wholesale change

With all of the competitionconvenience store retailers arefacing these days, they can take some comfort that they are not going atit alone. Wholesalers and suppliershave a vested interest in their success.Quite simply, when retailers succeed,the folks that produce and supply theirproducts also succeed.

Of the three primary modes of storedistribution—wholesalers, direct storedelivery (DSD) and self-distribution—convenience store retailers interviewedwere extremely satisfied with theirwholesaler partners. The moodchanged slightly when asked aboutDSD. The primary areas of concernexpressed by marketers were pre-priceditems, which hurt margins, and beingforced to surrender control of what’sgetting shipped to the store and when itgets there.

Ironically, the same competition thatkeeps so many retailers awake at nightis also partially responsible for thestrong market share many storeownerscurrently own. That’s because the competition has made the industry smarterand more dependent on emerging technology to quickly react to marketdemands.

For example, Sam Anderson, vicepresident of store operations for PumpN Pantry in Montrose, Pa., lauded thetools offered to him by his primarywholesaler, McLane Co. Inc., specifically its Smart Handheld device that giveseach store a detailed eight-week historyof what was ordered and when it wasreceived. Balanced with the retailer’spoint-of-sale scan data, its real-timeinventory virtually ensures that out-ofstocks are a thing of the past.

“Our relationship with McLaneextends beyond deliveries. It’s alsoabout the technology they bring to thetable,” Anderson said. “The Smart Handheld unit allows managers to do alot more managing and a lot less thinking about the ordering process. Andbecause we partner with them, we havethat technology at our disposal withouthaving to invest in it ourselves.”

Anderson also touted the impactMcLane’s trade shows have had onstore merchandising. “McLane bringsthe latest products to us, and they onlybring the items they feel are going tomake it in the c-store market,” he said.”We trust their experience.”

With only six stores, Jim Callahan,director of marketing for Geo H. Green Oil Inc. in Fairburn, Ga., said he is arealist when it comes to dealing with hiswholesaler, Eby-Brown.

“I’m not going to ask for outlandishthings,” he said. “Instead I ask forthings that have a realistic chance ofgetting accomplished, leaving both EbyBrown and myself the opportunity towalk away with a feeling of success. Akey element in relationships is whenboth sides leave feeling good. It’s called‘setting up the next deal.'”

Over the seven years Callahan hasbeen with Eby-Brown, as a result of anhonest relationship and a willingness to compromise, “Eby genuinely treats meas if I’m the buyer for 600 storesinstead of six,” he said. “Certainly therehave been occasions when they couldn’t do exactly what we’ve wished andcalled on me to compromise, but MikeMcCormack [Eby’s vice president ofsales] and his entire staff have done cartwheels to keep Green Oil happy.”

That’s the support Callahan expectsfrom his partners. As a result, he confidently furnishes Eby-Brown, as well asall of his key vendors, with leads thatresult in new business. In return, hesaid, when he needs something, there isalways a partner available to help.

As a recent example, Green Oil waspreparing to open its newest store Jan.1, and Eby-Brown’s support staffworked through the holidays to get thestore stocked and ready for business.But the retailer hit a snag when itsboiled peanut vendor (a staple in theSouth) and its pre-made biscuit supplierwere not be able to provide equipmentuntil the following week. He turned tohis Eby rep for help.

“They bought stainless steel crock pots for the peanuts and brought ininexpensive, but super-effective, disposable warming trays so we could havehot biscuits when we opened the doors,” he said. “With that ‘can do’help from Eby and several other dedicated vendors, we opened nine hoursahead of schedule and we sold 42 biscuits the first morning. More important,we pleased 42 customers.”

David Bishop, a partner with consulting group Willard Bishop LLC,agrees these co-dependent relationshipscreate an essential value propositionneither side can afford to lose. “There isa symbiotic relationship between theretailer and wholesaler,” he said. “Bothneed each other, and retailers recognizethat wholesalers are trying to help themdevelop more cost-effective and efficientways to go to market.”

Wholesalers are constantly evolvingto meet retailers’ needs, and it falls onchains to continue driving change.”Right now, retailers are redefining theircapabilities and that’s reprioritizingcompetencies of the wholesaler,” Bishopsaid. “They recognize the dynamic isshifting, and thecost they pay forgoods and servicesneeds to reflect that.”

Once chainsreach a certain sizeand mass, they canbegin looking atself-distribution toget more control ofthese costs. However, thisrequires a heftyinvestment inbuilding a distribution plant and atruck fleet. Theupside, though, isthat self-distribution gives largechains a little morepower over things,like delivery times,and allows them toincorporate perishable items, like flowers, to their on-hand inventoryassortment.

Companies considering going thisroute need to have critical mass andmore in wholesale distribution, saidDarrin Pohar, director of distributioncenter operations for Sheetz Inc. inAltoona, Pa., but he doesn’t believethere’s a clear threshold for making theleap to self-distribution. “We did it formany reasons beyond financial return,”he said. About 70% of the merchandisesold in its 331 mid-Atlantic conveniencestores comes directly from its center inClaysburg, Pa.

For Sheetz, the self-distribution decision was not a result of wholesaler dissatisfaction, rather a business decision.”I think many convenience wholesalersprovide a great service. They have tocreate an expansive infrastructure flexible enough to meet the needs of smalland large volume customers and stillmake money,” Pohar said. “We have aculture of continuous improvement andfelt our volumes justified self-distribution, and we made a decision to find away to make it successful.”

The decision yielded both subtleand obvious opportunities for the chain.”For example, at the time we had 270people ordering for each store. Now wehave a handful of corporate employeesthat make more consistent orders basedon real-time scan data. The result ismore in-stocks and less capital tied upon the shelves,” said Pohar.

