WHOLESALING'S FUTURE: PRODUCT OR SUPPORT?

David Merrefield

The future of the grocery-wholesaling business will go the direction of franchising and supporting independent banner groups instead of in the direction of product distribution.

That prediction was made by Allister P. Graham at last week's Food Distributors International business conference in Washington. Al is chairman and chief executive officer of Oshawa, which, with revenues approaching $5 billion U.S., is second only to Loblaw Cos. in the Canadian food-distribution field. Al is also FDI's chairman. There's more about Al's talk and other news from the FDI conference elsewhere in this issue.

Here's what Al said: "Of future major consequence will be the changing role of the wholesaler-franchiser as independent merchants recognize their need to harness more extensively the principles of shared market strategy.

"This will shift wholesalers away from focusing on product distribution toward the management of franchise programs, which will enable independents to more successfully withstand chain-store competition.

"The resulting changing relationship between wholesalers and retailers will affect dealings with their manufacturing partners as product selection and merchandising will need to fit the strategy set for the total banner program."

Al is correct to predict that the future growth of wholesaling must involve something other than product distribution, or perhaps more precisely, in a direction in addition to product distribution.

And, indeed, most wholesalers are busy changing quickly to offer much more to their retailers than the assembly and conveyance of products. Most are mobilizing groups of independent retailers into virtual chains of stores that use a common banner and hew to uniform standards.

Beyond that, Al's observation about how the changing relationship between retailers and wholesalers will alter manufacturer relationships is key. Here's why: Wholesalers must actively collect sales data from affiliated retailers to aggregate and make it known to manufacturers.

Wholesalers must also make known to their retailer affiliates that the retailers are partners with their wholesaler, their vendors and even their fellow retailers, all of whom must join the quest for overall low-cost operation. Some retailers may need to accept different product-service levels and other changes for the good of the network.

That's the only way independents can approach being on a level playing field with chain operators when it comes to basics such as price points, merchandising techniques, customer service, promotions and much more.

It's ironic that this kind of call to wholesalers and independents needs to be issued now. In many respects, the industry has moved far beyond the defensive posture of efficiency, to assessing the significant changes in consumer needs that are arising. Efficient operation is now little more than the cost of entry, just as surely as putting a roof on the building is a cost of entry.

But it remains true that the dynamics among manufacturers, chain retailers and brokers -- not to mention customer interaction -- are far more complex when the equation is lengthened to consist of manufacturers, wholesalers, independents, brokers and customers.

So Al's recognition that the fundamentals of wholesaling and independent retailing remain under special challenge is both timely and correct.