What is the state of distribution today? The short answer is “better.” But it wasn’t easy to get there, and challenges remain.
Distributors across the retail spectrum found it necessary to innovate and invest in new processes to reach their current state of stability.
Perhaps Allison Mason, an associate manager of corporate communications for The Hershey Co., put it best. “The challenges still exist,” she told CSP in October. “What we’ve gotten better at is anticipating the challenges and having a plan in place to work through them when they happen.”
Here’s how some of the biggest distributors to food retail got to a place where they see opportunity for growth and development.
Where We Stand
“I would say things are in a lot better space this year than [a year ago],” Chris Smith, president of McLane Grocery tells CSP. The primary reason for that is McLane’s actions to solidify its own staffing.
“What we’ve seen is our pursuits to be an employer of choice have really significantly improved our employee retention,” Smith says. “It’s significantly improved year over year, and I think with employee retention, a lot of good things go with it. You have better productivity. You have better controls. You have better outputs to your customers.”
Based in Temple, Texas, McLane Co. is one of the largest distributors in America, serving convenience stores, mass merchants and chain restaurants.
Smith cites the company’s best on-time delivery records as of August since the pandemic shut down much of the country, causing unemployment to skyrocket and inhibiting the ability to get product or the resources needed to manufacture them.
“Service levels are improving in stock; positions are improving,” says Smith, who joined McLane in late 2021 from Walgreens Boots Alliance. “I feel a lot better about the direction of the business now than last year.”
Kristen Christopher, vice president of alternate channels at KeHE, agrees.
“We are moving past the supply challenges of the past few years, and our fill rates are above pre-pandemic levels,” she tells CSP. “The labor market has settled down a bit and is allowing us to focus on innovation, expansion and being the best possible partner to our retailers and suppliers.”
KeHE is a national distributor for grocery stores, supermarkets and online vendors. Its “alternate channels” include convenience and small-format stores, including Kum & Go, Foxtrot and college bookstore retailer Folletts.
With a focus on organic, natural and fresh products, Naperville, Illinois-based KeHE has found an advantage in consumers’ renewed interest in healthier foods on the heels of the pandemic.
“Consumers want to satisfy their cravings with healthier options throughout the day,” Christopher says. “Increasing demand for better-for-you products continues to drive growth in convenience, across several formats, which KeHE supports through flexible distribution options, including direct-ship small parcel, direct-service deliveries and last-mile distributor partnerships.”
Paul Murphy, chief operating officer of National Convenience Distributors (NCD), also sees consumers reaching a new level of product interest.
“Post-pandemic consumer behavior has settled into a new routine, which is more predictable than during the pandemic,” he says.
Still, at the same time manufacturer inventory-level disruptions are subsiding, he says, manufacturer price increases forced by inflation are squeezing consumer spending.
“To be competitive, NCD needs to be innovative both in product offerings and value-added services,” he says. “Partnerships with customers are more important than ever, especially in an inflationary environment.”
Economic Insight
From an economic standpoint, inflation has had perhaps the most significant impact on shipments across the United States, according to Matt Muenster, chief economist of Breakthrough, a Green Bay, Wisconsin-based data firm that forecasts freight markets around the world.
“When we look across our client base, especially retail food and beverage companies, the amount of freight that they’re moving remains down year over year; the number of shipments that they’re moving is down,” Muenster tells CSP.
At the same time, he says, the consumer is experiencing headwinds as inflation drives up prices, pandemic stimulus runs down and college graduates begin paying off student loans once again.
“[Consumers] are not totally broke,” he says. “It’s just that we had these really elevated levels of savings [because] spending wasn’t a challenge.”
On the supply side, he says, “We continue to see supply-chain disruption. It’s happening from a number of different factors, [but much of it] is happening because of a shortage of labor.”
“I feel a lot better about the direction of the business now than last year.”
Much of McLane Co.’s innovation the past three years, or since the pandemic forced distribution challenges, has been around hiring and retention.
“So we are seeing a much better placement, not only in terms of warehouse, but also drivers,” Smith says. “Our driver availability is as good as it has been since pre-COVID. And I absolutely could not have said that last year at this time.”
Investing in Tech
Technology is playing a major role in improving service, as well.
