Channel Distribution Conflict in Foodservice

Channel conflict remains the subject of constant conversation in all corners of the foodservice industry. The nature of many business relationships among trading partners has changed in scope, eroding profit margins for some and vastly increasing them for others.

Chip-EvansChip EvansWhile debating how the industry got to its current state makes for good barroom debate, few can argue that the end user's definition of value has changed considerably, becoming mostly price-centric. This is due to the fact that many larger operators are now owned by private equity firms or are publicly traded. Either way, the main focus for much of the operator community is to drive shareholder value, and when the economy continues to sputter along as it has in recent years that usually means lowering the cost of goods sold in order to drive better returns on investment instead of evolving the concept to meet consumers' changing needs. As a result, value often takes the form of lower costs in the eyes of the operators.

While many operators may feel that tightly controlling the sale enhances the value they receive, in reality this approach only erodes it. That's because by deeply cutting the price, and often the timelines, the end user gains little outside input from their suppliers — experiential knowledge that could dramatically impact their concepts. But because most people seem to live in the short-term, it's rare when they recognize how the value proposition continues to erode across the board.

As the cost of a plate continues to decrease, nobody bothers to look at how many plates an operation buys, if other options would better facilitate the creation of higher margin menu items, or the operational impact of washing and storing these items. That's because the only business controls that exist are on the buying side of the equation. The relationship becomes solely transaction oriented.

Of course, none of this is new. It is part of a recurring cycle that the foodservice equipment and supplies industry can't seem to break. Years ago it was the broadliners encroaching on the traditional foodservice equipment and supply dealer's territory, followed by the big box retailers, such as Sam's Club and Costco. Each brought change and marginalized the value the supply chain provides, leading to commoditization of the equipment and supplies industry.

With commoditization comes channel conflict as every stakeholder protects their interests, knowing full well that failure to grow market share likely means you are losing it.

Optimists see this as a way to match our abilities to deliver value as defined by the end user. Many in our industry have found niches; more have not. Some have built logistics and processes into their value, thusly not selling a product, but a service. Even these firms, though, deal with declining margins on the products they manage.

All pendulums swing and economic cycles always repeat. But the only way to break this cycle and get the entire industry back to higher margins is to get everyone to develop a common definition of value — one that benefits all involved.

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