We can’t talk about technology shifts in the foodservice distribution industry unless we look at what the industry currently uses. The following graphic shows what we’re dealing with:
Technology has become a cornerstone of success for any modern industry. Why?
Doing more with less.
Could you imagine how many people would die of starvation or dysentery if agricultural industries didn’t use technology to scabaly harvest food or disinfect water?
Fortunately, we have luddites in the foodservice industry that offer a glimpse of what life was like before technology existed.
Some of these distributors have managed – or were forced – to climb from the primordial soup to rub elbows with technology, but by and large the industry is operating at a fraction of its potential given the degree to which advanced technologies already exist.
Generally speaking, technology solutions come in two deployment types: on-premises and off-premises systems. About 80% of software in the foodservice distributor industry is still on-premises, installed on local servers, just like it was in the 1990’s.
Off-premises systems operate on remote or cloud-based servers and are what even moderately intelligent people conjure when you mention software.
Below are the major categories of technology for foodservice distributors today.
| Accounting Accounting software is used by foodservice distributors to manage all of their bookkeeping including invoice issuance, payment acceptance, expense management and financial reporting. Eg: Quickbooks, Sage, Xero | Data Warehouse For larger distributors that have multiple distribution centers, storing core transactional data in a separate data warehouse can allow your ERP to scale more efficiently while enabling better data security and more advanced, centralized reporting. Eg: IBM |
| Transportation Management System (TMS) A TMS is used by distributors to manage their delivery logistics by creating and optimizing driver routes, managing delivery schedules and tracking the location of delivery trucks. Eg: Samsara, Ortec, Omnitracs, Rentall | Warehouse Management System (WMS) To manage their supply chain operations, distributors use WMS software to track the lifecycle of inventory in their warehouse from procurement to fulfillment. Eg: BFC |
| Customer Relationship Management (CRM) CRMs are used by foodservice distributors to centralize customer info and manage prospecting, marketing and cultivation of deeper relationships with existing customers. Eg: Salesforce | Earned Income Management Distributors use Earned Income Management software to track and audit rebates, deviated costs and marketing programs at a line-item level to ensure they’re collecting all their earned income from their suppliers. Eg: Trackmax |
| E-commerce Foodservice distributors are catching up to the norm of consumer online shopping and understanding that it is now table stakes to offer their business customers a modern and familiar E-commerce experience with transparent product catalogs and personalized order guides. Eg: CD, Choco, Cut+Dry, Entree ERP, Power Net | Price Optimization With cost fluctuations and supply/demand so fluid, foodservice distributors utilize Price Optimization software to help them adapt product pricing on an intraday basis and at a customer-specific level to grow customer revenue and maximize profits. Eg: PROS. Intelligence Node |
Before delving into the nuances of the software, we need to examine the differences between the basics here: on-prem vs off-prem.
We watched the incumbent, legacy POS systems really dig in their heels when cloud POS first came to market in the late 2000’s, but now we’d estimate that 75% of the restaurant market is on cloud POS. 20 years ago cloud POS companies found themselves in the exact same position of needing to explain “the basics” to the luddites.
It pains us that we need to draft this table below, but that’s how far behind foodservice distributors really find themselves:
| On-premises | Off-premises |
| Customers make an outright purchase of the software | Customers make a monthly or annual subscription |
| Customer is responsible for all maintenance and upgrades. Constant updates can also be costly as it requires in-house technical expertise | Maintenance and upgrades are taken care of by the developers and customers are given access to the latest versions |
| Upfront costs can be high as it may require the purchase or upgrades to hardware | The pay-as-you-go nature of payments along with few additional hardware requirements make it a cheaper alternative |
| As the software is hosted on-premises, it is usually more secure. Control over compliance with data security regulations are higher as well due to it being within the control of the customer and not a third party. | Off-site providers have to invest heavily on technologies to ensure data security |
| Accessibility is limited | Users can access information and documents from anywhere at anytime with an internet connection |
| Since software is installed on on-premises hardware, mobility is limited | Off-premises software can be used on-the-go from any device that has internet connectivity. Usually off-premises software is optimized for mobile phones |
| On-premises software maybe more reliable as it doesn’t need an internet connection to work | Off-premises software requires reliable and stable internet connectivity. This can become an issue when there is an outage which causes a loss of connectivity |
There are secondary consequences that come with the on-prem vs off-prem debate as well.
Integration capabilities
Foodservice distributors usually have a legacy stack of on-premises softwares which are inflexible and cumbersome to integrate with, especially for newer technologies. This can be a significant growth inhibitor as they want to use additional software but are crippled with the integration limitations of old technologies.
Scalability
As businesses grow, the software being used must be able to adapt to more complex processes and procedures. If it’s not flexible enough to be this adaptive then it can hinder business growth and require a painful change to more scalable software. As an example, think if you had to physically drive somewhere and install new hardware in a server farm if you grew beyond n customers.
Customization
Software that’s built to serve multiple industries will start to fail the more you grow. That’s because no industry is exactly the same and they operate under different rules, methods, etc.. Traditionally this has been why verticalized SaaS is so sexy for investors: deeply solving a large industry’s problems has real moats. At smaller scales this isn’t obvious to the user, but as the foodservice distributor grows the leaks in the dam will become obvious.
User friendly
There have been amazing advancements in UI (the way something looks) and UX (the science for maximizing user experience, like eliminating button clicks) since people thought on-prem software was cool. And driving user or customer adoption rates to 100% matters in low margin industries that rely on technology to be a force multiplier. Old softwares are clunky, unappetizing to look at, and often have a steep learning curve. There’s a reason the apps on your mobile phone look at the feel the way they do: if they behaved like a 1990’s piece of software nobody would use them.
We felt it important to have a handle on the general tools used by foodservice distributors. As we get further into the stack to reveal our learnings and peel back the layers, we needed an anchoring map to tell us where we were.
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