96 • FOODSERVCIE EQUIPMENTS & SUPPLIED • SEPTEMTER 2014

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Channel Distribution

Conflict in Foodservice

By Chip Evans, PH.D.

President

The Evans Group LLC

theevansgroupllc@gmail.com

hannel conflict remains the subject of constant

conversation in all corners of the foodservice

industry.

The nature of many business relationships among

trading partners has changed in scope, eroding profit

margins for some and vastly increasing them for others.

While debating how the industry got to its current state

makes for good barroom debate, few can argue the

‘end-user’s definition of value has changed

considerably, becoming mostly price-centric. This is

due to the fact that many larger operators are now own

by private equity firms or are publicly traded. Either

way, though, the main focus for much of the operator

community is to drive shareholder value and when the

economy continues to sputter along as it has in recent

years that usually means lowering the costs of goods

Few can argue that the end user’s definition of

value has changed considerably, becoming

mostly price-centric.

sold in order to drive better returns on investment

instead of evolving the concept to meet consumers’

changing needs. As a result, value often takes the form

of lower costs in the eyes of the operators.

While many operators may feel tightly controlling

the sale enhances the value they receive, in reality this

approach only erodes it. That’s because by deeply

cutting the price, and often the timelines, the end user

gains little outside input from their suppliers – that

experiential knowledge which could dramatically

impact their concepts. But because most people seem to

live in the short-term, it’s rare when they recognize how

the value proposition continues to erode across the

board.

As the cost of a plate continues to decrease

nobody looks at how many plates an operation

buys, if other options would better facilitate the

creation of higher margin menu items or the

operational impact of washing and storing

these items. That’s because the only business

controls exist on the buy side of the equation.

The relationship becomes solely transaction

oriented.

Of course, none of this is new. It is part of

a recurring cycle that the foodservice

equipment and supplies industry can’t seem to

break. Years ago it was the broadliners

encroaching on the traditional foodservice

equipment and supplies dealer’s territory,

followed by the big box retailers, such as

Sam’s Club and Costco. Each brought change

and marginalized the value the supply chain

provides leading to commoditization of the

equipment and supplies industry.

With commoditization comes channel

conflict as every stakeholder protects their

interests, knowing full well failure to grow

market share likely means you are losing it.

Optimists see this as a way to match our

abilities to deliver value as defined by the end

user. Many in our industry have found niches;

more have not. Some have built logistics and

processes into their value, thusly not selling a

product, but a service. Even these firms,

though, deal with declining margins on the

products they manage.

All pendulums swing and economic cycles

always repeat. But the only way to break this

cycle and get the entire industry back to higher

margins is to get everyone develop a common

definition of value – one that benefits all

involved.