Much of the wholesale side of the industry gathered at the weekend in Coronado, Calif., to attend the Food Distributors International's annual Midyear Executive Conference. The meeting runs through Tuesday.
To help commemorate the event, this week's SN has a front-page news feature based on an interview with Michael W. Wright, head of the nation's largest wholesaler, Supervalu. The company's top line is about $23.1 billion, a pro forma estimate that includes Richfood, a wholesaler Supervalu acquired in recent weeks.
In the cosmos of all food-distribution companies, Supervalu weighs in as the nation's fifth-largest, trailing only Kroger Co., Albertson's, Wal-Mart Supercenters and Safeway. SN published an updated industry-ranking list last week as part of a focus on mergers and acquisitions.
To some extent, the story of Supervalu illustrates how wholesaling itself has changed during this decade. Looking at sales volume, Supervalu entered the decade at less than $10 billion, and likely will exit the decade at $24 billion or so. The more telling consideration, though, centers on how dollars are presently generated. As Mike recounted to SN, as the decade started, 10% of Supervalu's sales were generated from controlled volume (largely corporately owned stores). Now, something approaching half of Supervalu's volume is controlled, and the proportion of controlled volume doubtless will continue to increase. Not coincidentally, Supervalu's acquisition of Richfood brought nearly 100 more retail outlets into its portfolio. Supervalu isn't alone in this transformation from product supplier to combination wholesaler-retailer, or, more precisely, from wholesaler to food distributor. Nearly every wholesaler that gives evidence of surviving is moving in the same direction. What accounts for the change?
Part of the reason is that as the industry consolidates, on both the retail and wholesale sides, companies simply must move more volume to remain significant players. But, for the same reason, there are fewer entrepreneurs willing to commit to building a supermarket or a regional chain to compete against the behemoths. This means that for a wholesaler to continue to build sales volume, it must control more and more retailing as time goes on.
Wholesalers are also much more amenable to supply nonsupermarket retailers. For instance, Supervalu has contracted with Kmart to supply grocery product, as has Fleming Cos.
Some of the changes have been ushered in because there seems to be more acceptance in the trade now for these nonwholesale-like activities to occur. There was a time when it was anathema for a wholesaler to own any appreciable number of stores, and no wholesaler won many gold stars by supplying alternative formats.
But at the moment, there seems to be a widespread understanding that wholesalers must be open to all options that will build volume, and that benefit accrues to all. The sun is setting on the day of small-scale wholesaling, as this decade's attrition rate of wholesalers amply illustrates.