State of the Industry Report 2019: Foodservice distribution
Research finds foodservice distributors play a vital role in the U.S. economy, according to a report by the International Foodservice Distributors Association, McLean, Va. With annual foodservice distribution industry sales at $280 billion in 2017, the foodservice distribution industry operates 153,000 total vehicles, employs 131,000 drivers and impacts more than 1 million jobs nationwide.
However, the ever-changing industry of retail vs. e-commerce, the influx of same-day delivery and the need to be all things to all consumers pose additional challenges.
That’s why foodservice distributors are refining offerings to capture on-trend products and capitalize on changing market dynamics, thus accelerating acquisition-driven growth, as outlined in a report released by Brown Gibbons Lang & Co., Cleveland, Ohio.
The Foodservice Packaging Institute (FPI), Falls Church, Va., identified the two greatest trends in foodservice packaging as being the push-back on single-use products, and delivery continues to be one of the biggest sales drivers for the foodservice industry.
In FPI’s own State of the Industry survey, respondents view the fast-casual sector as the greatest area for opportunity. This is due to the increased number of fast-casual options, quality food offerings and increased value. Areas such as supermarket/grocery stores and delivery services are also noted as opportunities for market expansion because of the ability to grab products on-the-go or have them delivered. Respondents also view convenience stores as an area of expansion, as they try to compete with quick-serve restaurants and become an eating destination.
The International Foodservice Manufacturers Association, Chicago; HAVI, Downers Grove, Ill.; and Kinetic12, Chicago, orchestrated a Supply Chain Optimization initiative, which brings together brands and suppliers to evaluate and optimize supply chain optimization practices and address how the farm-to-fork movement can bring new offerings to meet changing consumer tastes.
A report published by Technomic, Chicago, reveals that delivery, technology and health trends are changing the foodservice landscape, with younger generations leading the charge. For instance, 69% of students eat off-campus at least once a week, while 45% of students say it’s important that their school is transparent about how ingredients are sourced.
Likewise, nearly 72% of retailers are digitizing their supply chains to enable real-time visibility through tools like automation, sensors and analytics, according to research released by Logistics Trends & Insights, Atlanta, and American Global Logistics, Atlanta. And, many retailers are turning to outside expertise to help fuel their digital innovation, spending $50.7 billion on third-party logistics providers in 2018. For retailers, the overarching goals of IT investment are to increase transit speeds, predict trends, minimize the impact of disruptions and plan further in advance.
How foodservice distributors fuel growth
One of the key challenges facing today’s foodservice distributors is the need to stay ahead of trends and innovation.
Operators will search for value by aggregating or consolidating purchased goods and services with other operators. In fact, 79% of all operator purchases in 2020 will be made through a centralized purchasing organization, according to a report published by The Hale Group, Danvers, Mass.
And, today’s foodservice distributors are in position to fuel growth to the industry.
For instance, Dot Transportation, Inc., a subsidiary of Dot Foods, Inc., Mt. Sterling, Ill., partnered with Orange EV, Riverside, Mo., to deploy Orange EV T-Series pure electric terminal truck at Dot’s distribution center in Modesto, Calif. Orange EV’s patent-pending technology is said to increase energy efficiency by more than 400% over traditional diesel systems.
Sysco Corp. opened its “Sysco Power Patch” solar garden sites in the Houston and Dallas areas. The project, part of a 25 megawatt, 10-year renewable energy agreement with a subsidiary of NRG Energy, Inc., Houston, Texas, will support the majority of Sysco’s electricity load in Texas, including its corporate headquarters in Houston, Texas.
US Foods Holding Corp., Rosemont, Ill., opened the doors to its newly renovated Fife, Wash., distribution facility, complete with a state-of-the art kitchen and training center for product demonstrations and customer ideation, a technology center where customers can learn about the company’s mobile apps and web-based business solutions and several energy and environmental improvements, such as a highly efficient cascade refrigeration system and energy saving high-output fluorescent and LED lighting. (Look for Refrigerated & Frozen Foods’ September 2019 issue, where US Foods receives the 2019 Foodservice Distributor of the Year award).
Gordon Food Service and Square Roots, Brooklyn, N.Y., announced plans for the first urban farm campus location to be constructed on the site of Gordon Food Service’s headquarters in Wyoming, Mich. Gordon Food Service also broke ground on a new distribution center in Ajax, Ontario, Canada, which contains numerous automated features, including product selection, sorting and truck loading.
Flanagan Foodservice, Canada, opened a new $25 million distribution center in Whitby, Canada, that features dry warehouse space, a temperature-controlled dock, two freezers and multiple temperature-controlled coolers to store more than 10,000 unique products.
Earlier this year, Orion Food Systems, LLC, Sioux Falls, S.D., merged with Land Mark Products, Inc., Milford, Iowa, to create a fully comprehensive foodservice company, distributing pizza, pre-made entrées and snacks and sandwich solutions.
McLane Co., Inc., Temple, Texas, opened a new grocery distribution center called McLane Ocala in Ocala, Fla. The 400,000-square-foot facility will house 165,000 square feet of dry grocery, nearly 200,000 square feet of perishables and 35,000 square feet of office and support space.
UNFI, Providence, R.I., announced plans to optimize its distribution center network in the Pacific Northwest. This plan includes building a new facility and expanding another to enhance customer product offerings, create more efficient inventory management, streamline operations and incorporate best-in-class technology.
And, The Chefs’ Warehouse, Inc., Ridgefield, Conn., leased a new 231,000-square-foot facility in City of Industry, Calif., which will contain state-of-the-art meat and seafood processing facilities to focus on the development of the company’s center-of-the-plate brands, as well as a temperature-controlled specialty produce space.
Challenges vs. trends
Here’s a breakdown of some of the common challenges and trends impacting foodservice distributors:
Grab and go. Meal kit mania continues to overhaul the industry, as meal kit delivery services and grocery retailers work together to deliver product to both channels. Automated order and delivery processes will continue to grow, and dining out will continue to evolve, as restaurants begin offering better-for-you menu options.
More SKUs than ever before. Thanks to the influx of e-commerce, refrigerated and frozen food processors and distributors are managing more SKUs and varieties than ever before. This equates to more turnover, more shipments and a more complex supply chain. Achieving just-in-time delivery is the key to success.
Technology takes the industry forward. Mobile apps, smartphone technologies, location-based services and other digital capabilities enable customers to purchase groceries for pick-up or delivery, thus blurring the lines between brick and mortar and direct-to-consumer. Other technologies include automation, state-of-the-art transportation and storage options and picking solutions, improved loading and route planning software solutions, IoT, blockchain, renewable packaging, AI, virtual reality, reverse logistics, digital supply chain twin and advanced analytics.
A survey produced by JDA Software, Inc., Scottsdale, Ariz., and KPMG LLP, Switzerland, and conducted by Incisiv, West New York, N.J., reveals that supply chain traceability and visibility continues to be the highest investment area for supply chain executives (77%).
Ever-changing consumer. Today’s consumer wants variety, portability, convenience, customization, transparency and better-for-you ingredients. And, they want it all now. This makes for a complicated supply chain. But, also provides opportunity for innovation.
Driver shortage. Over 44% of respondents ranked driver shortage and capacity crunch as the biggest challenge for supply chains in 2019, according to a survey conducted by Kuebix, Maynard, Mass.