Business Strategy in Food Service Distribution-United Natural Foods
Abstract
For the purpose of this paper three companies have been identified – Sysco, Supervalu and United Natural Foods; all of which are in the foodservice distribution industry. This paper will provide company profiles of each company and critical financial data. Through the process, it will also explore the competitive strategy of each company, and lastly, suggest recommendations for strategic value innovation.
The Food Distribution Industry
Simply put, foodservice is the industry that serves food that is not prepared at home. If you ate out this week, last weekend, or today for lunch, you contributed to the $226 billion in annual sales of the foodservice industry. If your child had a school lunch, your grandmother or grandfather had breakfast in a nursing home, your spouse had coffee at the company cafeteria, or your nephew ate in a military chow hall – they were all being served by some segment of the foodservice industry. All of this being achievable through a complex food service supply chain – a distribution network of independent companies that supply a broad range of products and services that help the food prepared away from home industry be possible. In fact, next time you catch yourself in a restaurant, it wouldn’t be a stretch to state that almost everything within that facility was brought there by a foodservice distributor. The menu items, the plates, the high chairs and yes even the paper towels and toilet paper in the bathroom – all brought in and provided by a food distributor. Every day, foodservice distributors make sure that products needed by foodservice operators are delivered safely – from seafood, proteins, produce, dry goods, dairy, and frozen products to the beyond (Perkins, 2014).
United Natural Foods
Company Profile
United Natural Foods is a distributor of natural and organic foods and related products. The company is one of the largest North American distributers of natural, organic and specialty products. Like other broadline distributors, this includes groceries and general merchandise; produce; perishable and frozen food; nutritional supplements; bulk and food service products; and personal care items. Products distributed by United Natural Foods include national, regional and private label brands. In July 2013, the company served more than 31,000 customer locations (S&P, 2014).
Like most broadliners in the foodservice industry, in addition to its distribution services, United Natural Foods provides a range value added services for their customers and suppliers. United Natural Foods’s services include marketing and promotional tools, merchandising, category management and store support services. At its core of United Natural Foods’s distribution operation are five main units: United Natural Foods Eastern Region, United Natural Foods Western Region, United Natural Foods Canada, Albert’s Organics and Select Nutrition. In addition, their non-distribution divisions include Blue Marble Brands, Earth Origins Market and Woodstock Farms Manufacturing (United, 2014).
Supervalu
Company Profile
Organized in 1925 as the successor to two wholesale grocery chains, Supervalu established in the 1870s, has grown into one of the largest United States food distributor to supermarkets. The company also operates five regionally based conventional food retailing businesses in the United States. The company’s Save-A-Lot format is the country’s largest hard discount grocery retailer by store count (S&P, 2014). Today, Supervalu and its 35,000 employees serve customers across the United States through a network of approximately 3,420 stores composed of 1,900 stores serviced primarily by the company’s food distribution business, 191 traditional retail stores, and 1,334 hard-discount stores, of which 957 are operated by licensee owners. All of which either stock the national brands or Supervalu’s own private label products. Annual sales for Supervalu are approximately $17 billion total (Supervalu, 2014).
Financials
(SVU, 2014)
(SVU, 2014)
(SVU, 2014)
Competitive Strategy
Supervalu’s competitive strategy, like many businesses, has changed over time. Supervalu at one point had and actually thrived on being the Cost Leader. Unfortunately, other distributers and retailers grew and grew. Nowadays Supervalu does not have the funds nor the infrastructure that Sysco nor Walmart for that matter have, and therefore, it cannot compete as a Cost Leader in the same fashion that they do. This however, does not prevent Supervalu from competing. Not by a long shot. Supervalu is currently, and has been for a few years now, undergoing several restructuring projects. It has sold several components of its business that weren’t performing which include – Albertsons, Jewel Osco, Acme, Shaw’s and Star Market stores (Dodson, 2013) – and is now fully embracing the strategy of Differentiation. To compete, Supervalu tout themselves as “America’s Neighborhood Grocer” (McClain, 2011). The great news for Supervalu is that the new strategy is working and the market is responding. As a result, graphed below, the stock price has gone up by more than 80% during the last twelve months (Is, 2014).
(Is, 2014)
Recommendations
To maintain its momentum, attain staying power, and keep on course with its new strategy of Differentiation; Supervalu must truly separate itself from the competition. Making itself lean is one avenue of approach but Supervalu must do more. My recommendation is that Supervalu become in fact more local as its new mantra states. Supervalu needs to incorporate more local produce and goods into its distribution centers to ship to its retail stores. It needs to invest in its respective communities and get the word out that they are in fact local. This will appeal to not only the “organic” community in the neighborhood but also to those naysayers who see Supervalu put their money where their mouth is by sponsoring neighborhood events and activities. Technology needs to also play into Supervalu’s future. To stay relevant, technology is key. Supervalu needs to embrace it more closely than ever before and incorporate it into not only how it manages its distribution centers but also how that transcends into its retail chains and how they interact with one another. Doing so will bring a level of automation and cultivation to its business which should yield better returns and growth.
Conclusion
The foodservice distribution industry is a broad one. It includes more than 2,500 companies, who manage thousands of their own facilities and fleets (Perkins, 2013). It’s an ever changing business, and those that do not change, will be pummeled. In this paper we discussed Sysco, Supervalu, and United Natural Foods. Their strategies are evolving. They have to. Sysco and United Natural Foods are the leaders in their respective classes within the foodservice distribution industry. Supervalu, while recuperating, was also once the leader and unfortunately is in the process of playing catch up. What they are all very cognizant of, is change. This is a new time and a new economy. Distribution has gone beyond just delivering cases. Operators are now in need of both lower costs and value. Whichever the strategy these three powerhouses use, it must include innovation, value and great prices. How can the distributer add value? Through services, programs and the use of technology. It can lower costs with processes and programs they are already executing but they can also look at alternatives. Regional distributors can join together, like a co-op, and buy large truck loads of inventory; savings on expenses to then pass onto the foodservice operators. How about incentivizing the operators? Rewarding them for cases purchased. The more they buy from you the bigger the savings.
The bottom line is – if Sysco, United Natural Foods, and Supervalu do not continue to innovate and add value – they will go the route of the dodo. Consumers expect more, foodservice operators expect more, therefore, foodservice distributors must deliver more. The foodservice distribution industry is consolidating, if these needs and expectations are not met, distributors might find themselves on the wrong side of an acquisition.
References
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