Operating a distribution centerdoesn’t have to create a schism betweenretailers and wholesalers. Take ValeroEnergy Corp. in San Antonio. Thecompany operates nearly 1,000 convenience stores across the country, but hasbeen self-distributing to about 500 unitsin Texas since April 2005. The center issupplied and operated by Core-MarkInternational.

Like Sheetz, Hal Adams, the refinermarketer’s vice president of merchandising, said the decision to open a distribution center had nothing to do withwholesaler conflicts. “It was about trying to use our market stretch and concentration to gain efficiencies within ournetwork of stores,” he said. “We werereceiving multiple deliveries [wholesaleand DSD] a week leaving small, perishable loads at our stores. We saw an opportunity to combine those deliveries into one truck with our traditional grocery and dry goods. By doing this we’d increase thefreshness of our products and save stores time—receiving one delivery instead of five. It was also a chance to developcloser relationships with those suppliers.”

One of the immediate benefits forValero was that it was able to add perishable goods like pastries, milk andflowers to the distribution center’sinventory. But the challenge was training store managers to order these itemsto avoid spoilage.

“Traditionally, DSD vendors handled those
tasks” Adams said. “OurDSD guys were helpful. They coachedus in how to handle product at the center as well as how to train employees atthe store level about what to expect interms of spoilage. They’re still intimately involved in developing schematicsand product mix.”

Direct Challenge
While retailers reported satisfactionwith self-distribution and their wholesaler relationships, managing DSD hasproved to be a little more challengingfor many c-store retailers that lack thesize and volume of Valero.

Complaints with DSD deliveriesusually come down to two things:lower margins and loss of control forretailers. Retailers make lower marginsbecause the DSD vendors price theirown items, often stamping it right onthe package so it can’t be changed. Asfar as control is concerned, it’s completely out of the retailer’s hands.

Amarillo, Texas-based TaylorPetroleum Co.’s wholesaler stocks 65%of the product in its stores, but theremaining 35% is DSD supplied. Andeven though it’s a much smaller percentage, it creates double theheadaches, said Greg Hendricks, vicepresident of the 68-store chain.

The process begins with pre-salesmen who inventory stores and writeorders themselves. Deliveries typicallyarrive a day or two after the pre-salesvisit, and most stores receive deliveries once a week; larger volume storesreceive deliveries twice a week.

“[Our wholesaler’s] delivery time ismore predictable than the DSD,”Hendricks said. “We try to work interms of time, but they’re somewhattrapped by the geography they serve.We have to accept the deliveries whenthey come—whether it’s convenient forus or not—or we have to do withoutthose products for the week.”

Aside from being at the DSD driver’s mercy when it comes to deliverytimes, the companies rarely have thetechnological resources that mostwholesalers have at their disposal. Forexample, Hendricks’ wholesaler invoices are imported electronically, whichleaves little if no room for human error—intentional or not.

“Each driver has their own agenda,”Hendricks said. “They will deliverproducts we haven’t authorized, whichoverloads our stores with unnecessaryinventory, but they’re able to sneakthem in by doing their invoices byhand. We put it to our store owners tostraighten the matter out, but when keyaccount representatives from these companies avoid the matter, it goes up theladder and becomes a problem for me.”

As an example, there is a majorsnack supplier that Hendricks considers”the worst.” Even after repeatedly giving the driver instructions on where toput clip strips in stores, the driver continues to violate space restrictions.

“It’s come so far that we’ve told himif he can’t properly place the strips,we’ll remove the product altogetherfrom our stores,” said Hendricks. “Idon’t care if they’re a major player, I’drather have control in my stores andoffer customers other alternatives.”

Another less talked about factor isDSD driver turnover, which negativelyimpacts merchandising. “You don’thave an experience level with someonethat’s only been with the company for two weeks to properly service your stores,” said PumpN Pantry’s Anderson.”There’s an adjustment period there for the driver andeach time they switch itstarts all over again.”

At Green Oil, Callahansaid DSD manufacturershave panned out well “with the exception of those companies that elect tofranchise out routes rather than keepthem company operated,” he said. “Inthose cases, deliveries are very hit-andmiss, and we lose that direct control wehave with an actual company employee.This results in lost sales for both sides.”

While DSD vendors work on theirown schedules, Hendricks does creditthem for being responsive to his stores’needs. If they should be out-of-stock,the DSD drivers will try to get backinto the location to replenish. “But it’son their schedule and you have to dealwith it. It’s not an ideal situation, butit’s the hand we’re dealt.”

For Tucson, Ariz.-based Quik MartStores Inc., about 30% of its in-storestock is DSD supplied including snacks,bread, deli and dairy items, sodas andnovelty. DSD companies order, stockand rotate products themselves. Storepersonnel jointly check product in, butthe drivers price it.

It’s not optimal for the 28-storechain, but it still finds the silver lining.

“I like my store personnel accountable for what’s on the shelves,” saidMark Redding, general manager forQuick Mart Stores. “Sometimes we’reat the mercy of what drivers have lefton their trucks at the end of theirroutes—we may not always get what weneed, rather what’s left. In that regard,my people are unable to manage eachcategory effectively.

“On the plus side, when you getgood drivers servicing their categorieswell, it can take the pressure off thestores so they can focus on other areas.You have to hope the drivers knowwhat is ‘hot’ and selling well,” Reddingadded. “It’s also a great advantagewhen DSD vendors give credit onspoilage, but you have to wonder whyyou have that spoilage in the first place.It comes back to drivers and deliveriesthat we have little control over."

Visit CSD’s list of Top 10 Wholesalers as ranked by 2006 estimated sales.


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