Westlake, Texas-based Core-Mark featured several technology offers during its annual trade show in April, including the rollout of Altria’s age-verification program, PDI’s Top-Off Rewards loyalty tech, frictionless checkout through Skip and version 2.0 of a retailer dashboard that relaunched this year.
“[The dashboard] gives retailers a look at where purchases are happening: Who’s shopping? Do you have the right products in the right place?” said Sandra D’Asaro, vice president of sales development, analytics and technology.
Hand-held tracking of every truck allows retailers to track the timing of their deliveries.
“Our fill rate is multiples better” than at the height of the pandemic, CEO Scott McPherson told CSP in April. “We’re about 90% [on average] right now.”
McLane Co.’s investment in technology has been significant, as well.
Two new technology platforms—Emerging Brands and Best Sellers—allow the distributor’s customers to add new and varied upscale products, as well as recognize high-velocity products that may be missing from a retailer’s set.
“McLane continues to invest in technology, and both of these new approaches are customer-based,” says Michelle Patterson, vice president of marketing and communications for McLane Co., noting that both platforms were developed from interactions in McLane’s Center for Category Innovation. “We’re listening to the voice of our customers to bring them tools to help them grow their businesses.”
Food as Fuel
Then there’s foodservice.
It’s no secret food is the fastest-growing category in convenience retailing, and distributors are making strides to help retailers who can’t invest in a proprietary program to bring fresh, hot and consistent food to their stores.
McLane’s new McLane Fresh platform, unveiled in August, is an expanded foodservice-at-retail program intended to elevate the dining experience in c-stores. Over the past year, McLane has brought on two retail-foodservice veterans—John Cox and Farley Kaiser, both previously with GetGo Café + Market, among other retail chains—and plans to bring on more staff to re-invent the distributor’s foodservice offer.
The initial launch comes in the form of a new coffee program dubbed Cupza! and a pizza program unveiled at the NACS Show as Prendisimo, which translates to “take away” in Italian.
“Fresh-food programs present a tremendous opportunity for convenience-store operators of all sizes—from independently owned locations to nationwide chains,” says Smith. “The exciting lineup of products and services … are just the beginning of a comprehensive offering designed to meet the growing demands of consumers and provide retailers the products and services they need to be successful.”
Meanwhile at Core-Mark, which is owned by foodservice-distribution goliath Performance Food Group (PFG), Richmond, Virginia, is on track this year to introduce its four turnkey foodservice concepts to its full market. These include traditional component-based foodservice programs Red Seal pizza, Contigo Taqueria, Tru-Q BBQ and Deli 55, each of which are available as a branded program or can be given a proprietary name.
And National Convenience Distributors added its Mighty Chicken program—comfort foods like chicken tenders, chicken sandwiches, empanadas, quesadillas, potato wedges and mozzarella sticks—to its menu of proprietary foodservice options, including bakery, sandwiches, coffee, pizza and others.
In general, industry distributors see beefing up foodservice offerings as a benefit to the convenience industry as a whole.
We want to create consumer trust that they can “get great pizza or a sandwich from a convenience store,” says Kaiser, senior director of culinary innovation at McLane Co. “If you do that at one store, it benefits all convenience stores, and at McLane, we have the opportunity to do that in hundreds of c-stores.”
Bigger picture, however, Muenster says he expects total product freight across the United States will remain challenged at least through midyear 2024.
“We’ve been through this inventory re-stockpiling process. We’re in a much better place,” he says. “[But] generally speaking, we’re not at the pace of consuming goods like we were a year ago. That’s slowed … the amount of freight on the market, the amount of goods that need to be redistributed.
“Our expectation is we’re not going to see an uptick in freight demand until the second quarter of next year. That’s when there’s a chance for a return to growth on a year-over-year basis.”
With such predictions and uncertainty, Smith says increasingly distributors must take it upon themselves to move beyond the stress of outside forces.
“There’s pressures on business to be able to add capability and growth areas while also leveraging costs,” he says. “And I think people are looking for proper partners that can help them with that. That’s why we’re so focused around delivering with operational excellence, providing a lot of transparency with doing it, doing everything that we can to lower our costs to help pass on those savings to our customers and adding value where we can. And I think that those are trends that are going to continue.”