After visiting the ISSA Show again, I’m struck by the degree of overlap between the foodservice and jan-san channels. Certainly most FS distributors carry at least a few jan-san products, and but it seems like the lines are becoming more blurred. If you’re a broker or distributor who is not yet “up to speed” on non-foods and jan-san opportunities, you owe it to yourself to become familiar with the ISSA.
This is the final installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
Many years ago, I read a book by consultant Glen Terbeek, suggesting ways the retail grocery supply chain could be improved.
One point which stuck with me was the idea that distributors should not take ownership of manufacturers’ products, but instead should charge a “distribution fee” for their services. Terbeek writes, “the third party distributor does not buy and resell the product (any more than Federal Express buys and resells the packages it delivers). Rather, it earns a distribution fee for doing something better than the individual (trading partners) can; i.e, timely and effective logistics.”
On the one hand, it’s a compelling idea. On the other hand, it smacks of the days when some manufacturers tried to label distributors as mere “drayage houses.”
The truth is, foodservice manufacturers want and need their distributors to be more than drayage houses. For one thing, manufacturers aren’t interested in setting up direct billing and collecting relationships with every operator who buys their products. For another, operators aren’t interested in receiving and paying invoices from every manufacturer whose products they use.
What’s more, distributors do offer some level of marketing and sales support. So the notion of “selling direct to operators” and just paying a distributor to store and ship product isn’t feasible.
Now, for the distributor’s point of view.
This is the eighth installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
Wouldn’t it be nice to institute a price increase of say, 3.5%, and see your revenue increase by 3.5% for the same volume in the next month? It never happens.
From the moment a pending price increase is announced, Sales Managers and Sales and Marketing Agencies begin to dread the process of “selling it in.” Distributor buyers begin to practice their objections, delaying tactics, and tricks of the trade which reduce or minimize the planned impact. And Finance tries to guess how much of the planned increase will actually “stick.”
Then the next 6-8 weeks are spent in explanations, negotiations, threats, and fighting off ill will, while very little new business is being established.
But I believe many manufacturers are missing the boat when it comes to tools to build revenue. There may well be a “painless price increase” hidden among the many processes that take place between the establishment of product prices, the negotiating and documentation of special deals, and the final collecting of receivables.
Because there is a long sequence of processes which cross many departmental boundaries both inside and outside of headquarters, there is a very high potential for “leakage.” And while most people recognize that the price actually collected often differs from the price that is expected, it seems no one has the time to find and plug the leaks. In response, we’ve prepared a…
This is the seventh installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
Commodity costs are through the roof, erasing margins for the dry mix company, the frozen bakery, the poultry processor, and virtually every food manufacturer in between. Energy prices continue to be at historic highs, further jamming the manufacturer, distributor, broker agency, and operator.
But while the impact of expensive oil is felt at gas pumps and on heating bills every day, there is something going on which has pretty much insulated consumers from food price inflation, at least so far.
It seems that distributors are pushing back with unprecedented fervor on manufacturer attempts to raise prices. They are insisting on “seeing the books” and using other tactics to forestall or reverse planned increases from their suppliers. Doubtless the distributors are driven by fear of raising prices to their operator customers, because the operators are loathe to increase menu prices.
An article about the recent Darden Restaurants investor conference call spelled it out:
This is the sixth installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
For the past several years, the foodservice industry has been in uncharted waters when it comes to:
The foodservice press and the popular press are full of stories about how tough the economy is, and how foodservice and retail grocery companies are dealing with inflationary pressures.
It could well be that the days of jamming your cost increases down the line to the next guy are over, at least for now. Certainly, that’s still going on, but there are examples of companies throughout the supply chain who are taking a more creative approach to dealing with costs.
For example:
A leading poultry processor is closing a plant and 6 distribution centers. This move “is likely the first of many similar moves that will be made by poultry processors this year, as producers attempt to curtail supply to improve industry fundamentals.” An analyst “described the move as positive for the industry, and said he expected similar cuts at other processors to total about 3% of industry capacity by summer, based on historical trends.”
As long as there is overcapacity in your category, the opportunity to take price increases will be stifled by fear of “the other guys” who are willing to take your business for a few pennies less. Taking out capacity is a painful move, and no one earns a bonus for making the overall industry better. But getting your capacity in line with real demand allows a supplier to peel off “overhead-covering” business and focus on more profitable customers.
In a recent market report, Sysco executives discussed how their MA’s are helping their operator customers deal with inflation. Their strategies include:
This is the fifth installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
At any given time, I’m usually working with several clients on projects related to pricing.
