Recently, a JPMorgan analyst said that Amazon might enter the foodservice arena as a distributor. Amazon could either build a foodservice distribution business or buy an existing distributor. Will this move happen? It has happened already. The question is how far Amazon will take their interest in foodservice distribution?
In 2015, Amazon launched Amazon Business. Within a year’s time, Amazon Business generated $1 billion, and restaurants are part of the customer base. Bob Sala, a foodservice industry consultant who specializes in distribution, told Nation’s Restaurant News that Amazon finds and fills needs in underserved markets. The alternative distribution market is one of those underserved markets, not to mention the fastest growing distribution segment.
But it’s not just alternative distributors and cash-and-carry suppliers that feel the brunt of the disruption that Amazon could bring to the foodservice industry; broadline and specialty distributors should still watch closely as Amazon plots its next move.
What are the Potential Ramifications if Amazon Dives Deeper into the Foodservice Distribution Business?
Minimum order sizes will be a thing of the past.
Distributors have a minimum gross profit per delivery. Amazon can bring a dramatic reduction in delivery costs to independent operators, which in turn can make order size requirements a thing of the past. With that said, minimum order sizes may remain in place for refrigerated and frozen products – items that may be more difficult for Amazon to manage without making an acquisition.
The route to market to the customer changes.
Manufacturers that sell to independent restaurants will have an improved level of access to those operators via Amazon. Even now, companies like Custom Culinary have Amazon storefronts set up to serve smaller customers. Manufacturers who sell via Amazon can market to foodservice buyers on the spot with offers and rebates.
The distributor’s economic model gets disrupted.
Broadline distributors see the biggest profit margin with independent restaurants. If Amazon enters the scene, distributors must be ready to defend against losses. Fortunately, as Pentallect observes, Amazon’s core audience will most likely be smaller and mid-size independents. These smaller operators typically purchase a share of their goods from non-traditional/alternative distributors. The likelihood of chains and local leverage operators buying from Amazon is small unless Amazon enters the market via the acquisition of a broadline distributor. CNBC reported that Sysco and US Foods each get 30% of their revenue through service to the independent restaurant category. With Technomic estimating independent restaurant growth at 5% through 2020 (compared to the 3% forecast for chains), it’s a category traditional distributors don’t want to lose.
The operator gains convenience and easy access to fill orders.
Independent operators will gain access to sophisticated modern commerce buying opportunities if Amazon takes a bigger step into the foodservice distribution business. The modern commerce capabilities that we all love as consumers would be available to independent operators. This scenario hits all eight modern commerce pillars.
Prepare for Change by Adopting Modern Commerce Strategies
While the thought of Amazon entering foodservice can be unsettling, there are steps distributors can take now to defend against Amazon or any other company that seeks to disrupt the market:
- Deliver personalized buying experiences online and through sales representatives.
- Be more transparent with pricing.
- Leverage big data, machine learning, and dynamic pricing science to send the right offer at the right price.
- Make purchasing easy and frictionless by creating seamless and convenient user experiences.
- Create multiple points of contact that allow customers to buy in the manner they prefer.
- Develop mobile-friendly purchasing sites and apps.
- Respond in real-time with instant pricing approvals.
- Respond to constantly changing supply chain dynamics and market movements in real time to ensure customers receive the full, expected value from products.
Whether Amazon’s presence in foodservice grows or not, this is the time for industry trading partners to explore modern commerce and dynamic pricing strategies. It’s time to adopt modern commerce in your B2B efforts. Eventually, some major player or a new startup will develop a user experience that brings frictionless, customer-friendly, personalized buying experiences to the foodservice industry.
To learn more about modern commerce for the food industry, download the eBook, Is Modern Commerce on Your Menu?