Chapter 3
Distribution
Systems
1
Introduction
Food, beverages, nonfood supplies, furniture,
fixtures, equipment, and services follow
relatively specific distribution channels.
In most instances, an item goes from its
primary source through various
intermediaries to the retailer (Figure 3.1).
However, the possibility of a retailer’s
bypassing the intermediaries and dealing
directly with the primary source also exists.
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3
DISTRIBUTION
SYSTEM FOR FOOD
EFFICIENT FOOD-SERVICE RESPONSE:
With the rapid growth of food service
operations the food service industry has
become very competitive, and the need for
reducing costs in the channel of distribution
is evident.
Cost reduction can be obtained by:
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DISTRIBUTION
SYSTEM FOR FOOD
Reducing & sharing the non-value-added
costs, so trading partners and consumers
benefit.
Maximizing the usage of E-commerce.
Logistics optimization: product
transportation methods, such as direct
shipment, slow-mover consolidation, shared
distribution, & coordinated transport , should
be implemented.
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DISTRIBUTION
SYSTEM FOR FOOD
Source:
Three major sources supply products to hospitality
operations:
1. Growers : Many farmers and ranchers provide
fresh food products to the hospitality industry.
2. Manufacturers: controls the production of an
item from raw materials. For example, a paper
products manufacturer can take wood materials and
create paper napkins, bags, & placemats.
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DISTRIBUTION
SYSTEM FOR FOOD
3. Processors: sometimes referred to as a
“fabricator,” takes one or more foods and
assembles them into a new end product. For
example, a processor could combine flour, water,
mushroom, tomato sauce, & cheese to produce
frozen pizzas. The new end product is usually
referred to as a “convenience,” “efficiency,” or
“value-added” food. Some processors are also
manufacturers, but not all manufacturers are
processors. The difference is that processors always
work with food products.
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DISTRIBUTION
SYSTEM FOR FOOD
INTERMEDIARIES:
Several intermediaries, or middlemen, can be
found in this distribution system:
1. Distributors: sometimes are referred to as
“merchant wholesalers,” purchase products
directly from growers, manufacturers, and/or
processors for resale and delivery to
customers.
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DISTRIBUTION
SYSTEM FOR FOOD
There are three major types of distributors:
a- Specialty Distributor. A company that handles
only one type or classification of products.
b. Full-Line Distributor. A company that
provides food and nonfood supplies.
c. Broad-Line Distributor. A company that
provides food, nonfood supplies, and equipment.
It is more than likely that hospitality buyers
purchase most of their product requirements from
one or more distributors.
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DISTRIBUTION
SYSTEM FOR FOOD
2- Brokers: Agents who represent one or more
primary sources.
Brokers neither buy nor resell. Their job is to
promote products to potential buyers.
Brokers usually represent primary sources that
do not employ their own sales forces.
3. Manufacturer’s Representatives: These
middlemen serve a function similar to that of
brokers.
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DISTRIBUTION
SYSTEM FOR FOOD
One major difference is that they do more than
simply get sellers and buyers together.
They often provide such additional end-user
services as actually carrying items in stock
themselves, perhaps delivering items, & possibly
even providing additional service to the buyers.
Representatives seem to work more frequently
with the equipment and furnishings trade,
whereas brokers are usually found in the food &
nonfood-supplies trade.
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DISTRIBUTION
SYSTEM FOR FOOD
4. Manufacturer’s Agents: These
intermediaries are similar to manufacturer’s
representatives. The major differences,
though, are that primary sources employ
agents to represent them in a specific
geographic area, and that agents work
exclusively for one source.
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DISTRIBUTION SYSTEM
FOR BEER, WINE, &
DISTILLED SPIRITS
Sources: Three major sources supply
beverage alcohol products:
1.Brewers:They provide fermented
beverages made primarily from grains.
2. Wine Makers: They provide fermented
beverages made primarily from grapes.
3. Distillers: They provide beverage alcohol
that has undergone a distillation process.
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DISTRIBUTION SYSTEM
FOR BEER, WINE, &
DISTILLED SPIRITS
INTERMEDIARIES
Two major intermediaries, or middlemen, are
part of this distribution system:
1. Importers-Wholesalers: Intermediaries are
responsible for importing alcoholic products,
& for reselling their products to retail
establishments, such as restaurants, hotels,
taverns, and supermarkets.
