PALM SPRINGS, Calif. -- A retailer thinking of self-distributing specialty foods might not have considered all the factors, according to a consultant who has done several projects for the Specialty Food Distributors and Manufacturers Association, Chicago.
In his presentation earlier this month at the group's annual convention here, Jon Hauptman, vice president of Williard Bishop Consulting, Barrington, Ill., said retailers will probably find that self-distributing specialty foods is a lot more costly than they might have thought.
"The reason is that retailers do an exceptional job of distributing fast-moving items, and they know how much it costs them to do that. It's a whole new dynamic with the slower-selling specialty foods, and costs are different," Hauptman said.
For example, cases of product need to be broken down in the warehouse and picking is done "by the each," which costs more. Another issue is, in working with specialty food distributors, the retailer benefits from their expertise in knowing what products ought to be on the shelf and in what amounts, Hauptman said. The retailers' other option is to source and purchase specialty items themselves, using their own warehouses.
On average, Hauptman said, "We tracked that it cost about 12.3 cents in supply chain costs, warehousing, stocking and transportation to distribute the average grocery item if a retailer does it himself. A retailer distributing a specialty item will find that it costs about 21.7 cents instead."
"They assume the efficiency they enjoy in mainstream items will translate to the specialty field. But if it's a slower-moving item, it costs more than they might have thought," Hauptman said.
The other thing to look at is inventory-carrying costs for specialty foods, or the costs of capital to keep an item. "We find that for retailers that self-distribute, each item carries 5.1 cents in inventory-carrying costs. Of that, about 2 cents is incurred in the warehouse, and the other 3 cents is what's happening in the store," the consultant said.
When a retailer uses a specialty food distributor, there is no warehouse cost and the inventory cost in the store is only 1.9 cents, Hauptman said, adding that whatever the distributor charges is embedded in the costs of goods, rather than being billed separately. Data shows that when retailers bring the goods in themselves, they incur more costs than they might have thought and they are not doing it as efficiently as a distributor.
Hauptman used data from the 1996 SFDMA activity-based costing study, a Willard Bishop project.
At the convention, the top-line findings from three previous Bishop studies were wrapped into a presentation of 20 key trends that will help the specialty food industry prepare for the future.
Commenting on what he heard at the convention, Charlie Morrow, the north central division vice president for St. Augustine, Fla.- based Tree of Life, the only national distributor of specialty foods, said, "He did some interesting analyses of the value of the DSD channel to the retailer. It's the first time I have seen that conveyed in a way where everybody could understand it."