Food Wholesaling
Food wholesaling consists of that part of food marketing in which goods are assembled, stored, and transported to customers, including retailers, foodservice operators, other wholesalers, government, and other types of businesses:
- Sales to the food-at-home sector (retailers) were $282 billion in 2002, the latest year available.
- Sales to the food-away-from-home sector (foodservice) were $118 billion in 2002.
- Additionally, sales to other wholesalers—small specialty wholesalers who purchase goods from larger wholesalers—were a significant share (26 percent) of total sales.
Three basic types of wholesalers are classified by the Census of Wholesale Trade:
- Manufacturers' sales branches and offices (MSBO)—Merchant wholesale operations maintained by grocery manufacturers to market their own products.
- Merchant wholesalers, excluding MSBO—Also referred to as third-party wholesalers, these firms are primarily engaged in buying groceries and related products from
 manufacturers, or processors, and reselling to retailers, institutions, and other businesses. Sales by merchant wholesalers account for the bulk of grocery wholesale sales (61 percent).
- Brokers and agents—Wholesale operators who buy or sell for a commission as representatives of others and typically do not own or physically handle the products.
Merchant grocery wholesalers are classified by the Census of Wholesale Trade by the types of products distributed:
- General-line distributors—Also referred to as broadline or full-line distributors, these are companies handling a broad line of groceries, health and beauty aids, and household products (e.g., C&S Grocers, Supervalu, Nash Finch, and Sysco).
- Specialty distributors—Operations primarily engaged in the wholesale distribution of items such as frozen foods, dairy products, meat and meat products, or fresh fruits and vegetables. Specialty wholesalers account for nearly half of grocery wholesale sales.
- Miscellaneous distributors—Companies primarily engaged in the wholesale distribution of a narrow range of dry groceries such as canned foods, coffee, bread, or soft drinks.
Retail Foodstore Wholesalers
Grocery wholesale sales to retail food operations, such as supermarkets and convenience stores, totaled $282 billion in 2002, the most recent year of data, or 45 percent of grocery wholesale sales volume. This is up from 40 percent in 1997.
The retail foodstore wholesaling sector continues to undergo important structural changes. In 2003, the Nation’s largest grocery wholesaler, Fleming, divested the bulk of its operations shortly after its largest customer, Kmart, filed for bankruptcy protection and ended its supply contract with Fleming. Following the divestitures, the share of general-line grocery merchant wholesale sales accounted for by the top four wholesalers fell from 34 percent in 2001 to 27 percent in 2004.
As consolidation in food retailing increases (see Food Retailing chapter), manufacturers and large retailers offering a broad assortment of items have found it advantageous to negotiate directly with each other, reducing the power and influence of traditional wholesalers. Self-distribution is the preferred method of vertical coordination for large grocery chain stores (those with 11 or more stores). In 2001, 82 percent of chain stores were self-distributing.
Given uncertainty about the ability of independent retailers to compete with the larger chains, some of the largest grocery wholesalers are placing greater emphasis on owning retail operations. This is illustrated by Supervalu’s purchase of Albertsons in 2006, or the second largest grocery wholesaler purchasing the third largest grocery retailer.
In 2005, Roundy’s, formerly the eighth-ranked grocery wholesaler, added "Supermarkets" to its name to better reflect the company’s retail focus. The company also sold a portion of its distribution business to Nash Finch—the fifth largest grocery wholesaler—and Supervalu. In 2005, 90 percent of sales by Roundy’s Supermarkets were accounted for by its corporate stores.
Foodservice Wholesalers
Restaurants and other foodservice companies are also major customers of wholesalers. Sales to these firms accounted for $118 billion in 2002, or 19 percent of all sales of groceries and related products by all food wholesalers, down from 22 percent in 1997. While retail grocery outlets and foodservice companies compete for the consumers’ food dollar, wholesalers that distribute to the foodservice industry and to food retail outlets do not compete directly with each other for customers.
In general, there are three types of foodservice distributors:
- Broadline foodservice distributors—Companies that have traditionally purchased a wide range of food products from manufacturers and stocked these goods in one of their distribution centers. Most broadline distributors offer value-added services designed to meet the needs of single-store restaurants and small chains. For instance, foodservice operators without the staff to research new products and plan menus may rely on a distributor's sales representative for assistance (for example, Sysco and U.S. Foodservice).
- Specialty distributors—Companies that do not stock a wide range of products; instead they operate in niche markets where it is necessary to have specialized knowledge about the type of product being handled or type of operator being served. For example, there are product specialists for specialty cut meats, produce, ice cream, and coffee. Market specialists serve a wide range of niche operators, such as convenience stores, hotels/motels, and club warehouses.
- System distributors—Foodservice wholesalers that serve a customer base that consists mostly of chain restaurants with centralized purchasing and menu development. Individual operators within chains may not require the value-added services provided by a broadline or specialty distributor, such as obtaining information about new products or assistance in developing and preparing new menu items.
In 2000, industry leaders, including McDonald’s, Sysco, Cargill, and Tyson Foods, launched eFS Network to provide an Internet-based, industrywide marketplace for foodservice companies. The goal of the eFS Network is to improve communications in product transfers from producers (Tyson Foods) to operators (McDonald's) to reduce excess inventories along the supply chain, reduce mistakes in processing orders, and improve information about consumer demand. By 2003, eFS Network expanded to include more than 230 leading foodservice companies including Domino’s Pizza, H.J. Heinz, Land O’ Lakes, and Perdue. In addition to Sysco, distributor participants include Ben E. Keith Company, BiRite Foodservice, Dot Foods, Food Services of America, Performance Food Group, and Ritz Foodservice.
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