Rethinking Foodservice Delivery: From Cost Centre to Growth Engine
Foodservice distributors today have their fair share of challenges: inflation, fluctuating demand and labour shortages, to name a few. What’s more, rising customer expectations make it imperative to provide an exceptional delivery experience.
To remain profitable, operational efficiency is not enough. To truly safeguard margins, distributors must treat delivery not as a cost to manage, but as a strategic lever for growth.
In this article, we’ll explore how distributors can reduce costs while unlocking new sources of revenue.
Obstacles to profitable foodservice distribution
Before we get to solutions, let’s look at what distributors and wholesalers are up against.
Sales figures
The first challenge to address is struggling sales volumes: Despite steady growth since the COVID-19 pandemic, demand has not entirely bounced back.
From a revenue perspective, some companies have returned to pre-pandemic levels by raising final prices. But when it comes to sales volumes, demand is still prone to fluctuation.
In this context, food distributors need to safeguard their margins, while looking for new growth opportunities.
Rising costs
Food and beverage providers face increasingly high costs, driven by exploding rents and labour shortages. The prices of fuel, energy and raw materials also remain historically high.
At the same time, environmental regulations favour newer vehicles and alternative fuels. While these measures should decrease costs in the long term, the upfront investment can put a dent in profits.
With so many external factors impacting the bottom line, the onus is on distributors to increase efficiency and grow sales wherever possible.
Customer expectations
In the foodservice space, there are two types of customers to think about:
- End customers increasingly demand more choice and fresher, locally-sourced products. At the same time, economic constraints make cost a deciding factor when choosing where to eat.
- For hospitality businesses, receiving goods ‘On Time, In Full’ is not enough: Distributors need to provide a higher level of service without increasing costs.
Clients expect convenient time slots, same- or next-day delivery options, real-time tracking, and electronic proof of delivery. To increase market share, suppliers must also invest in digital channels for marketing, ecommerce and customer communication.
How are distributors reacting?
In short, sales volumes are prone to fluctuation and it’s increasingly complex and expensive to serve customers.
So, how are most food distributors reacting to these challenges? Common strategies include:
- Creating economies of scale through acquisitions and partnerships.
- Specialising in a particular market segment.
- Improving productivity and alleviating labour shortages through technology such as route optimisation.
- Offering new products or sales channels to attract more customers and increase margins.
So far, many distributors have survived by passing costs on to customers – a model that can’t continue indefinitely. A future-proof distribution strategy needs to focus on increasing efficiency and identifying new sources of revenue.
In search of profitability
When finances are squeezed, it’s tempting to maximise profit through cost-cutting activities. But in the rush to reduce spending, businesses should look at options to increase sales.
To remain competitive, food wholesalers and distributors will need a two-pronged approach:
- Reducing costs through optimisation and process automation.
- Increasing revenue through additional services that increase market share.
Luckily, delivery management solutions can help businesses succeed in both these areas.
1. Reducing costs through delivery management
Automation of delivery processes allows you to carry out more deliveries with the same number of vehicles and staff. In addition, distributors can cut operational costs by minimising miles driven, reducing customer complaints and avoiding failed deliveries.
Software can help you optimise deliveries from end to end:
- Strategic optimisation involves running simulations to make business decisions that will reduce costs and increase revenue in the long term.
- Daily route optimisation software builds on fixed routes by adapting as-and-when new orders come in. The software can be configured to optimise routes based on business goals, such as selecting the lowest-cost option.
- Visibility and execution tools eliminate human error by giving drivers all the information they need. Data from the field lets you track planned versus actual performance and identify areas of inefficiency.
- Customer engagement can involve real-time delivery notifications, driver tracking and electronic proof of delivery. This increases lifetime customer value by giving recipients the digital experience they expect. In addition, proactive communication reduces costly missed deliveries.
2. Driving profitability with delivery services
Now let’s look at the second route to profitability: Increased sales.
Many food and beverage distributors could benefit from including sales teams in discussions around delivery. Commercial colleagues will know if your business is losing contracts because there’s a particular service you can’t offer.
- Are there restaurants that moved to a competitor because you can’t provide same-day delivery or precise delivery windows?
- Are there potential clients who need to track to-the-minute when an order will arrive, to ensure that staff are available?
- Are certain customers prepared to pay more for premium delivery options?
By working cross-departmentally, you can predict the consequences of adding certain delivery services. The initial investment will be worth it if these services allow you to recover market share.
Strategic planning software can take this a step further by simulating the impact of commercial decisions.
From cost centre to growth engine
Profitable foodservice distribution needn’t rely solely on trimming costs.
Distributors must look beyond operational efficiencies and consider how delivery capabilities can actively drive growth. With the right delivery management solution, businesses can cut waste and provide more value-added services to customers.
By treating delivery as a growth lever rather than a cost centre, food and beverage suppliers will be best positioned to thrive in an industry defined by change.
Get in touch with Descartes to turn last-mile delivery into your competitive edge.