ST. CHARLES, Ill. -- The practice of diverting often conjures up images of under-the-table deals and seamy players. Not surprisingly, diverters have found it preferable to keep low profiles, particularly as Efficient Consumer Response prompted heightened criticism of their activities.
But at least one diverter is raising his profile to answer the critics. K.C. Potts, founder, owner and president of Pioneer Wholesale, a grocery diverter based here, says his line of work, which he often refers to as secondary wholesaling, is good for the food industry and shouldn't have a bad name.
"For too long companies like mine have been saying, 'let the manufacturers say what they want about us,' " Potts remarked in an interview. "We say, let's end this charade.
"We're now trying to mainstream this function. No one before has been willing to talk. There's been no rebuttal to all the comments."
Potts said he has chosen to increase his visibility now because of stepped-up attacks on diverting and because his company's capacity can now support more business.
He stressed that educating the industry about his sector is the prerequisite for further expansion.
"If we continue to hide, we can never grow the business," he said. "In the future we need to provide more services and channels of distribution to the marketplace."
Pioneer is a major national diverter with volume in the "$120 million-plus range," Potts said.
Potts co-founded Pioneer in 1988 after a three-year stint at diverter Purity Sales, which is now based in Boca Raton, Fla. He also brought other food-industry experience to the task, including executive positions earlier in his career at Coca-Cola, Dean Foods and Mid-Central Food Sales.
Potts declined to give any specifics about the company's client base, except to say Pioneer works with all levels of the food wholesale/retail spectrum, including nonsupermarket classes of trade. The company occupies a 50,000-square-foot office and distribution center here and has satellite offices in Corona, Calif., and Marion, Ind.
Technology has been employed to bring his sector of the industry up to date, Potts said. "We've gone from the boiler room to sophisticated processes," he noted. "There's a lot of electronic interchange of data with customers. We download to customers our current inventory, pricing and market information. The technology has accelerated in the last few years."
In addition to supplying products, Potts' organization offers services like information analysis and marketing assistance.
But if Potts and his competitors are more sophisticated today, they aren't yet being officially embraced by the food industry. The paradox is that diverters are held in higher esteem in many other industries, Potts stressed.
"Industries such as steel have secondary marketers, and those companies aren't the lepers we are," he said. "Time has made them part of their distribution channels."
Potts admits that grocery diverters are partly to blame for the current image of their trade. "Had we been more aggressive about explaining our situation, we'd be in better shape today," he said. "We all tried to keep low key, but ignorance creates negativism."
While ECR has threatened to do away with diverting by espousing the use of continuous replenishment and other practices, Potts said the opposite has proven true.
"The irony of ECR is that it's struggling in some areas because the guy making 20% is asking the guy making 2% to give up some of his profit," he said. "ECR has a lot of benefits, but to say it's the answer to promotion spending is not right."
Why are diverters still thriving today despite ECR's push to streamline the distribution channel? Potts points to the vital function diverting still plays in the industry.
"No one can completely predict the response to a product," he said. "We create a leveling of the marketplace by buying in one area and selling to another."
Pioneer employs 18 full-time sales associates plus a support staff of more than 50 people. The company owns and operates a fleet of trucks providing dedicated service across the country.
The sheer size and complexity of the nation virtually requires the diverting option, Potts said.
"There are different deals in different regions; that's the nature of the United States business," he explained. "We are a diverse, regionalized country. What works in New York doesn't always in Chicago. So different deals are necessary."