Distributor Analysis: $1.5 Million on the Line

In June 2019, Performance Food Group (PFG) acquired foodservice distributor Reinhart Foodservice. The transaction value… a cool $2 billion. Reinhart added nearly 30 more distribution centers to PFG’s portfolio. With this merger, PFG becomes one of the largest foodservice distributors in the United States, with approximately $30 billion in net sales.

That’s a big deal for the distributor community, but what does it mean for you?

It turns out quite a lot.

→ First, PFG could come to you, emboldened by their new market strength, asking for the best of the best. They’ll want your best deals across every category, whether that rate rests within the legacy PFG contract or Reinhart program.

→ In addition to trade rate variability, now that these two companies have merged and encompass a larger presence, they may demand similar rates to Sysco or US Foods.

→ And, unrelated to trade, these distributor customers may demand other benefits, such as supply chain deals and better credit terms.

PREPARE TO PROTECT PRICING

As a proactive approach to these potential pricing changes, Blacksmith Applications Project Manager Meghan Hoover ran a distributor trade analysis for one of the top five food and beverage companies in the world. To understand the financial risk, the report showed distributor trade details for Reinhart and PFG programs.

In essence we tried to answer the question, “If we give Reinhart the PFG rate, what’s the risk?”

ANALYSIS DETAIL

There are a handful of variables that are important to look at with a distributor trade analysis:

• Gross sales
• Cases
• Trade spend paid out
• Trade rate percentage
• Trade rate by cases

Meghan’s analysis outlined the data by Product Hierarchy Level 1, Product Hierarchy Level 2, Product Hierarchy Level 3.

To run the analysis, Meghan reviewed the distributors’ contract and street mix to understand the breakout. After all, distributor trade dollars should incentivize distributors to win street business for the manufacturer.

If a distributor sells to mostly contracted accounts, the trade dollars aren’t bringing in a great ROI. It can also be beneficial to look at the operator accounts the distributors are servicing to determine if there’s overlap.

The report provides a lot of value. After the PFG and Reinhart merger, customers could quickly analyze their financial risk on distributor trade programs.

Meghan Hoover, Blacksmith Applications

DISAPPEARING DOLLARS

Meghan’s analysis uncovered a variety of price point variances between the previously divided distributors.

Review the widgets in the chart below:

→ It shows that Reinhart was benefiting from an $8 per case discount, while PFG’s rebate was closer to $4 on the same product. Add the volume multiplier and that’s a loss close to $50,000 (if PFG wins the rate offered to Reinhart).

→ The manufacturer finds only a penny difference between the previously split Reinhart and PFG programs. But again, when there are tens of thousands of cases involved, that penny compounds pretty quickly.

After a complete analysis on trade spend programs with PFG and Reinhart…

The customer’s financial risk amounted to $1.5 million.

There’s a substantial risk in aligning PFG to the programs with higher spend, but if we’re not forced to lower the rates is the risk the same?

Let’s explore two possibilities:

⓵ Distributor Volume Increases

Higher volume is good, right? Not so fast. It’s critical to review all contracted claims, because if the distributor’s volume increased overall but the gains came from contracted volume rather than street volume, the situation is far less rosy. If, at the account view, it becomes clear that out of 17,000 cases, 13,000 were contracted business that number isn’t as impressive, since the distributor should be driving your street business.

⓶Distributor Volume Decreases

This possibility has two different variants:

• Street volume increased; contracted volume decreased.  This is not necessarily a bad scenario, because there could have been a shift in distribution on a few operator accounts to a new distributor (decided mainly by the operator). We might therefore see contracted volume decrease while year over year street volume increases. This means the distributor may be utilizing those trade funds to actively hunt new street accounts that are more profitable for the manufacturer.

• Street volume decreased; contracted volume increased or flat.  This is a bad scenario, and if equipped with the right data, would allow sales to have data-driven, easier conversations with distributors around why the rates will stay the same or be lowered. This kind of information takes the emotion out of hard conversations and makes it easier to present facts during a negotiation.

KEY TAKEAWAYS

Every year, distributors come back and want higher rates and more dollars. Manufacturers, however, are looking for savings and ways to make their dollars work harder. Utilizing analytics, you can compare volume year over year and make appropriate decisions for the benefit of your bottom line. In a normal year this might mean incremental gains. But when something big happens, it could mean a $1.5 million difference.