FALLS CHURCH, Va. (FNS) -- The food-service business is not the grocery business.
That may seem obvious on its face, but for supermarket operators to work an understanding of this into their psyche will require momentous and fundamental changes in corporate culture and business relationships with suppliers, according to John Gray, president of the International Foodservice Distributors Association here.
Gray, whose association primarily represents the traditional food-service distribution industry, said that, essentially, a newly structured business has to be developed apart from the traditional model set by supermarkets, which long ago cracked the operations code on moving everything from breakfast cereal to toothpaste.
If supermarket chains want to get into the fresh-meals business and compete with food-service operators, they have to be prepared to develop food service as a separately run operation, with its own accounting and costing structures and its own distribution system, Gray said.
"If you want the meal occasion, that is a separate business," he explained in an interview with SN. "Food service and retail are two distinct businesses, with separate accounting needs and they have to be run that way."
It could be argued that it may be more trouble than it is worth, but retailers are increasingly becoming convinced that the sales potential of the fresh-meals market might be worth it, especially at a time when more traditional supermarket business segments are stale.
"Gross sales are declining in grocery," said Gray. "Technology and lifestyle shifts are changing everything. Basic staples, the core of the store, are at risk of going away, as companies outside the industry examine technologically enabled delivery systems. New competitors see the home-door delivery of basic staples as an opportunity."
As consumers increasingly seek ready-to-eat meals, supermarket executives are establishing in-store food service as one means to recapture dollars being lost to the hamburger chain or the sandwich shop, or the rotisserie category killer.
But don't look to food service to fill the margin void unless you're prepared to do food service right, and that includes effective distribution, Gray said.
Some retailers are finding that the limited number of stockkeeping units in the meals-ingredient base is a key reason to turn to food-service distributors instead of their traditional supply lines.
With an overall product mix in food service geared to fast turns of a relatively low variety of SKUs, the business works at a furious pace in keeping with the nature of fresh ingredients.
These high-volume, faster-moving inventories nonetheless represent relatively small quantities. Most supermarket systems are not equipped to handle this particular type of volume, which is ordered fresh and daily.
Operators that do have an understanding of food service are likely to rely on food-service distributors, he said, even if it is to supply their commissaries and central kitchens.
"The chain that is buying direct is really operating with one arm tied behind its back," Gray said. "Distributors alert their customers to new items and have a basis of knowledge of what works with which items. They are in the business of food service, and know the accounting and labor costs; plus they have the expertise to develop menus and concepts and counsel on other concerns including equipment and inventory."
A stubborn communications gap inside many manufacturers between the business cultures of their two lines -- grocery and food service -- is handicapping supermarkets by limiting their access to food-service products.
When supermarket operators determine that they do not have the expertise to run, and account for, the food-service arm of their business, they are likely to seek out a food-service distributor with the expertise to assist in setting up the department with equipment and products.
"Broadline distributors have more than just food expertise," Gray said. "They have a depth of knowledge about menus, service and equipment and will pretty much help a supermarket food-service operator run the business."
Gray said that, first, supermarket operators have to decide if they want consumers to come into the store to buy a meal or to shop for pantry supplies. This determination will focus the degree to which a retailer should commit to the food-service business.
Part of this commitment involves evaluating the physical plant. Gray suggested asking such questions as whether the store needs to be redesigned to incorporate food service, or simply amended to accommodate the necessary space; or whether there is easy access for customers to get quickly in and out of the operation.
