You have a new food product, or maybe a service, that you’d like to sell into the $1.5 Trillion U.S. food and beverage industry. This article will help you better understand the structure of the food industry focusing on the supply chain. It focuses on what wholesale food distributors are, what they do, the part they play in the food industry supply chain, and how to work with them and sell to them.
Overview
When we talk about the U.S. food industry, we’re talking, um…large. $1.5 Trillion. Of this, about half is retail, such as grocery and convenience stores that means, ‘food consumed at home.’ The other half is food service, which means ‘food consumed away from home,’ namely restaurants, workplaces, schools, and the like.
This is a significant statistic; Americans have been increasingly purchasing food away from home rather than eating at home. In 2013, for the first time, we spent more than half of all food purchases on away-from-home, prepared food. See the chart below to see this trend, which continues.
There are currently 1,249,737 food operators in the US alone. Retail foodservice like supermarkets, convenience stores, and the like make up 264,125 units.
Restaurants make up the biggest piece, at 648,462 locations; and on-site food service operations total 337,150 operations. These on-site operations include schools, colleges, hospitals, nursing homes, workplace cafeterias, catering, lodging and recreation, and the military. These types of venues are sometimes known collectively as the ‘non-commercial’ foodservice sector. (Learn more about this part of the industry in our blog 5 Markets for Food Companies you may have Overlooked and our e-book Let’s Do Lunch.)
What Wholesale Food Distributors Do
The business function of any wholesale/distributor is to break bulk and be an intermediary between food producers and food operators, like retailers or restaurants. They break down the large volumes of products from producers into smaller quantities that an operator can use. Foodservice distributors warehouse products and usually transport them to operators. For the rest of this article we’ll just call them ‘distributors’ and we’ll call food manufacturer/producers ‘producers.’ You get the idea.
Simple supply chain exampleDistributors supply both aspects of the food industry; both the consumed-at-home side – the retailers (grocery stores, convenience stores) as well as the away from home side (restaurants, schools, hospitals).
The distributor purchases, stores, sells, and delivers those products, providing foodservice operators with access to items from a wide variety of manufacturers. Foodservice distributors procure pallets and bulk inventory quantities that are broken down to case and sometimes unit quantities for the foodservice operator. Most foodservice operators purchase from a range of local, specialty, and broadline food service distributors on a daily or weekly basis.
Types of Food Distributors
Food service distribution companies can range in size from a one-truck operation to very large, national corporations.
In the US, the industry is highly fragmented, with Sysco capturing 17% of the market, US Foods with about 9%, Performance Food Group with 5%, Gordon Food Service and Gold Star Foods playing a large part as well. The rest are spread across a host of smaller, regional players.
4 Types of Distributors
1) Broadline Distributors
Broadline distributors are distinguished by carrying thousands of different products that a large range of operators might need. These tend to be shelf-stable, packaged goods that are sold in high volume. Consequently, broadline distributors tend to be large organizations that serve a large market. The range of products is large but more generic. Specialized or niche products that an operator might want to use may not always be carried.
2) Specialty Distributor
Specialty distributors focus on a certain type of smaller category than a broadline distributor. For example, a fresh seafood distributor will have the supply chain, food safety skills, and infrastructure to provide fresh seafood to seafood restaurants. They will have products that a broadline distributor would not be able to provide.
Or a specialty distributor might work exclusively with Middle Eastern restaurants, for example, across a specific region. They would carry the specialized, niche ingredients that chefs at these restaurants would not be able to purchase from a broadline distributor.
3) Redistributor
Redistributors do not sell directly to foodservice operators, but buy directly from producers and break bulk for smaller, local, or niche distributors. Redistributors provide less than truckload (LTL) quantities to these smaller distributors.
These smaller distributors serve smaller, individually owned food service operations that don’t have enough volume to buy from large broadline distributors. Redistributors make this possible.
4) Cash & Carry
Finally, a cash and carry distributor is more of a wholesaler than a distributor because they don’t transport products to food service operators. Rather, operators go to a cash and carry warehouse and purchase and pick up their products there. There are many restaurant supply businesses that operate in this way and smaller food operators buy from them.
Selling to Food Service Distributors
So, the question you may have if you have a product that you would like to sell to this vast industry, (read our blog here about ‘3 Stages of Launching a Food Product Business’) is how to make inroads; how to get your product into distribution and onto store shelves, restaurant chef’s kitchens, or college dining offerings. (Read our blog here about how to sell to the College & University Dining Industry).
Essentially, the end-user or consumer is in charge so, you have to work your way back from the consumer. Having a relevant, new, or better product that consumers are aware of and interested in is key. Consumers should be asking the food operator to provide that product. Secondly, you need to build demand with the operator. Is your product something that the operators feel will enhance their food offerings? Is it something that will help them compete? Does it fit their brand? Is it new, different, better? Are consumers looking for it?
Distributors will only pick up a product if there is enough demand for it. And in a sort of ‘catch 22’ (read more about this in our e-book ‘Let’s Do Lunch’) operators will usually only use your product if it is available through distributors because they will not be able to buy enough quantity for you to ship directly to them. So, building demand in a region or with a niche type of operator will be essential for your product to be picked up by the appropriate distributors that serve that niche or region.
Resources
Here are just a few trade associations that hold conferences and trade shows and serve a few aspects of the food industry we’ve discussed. There are many, many other associations, conferences, and trade shows for other aspects of the food marketing, distribution, and related industries.
- Foodservice Distributor Industry Associations
- International Foodservice Distributors Association
- Food Marketing Institute
- National Restaurant Association
- Specialty Food Association
- American Frozen Foods Institute
- Grocery Manufacturers Association
Conclusion:
Thanks for reading! We help companies succeed in many of the aspects of the food industry we’ve discussed here. So don’t be a stranger, give us a shout!
Not quite ready to schedule a call? Learn more about the 5 Stages of Growing a Food & Beverage Business.
Sources:
- https://en.wikipedia.org/wiki/Foodservice_distributor
- https://www.winnesota.com/news/fooddistribution
