Episode 35 Jul 22, 2021

What’s Eating Food Service Distributors?

Back for the second time, Zilliant Business Solutions Consultant Vishal Asatkar joins us to share his eye-opening insights in the world of food service distribution. When we last had Vishal on, he focused on the challenges facing food manufacturers in the middle of a pandemic. Now he sheds light on the turbulent distribution side of the equation as the pandemic recedes and demand spikes back to pre-COVID levels.

Go behind-the-scenes of a rapidly changing industry: from ride-alongs with district sales representatives to eCommerce pricing decisions that are becoming ever more prevalent. Find out how the important relationships between sales reps and operators are evolving and how highly complex pricing and sales strategies can be executed more quickly and accurately.

Read the blog mentioned in the episode here: Next-Gen Pricing and Sales Strategies for a Volatile Food Service Distribution Industry

Featuring
Vishal Asatkar

Vishal Asatkar

We've done some ride-alongs with some of these sellers, and sometimes they're making those decisions at a traffic light in the process of driving to that chef or driving away from that chef that they just took an order from. So they're having to cram that complex pricing decision somewhere along their day.
- Vishal Asatkar, Zilliant

Episode Transcript

Vishal Asatkar: So it came down to this one person making that decision, and we've done some ride-alongs with some of these sellers, and sometimes they're making those decisions at a traffic stop or at a traffic light in the process of driving to that chef or driving away from that chef that they just took an order from.

So they're having to cram that complex pricing decision somewhere along their day. In the process of getting from one operator to the next.

Lindsay Duran: Welcome to B2B Reimagined. My name is Lindsay Duran, and I'll be your host for this episode. I'm joined today by Vishal Asatkar, business solutions consultant for Zilliant. Vishal, thanks so much for joining us yet again on the podcast.

Vishal Asatkar: Happy to be here. Lindsay, thank you so much for having me on.

Lindsay Duran: Before we get started, why don't you tell us a bit more about yourself and your role?

Vishal Asatkar: Sure. I'm currently a business solutions consultant with Zilliant. What that means is I work with prospects; companies that are considering putting in a pricing program or system and help them figure it out, whether this is the right move for them and where a solution like ours could drive value.

In the process of doing that, it's given me the opportunity to work with and understand the inner workings for several businesses, across many verticals and industries being with Zilliant for [00:02:00] 16 years. And in my past roles, I have deployed the solution to our customers. So I have a good experience that way.

Lindsay Duran: Excellent. Well, one of the topics that I know that you are quite the expert on is food service distribution. And so in this episode, we will be talking about trends, challenges, and opportunities for food service distributors, and Zilliant works very closely with a number of food service distributors around the world.

And Vishal, I know you've very recently spent some time with some of the largest in the world. This industry and the restaurant industry or hospitality industry really in general, was fairly hard hit by the pandemic. How are companies in this space faring now, at least in the U.S.?

Vishal Asatkar: Sure first, I'd say we are really fortunate to have customers which represent the bulk of the food [00:03:00] distribution in the U.S. as well as outside the U.S. just the nature of how pricing happens in the way that business operates.

The pricing decision itself and pricing in general is a very complex thing and is well served by solutions like ours, so we're lucky to have several of those. Coming to your question Lindsay, fortunately for us here in the U.S. seems like we’re turning the corner on the pandemic. So it seems like we're post COVID.

Now that the things I've heard in the peak of COVID when it was happening in the middle of last year, was the severe drop in volume. In terms of the volumes of business, number of cases that these distributors were selling. So that was a very definite part of the reality. More recently, what we've heard is as the vaccinations have happened and markets have started opening up, there's been a pretty quick rebound to levels that were pre COVID.

So a lot of people have been surprised by that, they were expecting it to be more gradual, but there has been a pretty quick recovery back to pre COVID levels. And [00:04:00] we're seeing that in the broader market. I would say that there are some changes that were already happening at a macro level, which have been further accelerated through this pandemic.

