WHOLESALERS SAID TO FACE FOOD-SERVICE HEAT

DAVID ORGEL

WASHINGTON -- Wholesalers are facing "one of the most complex undertakings imaginable" as they attempt to offer meal solutions in competition with restaurants, Bill Dowd, president and chief operating officer of Fleming Cos., Oklahoma City, said in a presentation here last week.

Wholesalers, who "are fundamentally good at one thing, being middlemen," will need to redirect their efforts as a confrontation develops between the traditional retail/wholesale side of the industry and the food-service sector, Dowd told the 1997 Annual Business Conference and Partners Program of Food Distributors International, Falls Church, Va.

"We have a huge common interest in seeing that food service becomes an integral part of the grocery retail trade," he added. "The collaboration of retailers, wholesalers and manufacturers can invent the future, so that the outcome does not translate into further loss of market share."

Dowd spoke as part of a general assembly titled "Creative Marketing Strategies: New Directions and New Solutions."

Fleming, which is both a wholesaler and a retail operator, is taking a number of steps to move ahead on the new terrain, including seeking out partnerships for meal solutions and helping retailers build their food-service programs through remodels, new technology, education and advertising.

But Dowd said the level of challenges will mean the industry needs to take a very proactive role.

"Food service is the opportunity! Almost nothing else matters," he said.

Last September's report by McKinsey & Co., New York, called "Foodservice 2005, Satisfying America's Changing Appetite," drove home to the industry the importance of the meals sector, Dowd said. Until that time, Dowd admitted, "I mistakenly thought that our industry had done a pretty good job of addressing consumer needs for variety, convenience, simplicity, shorter preparation times and value.

"Like many others, I had comfortably segmented the food industry into two separate pieces: the retail trade and the restaurant or food-service trade. It is now crystal clear to me that the consumer is redefining portions of these two side-by-side industries into a single industry."

The McKinsey report were shocking because they implied that retailers were doomed to a fate of losing sales share, he said.

"McKinsey makes a compelling case that of the $100 billion in incremental sales, food service could capture 100%," he said. "Despite best efforts, by all of those who will develop meal solutions within retail, only $19 billion of that $100 billion will be captured in the supermarket environment. Even though retailers will double their position as food-service providers, the share of total food sales held by retailers will still drop another five to eight share points."

Dowd said that a collaboration of all industry trading partners will hopefully stem the tide of market-share loss. But he warned, "Don't be sanguine over these reassuring words because the current momentum is against this outcome."

Dowd said there is no one answer for wholesalers attempting to tackle the food-service effort. "There is likely to be a huge variety of ways in which consumer needs will be met," he said.

Partnerships will enable the industry to make faster strides. "From our wholesaler's perspective, we need and welcome partnerships," he said. "Today, we do not have much in the way of food-preparation facilities, recipe skills, consumer research and direct control of in-store activities. Most of these are skills possessed by our potential partners."

The need for good sources of supply is all important, he said. While Fleming is currently working with a number of manufacturers on meal solutions concepts, "thus far the most aggressive manufacturing partners are smaller companies and private-label suppliers. We are taking full advantage of overtures and, frankly, we'd like to see more."

Fleming is increasing its commitment to retail services in order to help stores find their way through the food-service maze. Among the priority areas for services are:

RETAIL DEVELOPMENT. The wholesaler is "expanding our capabilities for store building and remodeling to address the need for more perishable products, many of which will require in-store preparation," he said. The company will also be focusing on special product storage and flow requirements for food service in the grocery store.

RETAIL TECHNOLOGY. Fleming is working on a turnkey accounting and management system that helps the retailer develop a food-service business. The program will help retailers understand labor costs, waste, portion control, and the best ways to transfer ingredients and expense across departments.

RETAIL EDUCATION. The list of courses is being expanded to target store food-service needs. "We will be investing in people by adding food-service professionals to our staff to teach customers, and our own associates as well," he said.

RETAIL CONSULTING. Fleming is expanding its retail consulting group "to add more field food-service expertise," Dowd said. "We recognize that simply expanding bakery/deli operations isn't enough to address all of these new food-service needs."

Fleming is using its company-owned retail stores as a showcase to develop a variety of programs, Dowd said. These include more sophisticated deli operations, food courts and full restaurant operations.

"We're expanding commissary production and recipe development," he said. "We're expanding a series of ideas to package the meal solution to simplify consumer decision-making. We're also exploring ways to copy the fast food industry's success with menu-driven decision-making. And lastly, we're working toward more preparation for consumption vs. preparation for display."