SHIFTS IN DSD MODEL IMPACT RETAILERS

Lucia Moses

As rising gasoline prices prompt direct-store-delivery vendors to reconsider their distribution options, some small retailers have mixed feelings about the impact of suppliers shifting away from DSD.

Some wholesalers said such vendors, primarily of cookies and snacks, have approached them about routing products through their warehouses, citing the cost of distributing to stores themselves. Inflation-adjusted gas prices hit a 20-year high this summer.

"Keebler, Sunshine, Nabisco, they're trying to cut down distribution costs and would like some of their smaller customers to go to a wholesaler instead," said Dick Kritsky, a California-based retail account executive for C&S Wholesale Grocers, Keene, N.H. While not a new phenomenon, he said, higher gas prices of late make it "more of an urgent matter."

Some wholesalers say taking on these deliveries ensures regular service to their independent retailer customers in remote areas. But some of those operators worry about the loss of product variety and attention they used to get from DSD vendors.

By delivering DSD products itself, Associated Wholesale Grocers in Kansas City, Kan., can offer retailers items they wouldn't have had access to before. AWG is already sending trucks to those stores, so its added transportation costs are minimal, said Jerry Garland, executive vice president of marketing.

"It's one less truck coming to the back door," said Steve Dillard, a vice president at AWG, whose DSD clients include several ice cream vendors. "It's a labor saver, a fuel saver. You get trucks that are fuller coming to the store, less times the back door is opened. So it's good all around."

Steve Harkins, DSD category manager for Piggly Wiggly Carolina Co. in Charleston, S.C., a wholesaler/retailer with 115 stores, said his rural locations got more regular deliveries after Piggly Wiggly started delivering Edy's ice cream about four months ago. "It was very difficult for them to service the stores on a regular basis, whereas we have trucks going there every day anyway," he said. "We already have the room in the freezer for it. It's just an additional item that we ship."

Lenny Rose, owner of four Red Apple stores in the Seattle area, said that Nabisco's direct-to-store deliveries had been infrequent, which led to out-of-stocks.

Now, those products are handled by his distributor, Associated Grocers of Seattle, and a number of smaller brokerages, and service and deliveries have improved. "It's less trucks in and out of the dock," Rose said. "Pricing can be controlled better."

Rod Van Bebber, senior vice president of distribution for Unified Western Grocers in Commerce, Calif., said that beyond fuel savings, delivering DSD products through Unified's warehouse also means more efficient use of labor and truck capacity. "I think at the end of the day, fuel is a really high expense, but there are other expenses in transportation, too," he said.

Van Bebber anticipated that more vendors would look to warehouse delivery. "The fuel prices may nudge them a little quicker in that direction." The challenge is to schedule routes to minimize the number of miles traveled, he said.

But some operators say product availability and in-store services suffered after their DSD vendors went to warehouse programs, leaving the retailers to replenish stock themselves and with less assortment, according to retailers and wholesalers.

When C&S took on some DSD potato chip lines, retailer customers fought the loss of sales personnel who used to call on stores and make sure products were rotated properly, Kritsky said. It's cumbersome for the distributor to slot a lot of new items, so retailers may not get the assortment they want, he said. "I'd say the jury's out."

Dennis Darling, president of two IGA stores in Northern California, said that loss of assortment is the biggest problem. When Keebler quit delivering to his stores late last year, he lost all but two of its 15 cookie varieties he'd carried, he said. Darling said DSD sales personnel also help with off-shelf displays and promotional support.

Rose, the Red Apple retailer, said that when Nabisco stopped sending trucks to his stores, it also stopped offering promotional dollars, putting him at a disadvantage to bigger competitors. "It's such an issue for Nabisco to ignore our size of company out here, because we don't have anyone else with that size of products," he said. "There's nothing equivalent out here."

Kellogg, parent of Keebler, declined to comment. Kraft, which owns Nabisco, didn't respond to multiple requests for comment.

Some suspect that the new reality of high gas prices means warehouse delivery could become a permanent way of doing business for DSD categories. "I think all DSD vendors are going to have to look at it," AWG's Garland said.

Darling said vendors would be making a mistake in doing so, though. "When they go in the house, they lose their sales force, and they lose their presence on the shelf, and they lose sales," he said. "I've never seen it be successful."

But Darling also acknowledged he hasn't heard any complaints from customers about the loss of variety in the cookie aisle, perhaps because the section isn't wanting for products. "I think there's already about 200 SKUs of cookies out there."