So there was also one phenomenon that happened during the pandemic. That was pretty interesting. That of takeout. Now this is fairly intuitive that a lot of people who are staying at home and for the few operators or restaurants that were open, they were largely doing takeout business and even well-established, sit down restaurants or operators were offering takeout as a larger part of the business. So that was definitely a trend. And believe it or not, there were shortages on all the products, non-food products that go with that, the paper, the can and so on and so forth. The move to digital, that's definitely a trend that picked up more steam.

It was already an increasing trend, but it's picked up even more steam to the pandemic. So that's another interesting thing. And then I will say the resources. This [00:05:00] is something I'm hearing a lot. It's become really difficult to hire the temporary, headcount or resources who would be either waiting tables at the restaurant or even in the distribution side.

There's some of that going on. So I would say those are some of the things that I've heard in talking to prospects and customers in this space.

Lindsay Duran: Indeed. And I think if, how hard it is to get a dinner reservation is any evidence, certainly business is picking back up. But one of the other things that we're hearing quite a bit, and I think this is not just unique to food service distribution and the food industry as a whole is supply chain shortages and issues. And that's been fairly broad across industries, but particularly for food service distribution, we're seeing product and ingredient shortages often as it relates to meat packing plants. Can you talk a little bit more about that?

Vishal Asatkar: Yeah. I've heard of [00:06:00] businesses having to either change or adjust.

When I say business, I'm talking about the operator. So just for the people who are listening into this, I'm going to use a few terms which are out of this industry. When we talk about food service distribution, or broadline or wholesale distribution, that's the distributor, who's in-between the supplier or the manufacturer of the food items and the consumer of those, which would be the restaurants.

Restaurants are also referred to as operators. So you've got these three entities or players here in the equation, the manufacturers, suppliers, or vendors who are making the food. Or non food items. You've got the broad line distributor in between or the wholesaler, and then you've got the consumer, which would be the operator in this case and the operator or the restaurant is where you and I go to have our meals.

So when I say that the operators or the restaurants have had to make some adjustments, they might not be getting the center of plate chicken items or the pork chops or [00:07:00] whatever items that were mainstays in their menu. So they have to relook at their menus. And I just heard from somebody about quick service restaurant, like a Wingstop starting to add chicken thighs versus just having wings.

You know that you go to WingStop for the wings, but now they're also going to start offering other parts. So that's interesting. And those kinds of adjustments on the fly are creative ways of approaching this that I've heard.

Lindsay Duran: Indeed. One of the other things that you mentioned, in terms of trends is really around the shift to digital and many food service distributors were already very well on the path to having robust e-commerce platforms. But I think as is the case in most industries, the pandemic really accelerated that shift. What trends are you seeing when it comes to digital transformation for these companies?

Vishal Asatkar: Yeah, that's a great observation. So I would [00:08:00] say even prior to the pandemic this was a trend that was growing.

And, the last major shift that all of us were talking about was the coming of the millennial generation and how tech savvy and different they are in the way they think and operate and how they are buying or purchasing more online. One of the mainstays of the food service distribution business model has been the importance of what’s generally referred to as the DSR or the district sales rep that is the feet on the ground. This is the person who's driving that truck around laden with cases of items and dropping them off to the operator or the restaurant. So if you've been driving around on anywhere, literally in the world, you've probably driven past this food service truck.

And they usually have on the sides of the truck all these food items printed on there. But what this person is doing is they're [00:09:00] delivering from the distribution center to the operator or the restaurant, all the food items. And they might do that once in a week, twice a week. And this person is really important because they're the ones who have that established relationship with the chef or the restaurant owner.

And in the process of dropping off, they're also getting orders for the next week or for the next drop, and also figuring out what are the needs of the operator. So, if you can think about it, it's a pretty significant shift. If you're saying now that somebody is going to order online and this very key player in the process may not be as relevant or maybe a smaller role than they historically have played.

