How will Amazon impact foodservice distribution?
In 2017, Amazon announced purchased organic grocer Whole Foods Market. The deal was valued at $13.7 billion. The deal expanded Amazon’s reach to physical locations and immediately fulfills its long-held desire to sell more groceries.
Today, the foodservice distributor community is led by 3 major companies: Sysco, US Foods, and Performance Food Group. The top 8 foodservice distributors account for 41% of the market and another 10% of the market is captured by wholesale outlets (i.e., Costco, Sam’s Club).
92% of wholesale distributors consider Amazon a competitor and a threat to their business.
It’s no secret that Amazon has changed consumer shopping habits, but it’s heavily influencing business purchases too. “A move into B2B distribution would have strong synergy with the company’s existing initiatives. While Amazon hasn’t yet moved strongly on foodservice distribution, it’s still one of the fastest-growing categories on Amazon Business,” writes an APPLICO article. Did you know that almost half (48%) of foodservice operators are ordering supplies online?
The question on everyone’s mind… Will Amazon enter the distribution market?
Read the following scenario and answer the discussion questions that follow to find out how you could be impacted:
Nummy Brands Corporate Office
10:13 PM – Wednesday
Wading through several piles of aging POD that had been accumulating on his desk, Bruce Croning felt like he was fighting a losing battle.
Each month, quarter, and year, Nummy’s customers continued to deduct at an alarming rate with a startling degree of ambiguity relative to the details. His team of analysts was reduced by 20% last year and now the new announcement on his desk signaled yet another resource reduction. This time, the memo didn’t even name names. It read, “If you normally go to the 3rd floor for work each day, you can relax.” Even though he would have fewer resources than ever before, the company was demanding more detailed analytics and tighter levels of validation. Normally optimistic, Bruce felt utterly defeated.
One floor below, Jane Sayles sat in stunned silence, barely able to hoist her steaming cup of java to her quivering lips.
The letter from Strong Arm Distribution sat squarely in the center of her desk:
We at Strong Arm appreciate the support that Nummy Brands made in your response to our recent Widget sourcing initiative. The attachment outlines our new and improved TCSRP (Time-Consuming Shelter Reimbursement Process) that we know you will support wholeheartedly. As you may have heard, we are requiring all vendors to eliminate inbound PDF files while we plan on increasing the number of PDF files and pages we provide while reducing inclusion of key details. We are also very interested in increasing the complexity for administering our Corporate Earned income funding…
Jane could not bear to read the rest.
Her company had been reducing resources for years and was already at capacity.
In addition to this process with Strong Arm, the administrative burden of pricing discounts was rapidly growing with commercial national accounts and an ever expanding base of GPOs. Closing her eyes and leaning back in her chair, Jane was watching her dreams of a summer cottage, college tuition for her kids and a new Lexus quickly fade to black.
Jane could not imagine how the division could handle even more with less.
By 10:30, Bruce and Jane had both had enough and ran into each other in the parking lot on the way home.
Jane gave Bruce the great news about the Strong Arm notice.
Bruce updated Jane on the latest reduction in resources.
Bruce could barely breath. “It’s bad enough that our base business is so challenging. At least that’s the Devil We Know. Did you read the press about Amazon and Whole Foods? I can’t take it.”
Building on your experience and perspective, help Nummy Brands craft a hurricane plan for a potentially aggressive move by Amazon into foodservice distribution.
On your own or with a group, consider the areas we can control and focus on:
✔ What are the steps to take in the first 30 / 60 / 90 days?
✔ What categories are likely to be most impacted?
✔ What new standards will emerge?
✔ What could everyone do right now to shorten the response time in case this does happen?
As you brainstorm, categorize your ideas into these areas:
- Ideas that most companies could do these today without capital, more resources or a significant change from a customer.
- These ideas would require some investment of time, people or money, but nothing that will take a lot of time to get approval for.
- These ideas might cost money and take some time but there’s a large payoff.