Looking Back/Looking Ahead: The Future of Grocery Wholesaling

Discussion
May 14, 2008

What follows is one in a series that present a chance to reconsider topics from past RetailWire discussions.

It was this week in 2003 when RetailWire posted a story and discussion
(The
Future of Grocery Wholesaling – RetailWire, 5/12/03
)
on Wal-Mart’s decision to sell McLane Company to Warren Buffet’s Berkshire
Hathaway.

Members of the BrainTrust weighed in with opinions on the future of food distribution and what Berkshire Hathaway’s ownership of McLane would mean for the company going forward.

Here’s what a couple of our panelists had to say back then.

W.
Frank Dell II, CMC, President, Dellmart & Company

“In 1990, I asked the question – are wholesalers obsolete. I think the answer then and now is yes, if one assumes the current business model. For example, one wholesaler offered 270 free services before changing their charge plan. When they asked their customers to pay for these services, what they found is no one was buying. These value added services had no value for the customer. Wholesalers who make their living on the buy side will not last long term. The business model for wholesalers is that of 3rd party logistics for the industry. This means managing the physical distribution from the production line to the consumer. Additionally, it means handling pallets, cases and broken cases. Some wholesalers have moved into broken case distribution for the convenience stores. This is taking over the expanded business of the old candy/tobacco distributors. Another poorly operated segment are the specialty products distributors. For wholesalers to survive, they must expand the scope and range while lowering cost. This is accomplished by doing one thing right.”

Ryan Mathews, Founder, CEO, Black Monk Consulting

“What seems clear is that wholesaling, as Frank discusses it, is over and what we are going to see are dramatic new models emerging. Without question, one of these models could include a radically different approach to supplying foodservice operators. If you look at work done by McKinsey and others addressing the future of foodservice, you see that they project that together Sysco and (a pre-scandal) U.S. Foodservice will still have slightly less than half of the foodservice market by 2013. Assuming — and I think it’s safe to assume — that the market will continue to grow, that opens up a universe of opportunity for a small army of Warren Buffets. Maybe Buffet is just trying to do what Wal-Mart seems to have done — use McLane’s as a learning lab to improve existing operations and open the door to opportunistic growth. As to the future of wholesaling, let’s remember a different model isn’t the same thing as a premature burial. Evolution takes casualties but the species improves over time.”

Discussion Questions: What has being a wholly-owned subsidiary of Berkshire Hathaway meant for McLane Company? How has grocery wholesaling changed since 2003? What future do you see for grocery wholesalers?

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3 Comments on "Looking Back/Looking Ahead: The Future of Grocery Wholesaling"

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Mark Lilien
Guest
9 years 7 months ago

Grocery wholesalers went through a shakeout because their customers did. The Wal-Mart driven grocery shakeout is largely over. So the wholesaler shakeout is largely over. As for value-added services, almost all food wholesaling is price driven, so there’s no money for value-adds.

Ben Ball
Guest
9 years 7 months ago

In 1999 we published a piece called “The New Face of Competition.” In it we postulated four key constituencies.
1)Brand Franchise Owners
2)Outlet Franchise Owners
3)Converters
4)Third Party Facilitators

We went on to assert that there are only two ways for Third Party Facilitators (like wholesalers) to add value. One is to provide tangential functions that the other three can’t do for themselves, and two is to provide core functions more efficiently than one or more of the other participants can.

I don’t think much has changed since Frank Dell told his parable of the wholesaler who found out that his “270 value added services” were nothing anyone would pay for. So that makes wholesaling an efficiency play. Pure and simple.

Ryan Mathews
Guest
9 years 7 months ago
So mark me down as optimistic (for once). I guess I still think most of what I said in 2003 was right. A quick look at SUPERVALU’s success tells you how fast and far wholesaling has come. The collapse of Fleming also tells you a good deal about what was wrong with past models. What we’ve seen at wholesale is a bit of a reflection of what we see at retail–the emergence of a single, strong mega-competitor (SUPERVALU) and a renaissance among smaller, regional players like Associated Grocers Baton Rouge. In a sense, there is an evolutionary symmetry in the traditional supermarket supply chain. The only real point of difference is that now, wholesalers are also retailers but balancing that off there are any number of retailers running their own warehouses. Where’s it all go? Well, not to the cliff edge predicted by so many of the independent channel’s critics. In fact, you could build a case that the independent movement (wholesalers and retailers) are stronger and more vibrant today than they were five years… Read more »
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