So I think this is a convergence of two trends that were happening anyway, the millennial generation trend and digitization or transformation that's coming to business in any case with that, the online ordering. So a smaller segment of that is also the B2C aspect of it direct to [00:10:00] consumer.

Right? So talking about the operator ordering for themselves, but there's also growing trend. And I think this also accelerated by the pandemic of consumers ordering direct too. So this direct to consumer trend though, it's a small part. Maybe that's another trend we'll need to keep watching and seeing if that's going to grow and become significant as well.

Lindsay Duran: Indeed. And I think the move to online ordering overall presents pretty significant challenges for food service distributors in terms of the way that they have historically gone about setting prices. What are some of the typical methods that you've seen companies take in terms of setting prices and communicating prices to customers in this industry?

Vishal Asatkar: Yeah. So you're just taking a step back and see for people who are not so close to this industry, just to give them a sense for the scale at which you're talking. And the average distribution center, which a large company may [00:11:00] have, 20, 30… 10 of those will carry 20 to 30,000 individual SKUs.

So that by itself creates a level of complexity. Then you're having to price potentially anyone off 20,000, 30,000 SKU. So that's the challenge. And then the customer itself, there can be so many differences between the customers that you're catering to. So the other term from the industry is the cuisine type, right?

So if, when you go to eat, you may go to eat at a Mexican restaurant, an Asian restaurant or an American cuisine or a family type. It may be a sit down. It may be a quick service. It may be a takeout place. So there's so much variability in who that operator is that you bring all those elements together and it's a pretty complicated pricing decision.

If you think about it, that DSR is having to make, so it came [00:12:00] down to this one person making that decision and we've done some ride-alongs with some of these sellers. Sometimes they are making those decisions at a traffic stop or at a traffic light in the process of driving to that chef or driving away from that chef that they just took an order from.

So they're having to cram that complex pricing decision somewhere along their day in the process of getting from one operator to then now you take all of that, that still is happening through this DSR and they are able to use their judgment to come to a decision. Now, you contrast that to an e-commerce world.

One thing about e-commerce is the level of transparency, right? So you think about it. When we, as consumers, we're buying our office products or electronics online. And the store online, you probably have aggregator or you're able to go from one website to the next and quickly figure [00:13:00] out where's the cheapest price for any product you're looking for.

Think about the same thing happening in B2B and food service right now, that operator or the chef who's buying can comparison shop or very quickly see the price that the market is offering for any product versus the way it operates for the large part today, where they're getting a price quoted to them by a person who's standing across from them.

So the biggest thing Lindsay, I see as a shift is how do you offer up a price on your e-commerce channel? That when somebody is comparison shopping or looking at that price, it's competitive, relevant. And makes sense to that operator or that person?

Lindsay Duran: Absolutely. I think that transparency piece that you noted has really accelerated the need for many food service distributors to rethink the way that they approach pricing and how [00:14:00] they go about making pricing decisions, that filter of the sales rep is no longer present in many instances when someone's ordering online. And so serving up a price that's highly relevant is very important to maintain a good customer relationship. How can companies go about doing that more effectively, Vishal? How can they make sure that the prices that are presented in an e-commerce platform or that are given to the sales rep as guidance are relevant enough for that particular selling circumstance for that customer?

Vishal Asatkar: Lindsay, I really liked the word you used a filter, right? If you have the DSR, he or she can think on their feet, do any damage control and placate that operator customer. If something looks out of the ordinary, or if they're getting a quote which is very different from the price tag, what you can't have is on the e-commerce channel a “call for pricing” or “talk to [00:15:00] your DSR” because that's not how e-commerce works.

You want it to be quick. You want to be able to make that decision. So you have to show a price there on the e-commerce and you want that price to be good. Now combine that with the facts I was sharing before about 20 to 30,000 SKU. The complexity of different types of customers and what may or may not be important to them.

