Understandably, foodservice wholesalers are currently pre-occupied with the existential threat they face from a large proportion of their customer base being closed.  It makes sense that wholesale operators are focussing on the here and now.

TWC’s co-Founder and former MD of Landmark Wholesale, Mike McGee, share his thoughts on a new threat to foodservice that may arise through economic imperative.  Mike questions whether new competition might emerge via logistics operators offering a fulfilment model to foodservice operators in the same way that they already to the retail multiples.  Maybe the next threat to wholesale is Eddie Stobart rather than Amazon?

However, there are signs in the industry that some operators have already had the same idea that we have discussed at TWC – the recent launch of Brakes Essentials is a nod to the economic challenges that will not go away once hospitality is back up and running.

The hospitality landscape is likely to change significantly over the second half of 2021 – not just with some permanent closures but with a forensic focus on cost through the whole supply chain.  An obsession on cost and economy of scale that will likely force through yet more commercial challenges for foodservice wholesalers.

Whether a hospitality business has three premises or three hundred and thirty-three, each operator faces the same risks coming out of Covid.  Reduced cash reserves, increased debt and, assuming they have made it through lockdown, a pressing need to balance the books.  So, what does this mean?  At a basic level it will be reduced wage bills, simplified menus and, hopefully, faster turnaround on tables to increase covers.  The VAT reduction will help, we know from last July that most operators did not pass it on to consumers and used it to re-build reserves.  But how else might an entrepreneurial hospitality operator cut cost?  Whilst some back-office functions might be centralised and contracted out, what about the contract with their wholesaler?  Is there room to trim some fat here?

Some of the biggest foodservice operators have built highly successful businesses by providing the “value add”.  It is not just about large packs of flour and bouillon delivered fast and in full.  It is also about consumer trends, food fashions, sector specific insights and help with menus and marketing.  This support comes at a cost, it is built into the margin that a hospitality operator pays on its wholesale purchases.  There is a further bounce on that margin when you add in wholesaler infrastructure: warehousing, delivery, order management.

But what if hospitality venues decided that their sole focus was to order the products that they need at absolutely the lowest possible price. What would that look like?  McDonalds has been doing this forever and the Retail Multiples operate in a similar way.  What if product no longer came via a wholesaler and, instead, the hospitality operator plans its purchases via long term forecasts, negotiates centrally with the manufacturer, and then outsources warehousing and logistics to a third party like DHL or Great Bear.  Not only does the operator remove the wholesaler margin from its costs, but it also moves the risk on to the logistics company and the manufacturers. This de-risked model becomes a just in time logistics infrastructure with in-built penalties when it fails.

Whilst our sector has been talking about Direct to Consumer as the new route to market and we have been debating Omni channel operators and the rise of Amazon, we could lose a sizable chunk of our channel to a trucking company if the people placing orders with their wholesaler start to place less emphasis on relationship and even more focus on cost.