We constantly harp on retailers being just about the most laggardly industry one could find, with restaurants being an even more laggardly subset underneath the retail umbrella.
But what if you told you that there exists a hidden world that serves the underbelly of the restaurant industry? An industry that’s worth hundreds of billions of dollars a year, and it’s powered by tech that even the least sophisticated restaurants were using more than a decade ago?
This is the take-the-red-pill-or-green-pill moment.
What follows is a series that will dive into the (mostly) invisible world of foodservice distribution.
Sure, you may have happened upon SYSCO or US Foods truck clogging already-tight alleyways in your effort to navigate downtown city blocks, but this series will peel back layers of the onion and expose just how anachronistic their world is.
Considering you’re talking about perishable inventory making millions of daily stops using expensive equipment and little room for robotics, any technology would be a boon to the margins of these players.
But somehow, they make restaurants look like early movers by comparison.
With the exception of the large, broadline distributors (like the aforementioned US Foods and SYSCO) many of the 17,000+ US foodservice distributors are extremely far behind on tech adoption.
It’s shockingly still very manual (and often paper-based), and if there is any tech involved, it makes NCR Aloha look like anything but a festering turd of an excuse for software.
And even more wild is that e-commerce doesn’t exist.
While restaurants were all but forced to modernize to e-commerce during the pandemic, foodservice distributors take orders like it’s 1990: email and fax, baby.
Foodservice distributors will employ people to spend their whole day fielding calls and entering orders into ancient data systems. Smaller foodservice operators don’t have the scale to hire additional people for sales, so they are handicapped with limited time to generate more revenue on other initiatives.
And it’s not as if there aren’t, or haven’t been, e-commerce solutions available, either.
Some, like Butter and Rekki, have come and gone, while newer generation providers like Pepper, Cut+Dry, and Choco are actively serving the market.
Like restaurants, the foodservice distribution industry has an insane upside in adopting technology. And like restaurants, they are easily 20 to 30 years behind the curve of common sense (though, as stated earlier, they are somehow even further behind restaurants).
Nobody said managing a digital transformation would be easy, but f*ck is it obvious. There’s just so. much. to. gain. in using technology if these guys would just pay attention to some basic arithmetic.
Think of this as a very simple use case.
Hotels and airlines have been dynamically pricing for decades. The math is straightforward, and the ROI was proven forever ago.
But guess what?
This doesn’t exist in foodservice distribution in any meaningful way. Restaurants are flirting with it now, but that means that foodservice distribution might have its first date in another decade.
Seriously, bro?
Imagine the efficiency foodservice distributors could achieve with PROVEN algorithms.
The US foodservice distribution industry is estimated at $320B. Even a 1% change is a massive number. The real question is: how much do foodservice distributors care to generate ROI?
Restaurants invest mere basis points on technology in spite of all the documented upside in using technology in other industries.
Foodservice distributors are more margin constrained than restaurants generally, with 5% being a top number (some restaurants are earning 30% margins or more).
But will this translate into a willingness to use technology to improve?
In our experience there are only ever two impediments to using technology.
The first is the fear of displacement. The company (or really the person whose job it is to buy and use the technology) is fearful that the technology will replace their job, or make them responsible for more work. This almost never comes to pass, and instead technology frees people to be more productive elsewhere, accomplishing things that technology can’t.
For example, the technological revolution of the 1800’s moved society from an agrarian society, where people toiled 80 hours a week in a field with minimal time for leisure, to one where the same productivity was had with < 5% of the labor hours, freeing people to make advancements in science, health, and other fields.
The second is sophistication, and this has flagged the restaurant industry forever. The first step to fixing a problem is admitting that you have a problem, and restaurants don’t have the sophistication to even recognize a problem.
Restaurant foodservice distribution is likely similarly challenged, as large manufacturers view restaurants (call on–prem) as the tail, with grocery and mass merchandise (off-prem) being the dog.
Accordingly, there’s more money in working on the off-prem side of the house at Nestle than there would be working on the on-prem side, so budgets and personnel are thinner in supporting the latter, often leading to people who are likely less aggressive in their careers. This makes its way down to distributors, where on-prem distributors are dealing with manufacturers who want to invest less in the overall operation relative to off-prem.
This is where things get interesting, though.
There might be a forcing function in the on-prem lines of business for foodservice distributors.
Since the pandemic, restaurants have been mandated to learn ecommerce as DoorDash and other delivery providers have become a mandatory (and growing) part of their businesses.
These restaurants unequivocally enjoy the elegant user experience (though not the economics) of working with modern ecommerce platforms, and this is starting to carry over into the experiences they expect in ordering their own products.
The cognitive dissonance is “Hey, my life is pretty nice as a consumer when I want to order food, or groceries, or whatever, but man, it sucks when having to order food from my own restaurant’s suppliers.”
And this is where the series will take us: how will foodservice distributors respond?
Wow, this whole major channel of foodservice distributions is not only desperately behind in fact, but also in coverage and therefore awareness. Your (current and ongoing) series of articles on this is seriously needed and welcome. I would imagine you’ll devote at least one article to the brutally ancient world of ERP systems these distributors are stuck with (the distributor cousin to restaurant POS systems). Write On, Mr Jordan !!
Yes, but who will read it? That is always the risk: does the content land on its intended target or are they too busy not self-discovering?