How do you get a right price, an optimal price accounting for all of those complexity factors? I am biased, but I'm sorry. I have to say there's just no way for a human or even an army of humans to do that. Given the scale here in my mind, it has to be a computer model of some sort, which is able to look at the data and get the guidance.

Now, the great thing is having so much data while it is increasing the complexity on the flip side, it's also a good thing because now you do have a lot of data from which to get that intelligence and get pricing, which is reflective of the market, reflective of what would be relevant to the operator.

In short, I would say [00:16:00] it needs to be some kind of computer model, a pricing engine or model that's going to consume the data. And account for all of these factors as much as possible, and then give a price that makes sense. And now you can start to respond to the needs of that e-commerce channel and price, everything and still be relevant.

Lindsay Duran: I think the other piece to that equation is just how frequently costs are changing for the distributor and how volatile costs have been. Historically, but also really as of late, especially as there are inventory and product shortages, can you talk more about how something like this enables food service distributors to respond more effectively to those cost changes?

Vishal Asatkar: Yeah. And then, so you've touched on another really key dynamic in this industry and business, which is the dynamic nature of costs. And a lot of these products derived from commodity. Like produce or like flour or oil, which are based [00:17:00] on commodities which do move around a lot based on supply chain availability and those things.

We've all in our memories, heard of the salmonella breakout or the shortage in supply of tomatoes or strawberries or what have you. So in a way, I think, the food industry was kind of already prepared for the pandemic. These are phenomenon that have always been occurring at various times for various different reasons in the past.

So this is the nature of the industry here where costs change on a weekly basis. Remember when we were talking before about suppliers and vendors, that those suppliers and vendors are going to pass along their cost to the wholesaler because they're not going to eat that cost if costs go up and particularly in an inflationary environment that we're in now costs are going to be trending up.

And the supplier is just going to pass that onto the wholesaler. The wholesaler by the same token is not going to be able to absorb all of that cost. If, especially if the costs [00:18:00] are rising pretty significantly, they are going to have to pass those onto the operator. So again, when you do that, you have to do that with a conscious strategy in place.

You want to do it with some business rules and policies in place and realize again, that this is happening at a scale, which makes it virtually impossible for humans to deal with, particularly at the rate at which it is happening. Imagine having to deal with thousands of costs changing across a broad market, broad geography.

Across thousands of products and affecting thousands of customers. It's again, not something that's humanly possible. If you're trying to be optimum. Yes. You could do it with just rules, but would it be optimal? So I would say I was referring to the model before the concept of using a computer. So I would say it's going to be a combination of rules and strategies and some kind of a model, which is again, going to support the business in a way that you're making optimal decisions.[00:19:00]

Lindsay Duran: Absolutely. I'd like to shift gears a little bit, Vishal, and talk more about just the customer relationship itself. So in this industry, particularly in the more, I'll say transactional nature of a street business, where you're serving those one to two location, mom and pop type restaurants, as opposed to large chain type of business retaining customers and retaining wallet share with those customers is really very challenging for companies. Can you talk a little bit about why that's so hard and how much churn companies are likely experiencing and what they can do about that to equip their sales rep to retain more business?

Vishal Asatkar: Yeah, of course. I'm sorry. I keep rambling because it's such an exciting space and something I'm pretty passionate about.

Again, taking a step back you use the single unit. So I just want to give listeners some [00:20:00] context for the food industry. If you think about it, I've been using the term operator, but there's various places from where you can buy food items. So, you could go to a 7-11 or a convenience store like that and be, you buy something that's ready to eat or consume. You get food at cafeterias in a school or university or at a hospital or prisons. So there, there are so many different places where this food is delivered and gets consumed out of what we're talking about for the most part is the single unit or not for the most part, but let me just distinguish that there are these restaurants or operators, whether it's a single unit, meaning it's just that.