Some want to standardize their bracket structure across all of their businesses and sales channels. Others are looking into establishing a price model that is tied directly to commodity costs, for a particular set of customers. Still more are working to better understand their total cost-to-serve for various order sizes, in part to determine whether to change their price bracket structure.
At the same time, the role of pricing throughout the foodservice supply chain is receiving an unprecedented amount of press, both inside our industry and in the popular media. The increased interest in pricing is primarily driven by the recent upward pressure on raw materials fueled by spiraling grain and energy costs. Of specific interest is how to make sure pricing models capture the risks associated with grain and energy.
One article on the CNN Newswire proclaimed “Restaurants Spurn Food Contracts for Spot Market.”
The gist of the article is that:
This is the fourth installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
Over the years, we’ve helped a lot of manufacturers get their arms around their cost to serve various order sizes. Often, this work is to support development of a new price bracket structure, and/or to provide backup information for a financially sound redistribution program.
Traditionally, foodservice manufacturers have established price brackets which approximate the utilization of trailer capacity, and attempted to use price premiums which reflect the additional costs of managing and shipping small orders. At the very least, the price premiums should reflect the high freight cost associated with shipping small orders.
But when we look below the surface, we see that there is a lot more than transportation driving the cost-to-serve equation.
For example, the time spent picking cases proves to be a significant driver of warehousing costs, vs. loading full pallets on trucks. But this cost is buried so deep in your P&L (especially if you use 3d party warehousing providers) that it can’t be found with both hands, a shovel and a flashlight! It takes a lot of work to break out this cost and allocate it to individual order types.
Likewise, the time spent in your Customer Service department keying in faxed orders, reconciling prices and communicating with customers can be much greater for manual orders than for EDI orders. Again, it is possible to break down the time and cost for both order types, and assign them accordingly; but few if any manufacturers do it.
So it brings a few questions:
This is the third installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
So let’s say you’ve got your act together on pricing, and have been taking regular price increases in order to stay ahead of rising costs. Let’s say your Sales Managers and Broker Agencies are excellent at selling in price increases. And let’s say your customers grudgingly accept that your company is a price leader, and have learned that it’s a waste of time to protest, threaten, stall, or otherwise try to fend off your price action. That’s all great.
But what really happens in the weeks and months after your new prices take effect? Are the new prices really appearing on customer PO’s? How about on your invoices? And how many customers are actually paying the new prices?
This is the second installment of Straight Talk About Foodservice Pricing, which can be downloaded for FREE from our eBook library.
The notion of FOB pricing is getting a lot of attention, and I think I know why.
First, large distributors are pushing suppliers to clarify their logistics costs. Several major distributors are working hard to understand the activities and costs associated with moving finished product from plants to the distributors’ warehouses, with a goal of taking over much of this activity. These distributors and their suppliers are exploring whether “FOB plus Freight” pricing is the best way to separate product costs from logistics costs.
Second, most distributors are seeking opportunities to pick up product at manufacturers’ plants and Distribution Centers. Manufacturers with bracketed delivered price lists (the vast majority) generally offer pickup allowances to these customers. And debates over the fairness of CPU Allowances and pricing policies for pickups have been around since the invention of the #10 can. Again, manufacturers wonder if there might be a better way.
Finally, volatility in fuel prices has left manufacturers scrambling to recover their freight costs. What was the best way? Fuel surcharges? A general price increase? A change to “FOB plus Freight” price structure?
Thinking through all of the ramifications of the manufacturer’s price structure decision is enough to make your head spin. But I sat down and organized my understanding on a big table, which addresses all of the combinations of:
This is the first installment of “ Straight Talk About Foodservice Pricing”, which can be downloaded for FREE from franklin-foodservice.com.
Recently, I read an excellent article with the above title in the “MDM Advisor” newsletter. The author quotes extensively from Jim Saunders of Pricing Solutions Ltd. in Toronto.
While the article was addressed to wholesale distributors, the message applies equally to foodservice manufacturers and their concerns to regain pricing control.
To wit,
“If a sales force is out negotiating deals, there’s very little control. They come back and say ‘I’ve got a deal at $90. I know our price is $100, but if we don’t give then $90 we won’t get the deal.’ And everyone feels as if they are being held for ransom.”
Saunders says that if your company lacks a coherent price strategy “you don’t have the backbone to convince your sales force to tell the customer this is our price, and here’s why. If you can’t say here’s why, the salesperson won’t have the backbone to stand up to the customer when they are asking for a discount.”
MY TAKE – it’s safe to say that every one of my clients feels they have a premium product. But many cannot articulate what makes it unique, different, and better than the competition. Still, the Headquarters folks often lament that sales people (including brokers and DSR’s) “only sell on price.” Can you blame them?
