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June 26, 2015

Maine Startup & Create Week: Food distributors challenged by margins, changing food landscape

PHOTO / LORI VALIGRA Karta Owens, owner of Associated Buyers Inc.; Marada Cook, co-owner, Crown O' Maine Organic Cooperative; Kurt Chapin, vice president of merchandising at Sysco Northern New England Inc.; and Aaron Anker, CEO of GrandyOats (left to right) discuss the ins and outs of food distribution.

Getting food from producers to customers like co-ops, hospitals and retail stores can be costly and timely, so distributors have to be nimble to meet changing customer demands while watching their costs and margins.

“The most successful manufacturers or suppliers have a plan and built-in customers,” said Kurt Chapin, vice president of merchandising at Sysco Northern New England Inc. in Westbrook. “How product is pulled out of warehouses is half the battle. We stock around 7,000 items, so we work with buyers to have a sales plan and to work with our salespeople.”

He made his comments Thursday at a Startup & Create Week panel on food distribution.

Sysco sells to food service businesses like hospitals, colleges, K-12 schools and restaurants. It employs 250 people in Maine.

Marada Cook, co-owner of Crown O’ Maine Organic Cooperative in North Vassalboro, said her company is in a “hefty growth mode,” and that the relationship between vendors and her company is dynamic on both sides and must work for both. Her customers include restaurants, buying clubs and some 50 co-ops and natural food stores in Maine, Massachusetts and New Hampshire. Buying clubs initially comprised 50% of the business, but are now 12%.

The 15% to 20% margins that larger distributors get won’t work for a small company like hers, she said.

Figuring costs

From a seller’s viewpoint, GrandyOats CEO Aaron Acker said it is important to factor cost into distribution. The Brownfield granola-maker started by selling direct and using United Parcel Service to deliver its products, but now it uses distributors, including Sysco. “You need to factor in accounting, time and gas to drive to stores, and the opportunity cost of not being on the phone [with customers or prospects],” he said of pricing products to include distribution costs.

He advised producers and distributors to take a class or hire a consultant to figure out costs and be sure pricing is correct, noting that GrandyOats initially didn’t do that and took a margin hit.

“We supply dispensers to a lot of places we sell to and factor that cost into the price,” he said, as an example.

“Even if you look at a consultant and say ‘that is a lot of money,’ it will save you tons in the end,” he advised.

GrandyOats still deals directly with some customers, as does Cook, who said that even when using distributors, it’s good to still deal with some customers directly to maintain a strong relationship.

“Relationships and communication are key,” Chapin added.

Karta Owens, owner of Associated Buyers Inc., a Barrington, N.H.-based distributor, agreed. He said he’s severed ties with customers who have treated his employees poorly.

“Networking is important to get an idea of who you want to work with,” he said. “We all have a reputation, and what I know is that in the state of Maine, people like to talk.”

Changing landscape

Cook said the food landscape has changed dramatically over the last 15 years, especially in selling to Portland-based restaurants.

She used to extend credit to them for perhaps too long, and it hurt her company, so she’s tightened up credit conditions in the last couple months.

She added that chef turnover is high, but those same chefs tend to stay in Maine, so if one restaurant fails, they’re likely to show up at another one where she can continue business with them.

Another change is in the amount of packages that go into a case of food distributed to retailers.

“We’re reducing our package size,” Anker said. GrandyOats started out by shipping 16 packages of product in a case based on United Parcel Service weight and charges. But that proved to be too many for buyers, so it changed to eight packages, but competitors were shipping six.

“Retailers and distributors evaluate you on case turns,” he said of the number of cases sold, adding that odd-sized cases don’t sell as well.

“Twelve-packs are more economical, but they don’t get you through the door due to storage issues,” added Owens. “They’d rather buy two six-packs.”

Chapin said Sysco typically looks to move five to 10 cases per week of an individual item. If it is only selling one case a week, it may discontinue handling that item.

“It’s almost like a bank,” said Acker. “They are investing money, and if they items don’t move quickly enough [it’s a bad investment].”

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