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DISTRIBUTION SYSTEM
FOR BEER, WINE, &
DISTILLED SPIRITS
2. Distributors: Liquor distributors are
specialized wholesalers who operate under a
variety of legal sanctions. These distributors
purchase from primary sources and sell to
retailers, and they are careful not to overstep
their legal boundaries because their business
is continually examined by regulatory
authorities.
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DISTRIBUTION SYSTEM
FOR BEER, WINE, &
DISTILLED SPIRITS
Alcohol Beverage Commissions: All states
have one or more liquor control authorities, often
referred to as the Alcohol Beverage Commission
(ABC).
The ABC rigidly controls the sale and purchase
of alcoholic beverages.
In some states, control is so tight that the state
itself is the only source of alcoholic beverages;
this is called control state and purchasers have
no option.
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Retailers
The hospitality operator, are generally
classified as a retailer, or someone who sells
a product or service to its ultimate consumer.
The hospitality operator deals most often
with one or more distributors. & probably
make fewer contacts with brokers &
manufacturers’ representatives.
As a rule, small operations rarely deal
directly with a primary source.
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Retailers
Large corporations may, however,
achieve economies of scale by
purchasing large quantities of products
directly from a primary source.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
As with most items purchased, the price paid
is the sum total of several costs.
Some cost is tacked on during the journey
through the distribution channel each time
someone adds value to the original food
ingredients.
Five kinds of economic values may be added to
a product as it passes from the primary source to
the retailer: time, form, place, information, and
supplier service.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
Time Value: If you want to buy a product at the
time you select, you must be willing to pay for
this privilege. If, for instance, you wish to buy
canned vegetables a little at a time instead of in
bulk, your supplier will have to store these
products and wait for you to order them. This is a
major problem for the supplier because he or she
must assume the risk and cost of storing the
items. The supplier also will have money sitting
on the shelf.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
Whoever pays money for a product, regardless of
where it is in the distribution channel, loses the use of
that money is tied up for a while.
In other words, the supplier adds an interest cost for
capital tied up in processing since he probably
borrows money from a bank to carry inventory.
Some restaurant operators follow the same practice
when they price wines. They usually start with a
certain price, and for every year they must keep the
wine in their wine cellar waiting for a buyer, they add
a percentage markup to the price.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
Form Value: Form is usually the most
expensive value added to the products our
industry purchases.
Form is what turns a raw ingredient into
something more user-friendly.
For instance, a precut steak is much easier to
purchase, store, and use than a large cut of
beef that must undergo quite a bit of
processing in a restaurant kitchen.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
The form value is also very expensive
because highly processed items are usually
packaged in costly containers.
In addition, buyers pay close attention to
frozen-food packaging, particularly if these
products are to be stored on their premises
for a while.
The demand and the need for stronger and more
effective packaging have raised the price that retailers
must pay.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
Place Value: If you want an item delivered
to the place of your choice, you must pay for
this convenience.
Whoever moves a product from one place to
another must add these costs in the selling
price.
This value is very expensive, especially
when refrigerated and frozen products must
be shipped.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
Information Value: An operator may be
willing to pay more for a product if some
information (directions for use) comes with it.
This operator might not mind paying a little more
for a dishwashing machine if the company sends
an instructor for three or four days to show
workers how to use the machine.
On the other hand, most hospitality operators
would not care to pay anything extra for the
recipes on the backs of flour bags.
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WHAT HAPPENS
THROUGHOUT THE CHANNEL
OF DISTRIBUTION?
Supplier Services Value: intangible supplier
services accompany the items you purchase. When
you purchase something, you purchase not only
whatever you desire, but also any additional services
that come with it.
For instance, a salesperson who puts a rush order in
his or her car and runs it over to your operation in an
emergency, or an accountant who prepares a special
report “overnight”; thus, supplier services (sometimes
referred to as “support functions”) work their way into
an item’s final price tag.
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THE BUYER’S PLACE IN THE
CHANNEL OF DISTRIBUTION
The buyers for most hospitality operations deal with
several middlemen, and the typical middleman is the
distributor.
Larger corporations normally bypass some
intermediaries; they feel that buying directly from the
primary source offers considerable cost savings.
Other firms, do not agree that eliminating the
middlemen necessarily makes their operations easier
and less costly .For instance, many of them fear the
considerable investment that may be necessary to
launch such ventures.
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