Food Logistics

OCT 2014

Food Logistics serves the entire food supply chain industry with targeted content for manufacturers, retailers, and distributors.

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16 OCTOBER 2014 • FOOD LOGISTICS C O V E R S T O R Y Consumer lifestyles drive away-from-home food sales; evolving formats challenge foodservice supply chain. FOODSERVICE CHARGES FORWARD BY ELLIOT MARAS While the long-term outlook for aggregate foodservice sales remains positive, established foodservice operators face an onslaught of chal- lenges from evolving foodservice formats such as ecommerce, fast casual, onsite foodservice in non-food retail establishments and more. In response to these challenges and the ris- ing cost of operations, foodservice operators find themselves in a perpetual quest to improve operating efficiencies. They continue to look to foodservice manufacturers, distributors and logistics professionals for ways to reduce over- head, improve service, increase sales and reduce customer attrition. All industry shareholders face rising operating costs, a major driver shortage, increasing regula- tions and more competition. Foodservice manufacturers and distributors in recent years also cite increasing profit mar- gin pressure from foodservice operator buying groups. The operator purchasing groups have more volume-based buying power when nego- tiating terms with manufacturers and distribu- tors, who in turn look for ways to reduce costs to maintain profit margins. Foodservice operators consolidate buying power Foodservice operator buying power will continue to consolidate, according to a report, "Foodservice 2020," by The Hale Group, a Danvers, Mass.-based global food consultancy, in partnership with the International Foodser- vice Manufacturers Association (IFMA). The Hale Group expects that by 2020, nearly 80 percent of all foodservice operator purchases–prod- ucts and services–will be made through a centralized purchasing organization. In response to this pressure, distributors are looking to manage costs, the most obvious example being the proposed Sysco/ US Foods merger. The combined entity will command annual sales of about $65 billion, accord- ing to the companies. The companies said the merger is expected to achieve annual synergies of at least $600 million after three to four years, primarily from supply chain efficiencies, merchandising activities, and overlapping general and adminis- trative functions. The Hale Group notes that Sysco is chang- ing its business model to be in line with market realities which include "more contracted busi- ness, lower cost-to serve multi-unit operators, a competitive set of highly efficient system distributors, and less influence on operators' product selection." The Sysco/US Foods merger naturally raises concern about the level of competition in the foodservice distribution channel. Foodser- vice operators and manufacturers have both expressed concern that Sysco will be in a stron- ger position to dictate buying and selling terms. However, the market dominance resulting from the merger will focus mainly on one segment of the foodservice industry–multi-unit opera- tors. And while multi-unit operators command F oodservice will post its sixth consecutive sales increase this year as the nation continues to recover from the recession, according to the National Restaurant Association. This year's anticipated 3.6-point aggregate foodservice sales gain builds on a long-term growth trend of away-from-home food sales as convenience eating plays a bigger role in consum- ers' lifestyles. And as eating habits become more irregular and consumers exert greater control over their meal choices, thanks in large measure to the Internet, the foodservice industry continues to fnd new ways to meet a more demanding customer. Willow Run Foods in Kirkwood, N.Y. has begun using natural gas to power some of its tractor trailers, notes Len Basso, vice president of opera- tions. The company has also deployed a Cadec fleet management solution which provides an activity-based compensation plan for drivers.

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