What we'd call a mom and pop right in any other space. And then in contrast, there are national chains where they have hundreds of maybe even thousands of locations across the whole country. So we talking about [00:21:00] that single unit operator, that mom and pop, which in this industry is called the pure street or the street business.

I can't emphasize enough, the importance of the relationship that DSR has or that operator or chef has with their food service distributor. Now, definitely with the cases that they're not just buying from one distributor, because depending on what that cuisine type is or what that operator or restaurant specializes in, they may be going to a specialty distributor.

There are specialty distributors who just excel at seafood, right? Fresh seafood nowadays, we all know about the trend of farm to table or to fork. And so there's this concept of hyper local distributors because they are providing you products from a very short radius of where your operation is located.

So hyper-local suppliers, so they can be various kinds of operators and possibly as a chef or [00:22:00] operator. Getting your food and non-food items from three, four different distributors. It's very important to you. The relationship you have with these distributors, because another fun factor, not fun, but it's a fact about this industry.

Most mom and pop businesses’ operations, like 60% of them, will shut down within the first year. And then I think the stat is up to 80% were shut down within the first five years of opening doors. So it's not a guaranteed business and there are various learnings that happen and the DSR or your distributor can be a useful partner with you. The best DSRs are going to be consultants to you. They might actually advise you on what menus items are trending, how you might change your menu offerings, such that you're relevant and with the trends. So, [00:23:00] Lindsay, your question was the customer relationship aspect. Now I would say that both from the DSR perspective, it is important to have that relationship with the operator and be a consultant to them, but I think it's equally beneficial for the operator as well, because there's a lot of learning and input they're getting from that DSR because consider a very large distributor, they’re catering to so many operators, so they can really see those trends and are very well informed about what's happening with the products, the trends, any immediate shortages, et cetera.

And they're not positioned to really help the operator to be successful.

Lindsay Duran: Absolutely Vishal. What other opportunities do you see on the horizon for food service distributors and where do you see them heading from a commercial execution or digital transformation perspective?

Vishal Asatkar: Yeah, I can share what my thoughts are and I don't know how good my crystal ball is, but some things are a no-brainer… the [00:24:00] trend towards going digital, E-commerce, that's a no brainer. That trend had already started and it's just picked up steam, like I said, so that's going to keep going. I've seen something and I bet all of you have as well in terms of the nature of where we eat, that's changed so much. So food trucks, those kinds of things have picked up in a very big way. So yeah, I wonder as to how that's going to affect this model, there's this concept of cash and carry where instead of the distributor coming to you, you are going to a large depot and buying whatever you need with a large trolley. Think like a Costco, right? Which a Costco is to us, something like that, serving that food truck so that they can just go there and get their week's worth of supplies or what have you.

So cash and carry could become a problem. And then I'm also seeing this increasing phenomenon of grocery stores actually serving food as well. It used to be that was pretty rare. That you'd get ready to eat food, [00:25:00] but now if you think about it, a lot of these grocery retail type of establishments are also serving food.

And that's not what you think about when you're thinking restaurants. So I imagine a lot of these are large food service distributors who don't typically cater to groceries. May start looking at grocery stores as something that they're working with as well. So, those are some of the big trends I see or a direction which food services is going to get into.

Lindsay Duran: Thanks so much Vishal. And thank you for joining us for this episode of B2B Reimagined we hope you'll join us on the podcast again.

Vishal Asatkar: Absolutely love to. I hope this was interesting and insightful for our listeners. Thanks for inviting me.

Lindsay Duran: Thank you. And thank you to all of our listeners for joining us for this episode.

If you'd like more information about how Zilliant works with food service distributors to improve pricing and sales, you can visit us on our website and also take a look at the show notes for a link to a recent blog post detailing food [00:26:00] service distribution trends for more information. We hope you'll join us for the next episode of B2B Reimagined.

Are you ready to learn how Zilliant can help you overcome your pricing challenges?

Reach out to us today to learn how we can help!