Understanding Food Distribution - an Overview
As an aspiring, or as an actual, food producer, you are undoubtedly familiar with the term “food distributor”. The term encompasses a lot, and there is often confusion about the exact role of a distributor in the food supply chain.
Food Supply Chain
In order to ultimately reach the end customer, a product must go through many different stages in the ‘Supply Chain’ – a process that involves a number of different players.
Producers initially supply the product from their own production line or stock in a warehouse/off-site facility. There are many options available for producers to transport their product along the supply chain. For example, they can manage their own transport systems, make arrangements with a local transporter, use a courier to reach a wider national market, or engage in collaborative transport with other suppliers to share transport costs.
Many producers, however, will choose to partner with a distributor to manage the transport, logistics, marketing and selling of their product, so the producer can focus on the day to day running of the business.
There are various types of distributors available, and producers can limit the amount of activities they outsource to their distribution partners.
Transport and Warehousing Distributors (Logistics Service Provider - LSP)
LSP’s don’t take ownership of the product from the producer. A producer can hold a ‘dedicated’ contract with an LSP, or a ‘shared user’ contract - where the distributor may also manage competitors’ products. The distributor has license to deliver to anyone, including direct to consumers.
Sales, Marketing & Distribution Agent (SMD)
Some SMDs take ownership of the product and are paid based upon a formula or commission. SMDs mainly offer:
- Marketing, sales and logistics support.
- Warehousing & transport. Some SMDs will provide their own warehouse and transport services, some will partner with LSPs, whilst others will leave the supplier to find their own LSP solution.
- Order Processing/Invoicing (depends upon ownership)
Benefits of using a distributor
Some of the main benefits of using distributors are:
- Speed of route to market: they know the locations of retail stores and the fastest way to reach them.
- Established customers: established distributors already have good relationships with wholesalers/retailers.
- Sales and Marketing expertise: they fully understand the market and buyer behavior.
- Reach a wider market: they can cover a greater geographical range.
- Storage: producers can benefit from extended storage space without having to invest in facilities for their own premises.
- Cost savings: Before launching an aggressive marketing strategy, the producer will already know that the product is accessible to any interested retailers.
Producers are free to use any distributor they wish, and must consider various factors when doing so, such as business stage, budget and market reach.
When selecting a distributor, a food producer needs to consider the experience a distributor possesses, whether there are any distributor testimonials readily available and to understand the regions that the distributor serves. Armed with this type of information, a food producer will be much better placed to choose a distributor that fits their overall requirements.
To find out more about partnering with distributors, and what it can do for your business, please contact a Celtrino expert who will be on hand to assist with any queries.