concept to its fold called Maggiano's Italian Classics, which will emphasize $10 lunch combos, reported Restaurant Business (Aug. 18). Full Story
  • Jack in the Box signed deals to open 64 locations across Arizona, California, Idaho, Texas, and Utah. Full Story
  • Chick-fil-A locations in Alabama were having difficulty staffing their stores, with a Bessemer-based operation closing its dining room since it cannot properly staff it. A Calera-based store closed its dining room, turned off curbside delivery, and limited the number of catering orders it would accept to reduce stress on its team, reported CBS News (Aug. 26). Full Story
  • Meanwhile, Chick-fil-A will soon test three virtual brands in Nashville, Tennessee: Flock&Farm, Garden Day, and Outfox Wings will specialize in products like pork belly BLTs, garden-fresh salads, and bone-in wings, reported Full Story
  • Salad chain Sweetgreen bought Spyce, a Boston restaurant company that made a name for itself with its automated kitchen, reported CNBC (Aug. 24). Full Story
  • Taco Bell is launching the Chicken Sandwich Taco for a limited time. The item, which will ask fans to answer whether it's a sandwich or taco, will incorporate marinated chicken with tortilla chips and flatbread, reported MarketWatch (Aug. 26). Full Story
  • Wing Zone is making a sizable tech investment to speed its growth. Eight months after being acquired by Capriotti's Sandwich Shop, the fast-casual wing chain is eyeing robotic fry cooks and new equipment to reduce wing cooking times from nine minutes down to just two minutes, reported Restaurant Business (Aug. 24). Full Story
  • Noodles & Company is opening four locations in the El Paso and Las Cruces, Texas markets. Full Story
  • Wendy's Co. is combatting soggy French fries by retooling their design with drive-thru and delivery orders in mind. The new “Hot & Crispy" fries are coated with a “whisper" of batter to hold up for a 20-30-minute delay before eating, reported MarketWatch (Aug. 30). Full Story
  • Dickey's Barbecue Pit will open 48 locations in the northeast over the next five years under a deal with Chaac Foods. Full Story
  • Subway is looking to boost its international development. The chain has signed a deal with PT Mitra Adiperkasa Tbk to expand in Indonesia, as it seeks to add more units overseas, reported Restaurant Business (Aug. 23). Full Story
  • Starbucks wants a union vote expanded to 20 locations in New York state. The coffee chain wants all 450 employees in its Buffalo, New York, market to have a say on whether they'll be represented by the Service Employees International Union, reported Restaurant Business (Sept. 15). Full Story
  • Burger King is taking its rewards program nationwide amid a broader push from the Restaurant Brands International chain to invigorate its U.S. business. The chain is on track to have two-thirds of its U.S. footprint offer the loyalty program in restaurants by the end of September. The program is already nationwide for orders placed through its mobile app and website, reported CNBC (Sept. 2). Full Story
  • Meanwhile, Chipotle is adding new loyalty program features as its digital sales for 2021 surpass $2 billion. The chain's “Rewards Exchange" adds a gamification element to the program and allows members to exchange points for more than 15 different rewards, reported Forbes (Sept. 1). Full Story
  • Dog Haus will open a total of eight locations in Los Angeles, Phoenix, the San Francisco Bay area, Washington D.C., and College Station, Texas. Full Story
  • Walmart opened its first Ghost Kitchen Brands “virtual food court" location in Rochester, New York, as part of a multi-state U.S. expansion. The service enables shoppers to select food and beverages from the menus of up to 25 national and regional restaurant and CPG food concepts and combine them into a single order, reported Supermarket News (Sept. 3). Full Story
  • P.F. Chang's opened a flagship location in Honolulu. Full Story
  • FAT Brands will open 70 ghost kitchens in the Middle East over the next year and will add 136 brick-and-mortar stores within the next five years in partnership with master franchisee Kitopi. Full Story
  • Breakfast-and-lunch chain First Watch is going public. The 423-unit chain has seen a quick recovery from the pandemic and would be the industry's third such offering of 2021, reported Restaurant Business (Sept. 7). Full Story 
  • KFC pulled advertising for its chicken tenders due to supply shortages. KFC U.S. President Kevin Hochman noted the chain had enough supply to meet current demand, but aggressive advertising for the product would likely stretch supplies too thin, reported Fortune (Sept. 7). Full Story
  • Yum! Brands plans to transition to 100% cage-free eggs and egg products at the majority of its locations by 2026. Full Story
  • Cava is investing $30 million in a 57,000-square-foot food processing facility in Virginia. The facility will be used to create and package dips and spreads branded under the fast-casual chain's name to be sold in grocery stores nationwide, reported Restaurant Business (Sept. 10). Full Story

Executives on the Move:

  • General Assembly Pizza named Hormis Tharakan as COO. Full Story
  • Restaurant Brands International appointed Tom Curtis president of Burger King U.S. & Canada. Full Story
  • McDonald's Corp. named Paul Pomroy corporate SVP, International Operated Markets, Alistair Macrow as CEO of the United Kingdom & Ireland, and Morgan Flatley as global chief marketing officer. Full Story
  • Yum! Brands named Aaron Powell global Pizza Hut CEO. Full Story
  • National Restaurant Association CEO Tom Bené is stepping down and CFO Marvin Irby will serve as interim CEO. Full Story
  • IHOP appointed Jacob Barden VP of development and Michael Kaufman VP of strategy and business analytics. Full Story
  • MOD Super Fast Pizza Holdings appointed Becky Mulligan SVP operations. Full Story
  • Tropical Smoothie Cafe named Richard Key to chief operations officer. Full Story


Labor Shortages Continue to Drive Supply Chain Woes

Massive supply chain disruptions continue to pervade the U.S. food sector, with labor challenges triggering shortages from raw materials and ingredients to packaged goods.

Some of the largest U.S. food distributors, including United Natural Foods Inc. and Sysco Corp., are having difficulty fulfilling orders. Sysco further noted that prices for key goods such as chicken, pork, and paper products for takeout packaging, are climbing amid tight supplies, reported Yahoo Finance (Aug 24). Full Story

Food manufacturers are also tangling with shortages in resin, aluminum, and other raw materials used for packaging, and many producers are giving priority to their most popular items.

Labor Challenges

Across most sectors, manufacturers are struggling to meet demand due to continued employee shortages. There was some expectation that states where enhanced unemployment benefits and COVID relief payments expired would see an increase in new hires or employees returning to work. However, the labor issue has persisted.

“In some cases, manufacturers can't hire adequate numbers to fully staff lines contributing to reduced productivity." Rick Williams, Operations Business Partner at JPG Resources told The Food Institute. “In other cases, employers experience up to 20% to 40% callouts on some shifts, impacting planning and production."

The shortage of U.S. truck drivers is further exacerbating bottlenecks in the supply chain, with retention challenges playing a key role. Turnover rates are over 90% for large long haul carriers and over 72% for small carriers, according to the U.S. Department of Transportation.

Mitigating Out of Stocks

In the grocery retail sector, inventory on a wide range of categories continues to fluctuate. Due to limited guidance from suppliers, grocers are struggling to predict how complete or timely their deliveries will be, reported The Wall Steet Journal (Aug 22). Full Story

In attempts to mitigate supply chain issues, retailers can draw on their experiences over last year, Gary Hawkins, Founder and CEO for the Center of Advancing Retail and Technology told The Food Institute. “Many retailers have reduced and simplified product assortment in many categories, concentrating on keeping improved stock positions on a fewer number of items."

Echoes in the U.K.

Businesses across the U.K. are grappling with similar supply chain and labor shortages.

In response to the country's hiring crisis, Amazon began offering $1,373 sign-on bonuses for a range of warehouse jobs. Tesco and Asda are offering an equal sign-on bonus for truck drivers, reported Independent (Aug 24). Full Story

Supermarkets are also delivering to stores less frequently and prioritizing products, according to The Financial Times (Aug 24). Full Story

Additionally, restaurants like McDonald's and Nando's have cut major menu offerings and shuttered stores in recent weeks due to product shortages. Food Institute Focus


August Restaurant Results Worst Since May

Restaurant sales and traffic posted their worst results since May, according to  Blackbox Intelligence, which reported sales were up 6.13% from August 2019. Meanwhile, comparable traffic dropped 5.44% during the quarter. Full Story


Tork is Dedicated to Helping Your Customers Navigate Hygiene Challenges

Tork is dedicated to helping you and your customers navigate through today's hygiene challenges and opportunities. Download the hand hygiene presentation to review a holistic view of hand hygiene in the restroom including the latest government guidance, tools, and product recommendations. Hygiene is key to the well- being of people, business and society and Tork can support you in maintaining critical hygiene standards.

P&G Launches CleanPLUS Experience Program

P&G Professional has recently launched their CleanPLUS Experience Program, aimed at helping restaurants and their guests during COVID-19. Both external & internal P&G research found that a majority of restaurant patrons expect more thorough cleaning - and 58% would prefer to see the brands used to clean.

Through the CleanPLUS Experience Program, guests and employees can be reassured that all restaurant areas are cleaned and disinfected using P&G Professional products that have been trusted by Americans for generations, such as Dawn Professional, Spic & Span, Comet, and Safeguard. Many may have seen last week's press release by Dunkin' Brands- announcing they've become one of the first partners for the P&G Professional CleanPLUS Experience Program- in their nearly 12,000 U.S. locations.

For regional chains looking to grow quickly and selectively across the US, DMA Offers the one national network that can be customized specifically to your needs to serve your long term expansion plans.

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