Wholesalers in Fighting Mood

Jun 19, 2003

By Al

At a “Coffee with…” session at the recent Grocer Manufacturers of America
(GMA) Executive Conference, three wholesaler executives provided insights into
their operations and the future of wholesaling.

Participating were Michael Bozzuto, chairman/president/ceo of Bozzuto’s
in Connecticut, Jay Campbell, Jr., president/ceo of Associated Grocers
in Baton Rouge and Bob Hermanns, president & ceo, Associated Grocers,

Moderating the panel was Michael Silverstein, senior vice president
of the Boston Consulting Group.

It goes without saying that wholesalers and the independents they serve are
under serious pressure from Wal-Mart, dollar stores, category killers, the struggling
economy, etc. The list of difficulties is rather long, so it was a bit surprising
to find these wholesale executives, if not in truly upbeat moods, certainly
feisty and ready to continue the good fight and win some battles.

Michael Bozzuto kicked things off, highlighting some of the interesting things
Bozzuto’s is up to. Among them, the construction of a 1MM square foot distribution
center in 1995 has improved their competitive posture, as has taking the organization
from unionized (Teamster’s) to non-union.

Mr. Bozzuto touted wholesalers as the folks who “represent” suppliers to independent
stores; said he considers Bozzuto’s to be a “relationship house” and cautioned
suppliers to remember that independents are the “chains of the future”.

Michael Silverstein laid out the essential problem for wholesalers and independents
which he described as “too many stores chasing too few consumers.”

Jay Campbell forecast a future for independents with a decline in number, but
an improvement in quality.

Mr. Bozzuto felt that it is up to suppliers to support “future chains” and
noted that his own organization has grown every year since 1979.

Bob Hermanns said that independents need a special niche to survive, along
with the services and buying power of a “virtual chain”.

Boston Consulting’s Silverstein questioned whether independents can compete
on price when their costs are higher than Wal-Mart, et al. Mr. Campbell responded
that distributors have to be low cost providers and continuously take costs
out of the system. Proving that it can be done, he noted that Wal-Mart super
centers have been in his area for 14 years, yet A.G. is still growing. He also
counseled that it was key to invest heavily in technology, reward efficiency
and penalize inefficiency.

A.G. Seattle used to have an adversarial relationship with suppliers and brokers,
according to Mr. Hermanns. That, however, has changed. Now the wholesaler focuses
on reinventing the process, even asking suppliers for recommendations on how
it may improve. A.G.’s AIM — Adventures in Merchandising — program allows
retailers to buy pallets at dead-net cost, and they now move about 200 truckloads
a month via this program.

Bozzuto’s wants to work with suppliers who are looking for ways to do
business differently and are willing to provide truly customized programs. He
noted that independents can and need to have 365 events a year versus 52 for
chain competitors.

Perhaps the most controversial moment came when Mr. Campbell criticized brokers,
saying he views their services as an added cost. He further noted broker consolidation
had reduced available services and resources. Mr. Hermanns agreed they were
under-served and have to “negotiate” time commitments with brokers.

More than one panelist observed that a truckload should be the largest discount
provided by suppliers.

Moderator’s Comment: Are grocery wholesalers and the
independents they serve receiving equitable treatment from brokers and suppliers?
Are wholesalers providing independents with what they need to compete?

We found it interesting that Jay Campbell’s criticism
of brokers (added costs and less service as a result of consolidation) is similar
to sentiments echoed by some independents about their wholesale suppliers.

Anderson – Moderator

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