Roundtable: Challenges and Opportunities Facing Foodservice-Distribution Companies

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F&H: What are the two biggest challenges facing your company?

Jennifer Trafford: There are a lot of challenges in the market these days, but the two biggest would be data and people. From a data perspective, it’s being able to access quality data on behalf of our members’ purchases — it’s a big part of what our program is all about — and sharing it back to our members in a meaningful way that allows them to action recommendations that are going to ultimately help them lower their operating costs. There’s so much data that we have access to, we need to be able to dive into it and understand what it means. So, that’s a big challenge and we’re investing a lot in resources to help us to manage through that process. We’ve incorporated a new division within Compass Group Canada — Compass Digital Labs — to do the data mining and engineering. We’ve also invested a lot in proprietary software within the organization, across North America, which allows us to effectively capture data and map it to the right sources.

The other challenge is people — it’s tough to get and keep great people. It’s a competitive landscape with a lot of people coming into the market — millennials with different expectations of what they want from an organization. People are not staying in roles as long as they used to and they’re looking for advancement very quickly. With so much of our program model being customer focused, it’s all about building relationships and being able to get to know the members participating in our program. Being able to retain people that share the same beliefs and values within our organization so that they can represent our company with our members is a challenge.

Pete Bozzer: The number-1 challenge we’re facing right now is with respect to labour — specifically with drivers. There’s a well-documented North-American shortage of drivers and we’re seeing the effects in Ontario. The outlook, looking forward for the next few years, is a little bit of doom and gloom. It doesn’t look as if — barring a significant influx or a change — this issue is going to go away, so this has led to high turnover rates — a number of positions always being left open and shuffling around, which has put a significant strain on our Human Resources team. We’ve had to develop new ways of going to market to attract new talent and also to retain them. Not far behind that [challenge] would be the other labour challenges with respect to operations, such as order selectors and receivers. It’s hard to retain people — they come in and tend to move on, or want to move on, faster than we’d like them to, so you’re in this constant cycle of hiring, training, hiring, training and unable to retain people to the levels we’re accustomed to historically. Another challenge is keeping pace with the rate of change in the marketplace — a diverse customer base, whether it’s the constant demographics change with the ethnicities or just the divide in ages.

Scott McDeivitte: Labour is our number-1 challenge as well, particularly drivers that want to do pin-to-pin and don’t want to do a sales-service role. So, you work to develop a favourable culture and some more value-adds to the staff. For example, we have a good kitchen facility where we cook for them on Super Bowl days, or provide hot meals around holidays.

The other challenge is the non-traditional disruptors to our business. We’re quite happy to compete with other distributors in the marketplace, but when you start to pull in the Costcos, the Amazons and the Grocery Gateways, they’re encroaching on the marketplace. As our independents, in particular, feel pressures on their profitability, they’ll try to save some money by going and buying , putting it in their car and not maintaining the cold chain, which erodes the food-safety component.

F&H: In terms of labour, what strategies are you putting in place to find employees?

SM: The HR departments are taxed to the max trying to find people. We offer incentives to our own employees that if they bring people in and they stay through their probation period, we’ll pay [them a referral fee]. We also realize our driver base is coming from a more ethnically diverse background so we’ve hired recruiters that are Sri Lankan or Muslim, for example, and put them in supervisory roles in order to raise the comfort level for our staff. One of the strongest things is if you get somebody into your company that starts to buy into the culture of the company, then you can train them to become a driver or another role. We’ll assist financially with that training in order to keep them in the fold and include that to the cost of the training piece.

PB: The most impactful thing we’ve done is added a recruitment department under our HR department. We’ve hired people that specialize in talent mining. Through that, we’ve developed a number of programs to reach potential employees — everything from social media to direct-mail campaigns to when someone delivers a parcel to your house giving them a business card and letting them know that there are other options out there. We’ve had to branch out and get creative to reach people, but social media is very non-traditional for us in terms of talent acquisition that seems to be working.

JT: From our perspective, having a Recruiting department that specializes in going out and constantly looking for talented individuals is important. And being open to hiring individuals — even when you don’t have an open position available — just to build bench strength because you know eventually, someone will likely move on. When we’re looking at our account-management team, we make sure there are always going to be individuals that are working their way through the ranks to be able to take on some of the bigger members and new business. Our growth has been so rapid over the last couple of years that we’re always on the lookout for good talent. It’s no longer filling a void when it happens — it’s now anticipating those voids, trying to be as proactive as possible.

F&H: How is increased M&A activity impacting your business?

JT: If an existing member of ours acquires [a company] who is not currently part of our program, then that’s a great opportunity for us to be able to expand our business. On the flipside, if an existing member gets acquired by someone who is not part of our business then, despite a great relationship, we could end up losing an existing member as a result of that. It’s trying to keep up with all the moving parts and all of the individuals that are part of all the different mergers and acquisitions that are going on, being able to quickly adapt to the different corporate cultures that are trying to align themselves. And, whenever there’s an acquisition, everything pauses for a little bit because the two companies are trying to figure each other out, figure out what the next steps are and who’s going to integrate within who. It makes things very complicated, so it’s important to be as well-connected as possible to as many individuals within an organization so that, as these changes happen, you’re able to quickly adapt to what’s going on and what the needs are going to be going forward.

PB: With each acquisition there’s potential risk and potential opportunity. Flanagan has been on both sides — we’ve had customers whose banner was purchased by a non-customer and we’ve had that business, in a short period of time, migrate over to the head office or to the chosen distributor from a national perspective and we’ve lost out on those. But we’ve also had some wins, where a particular banner was very happy with the service they were getting from us and allowed us to begin conversations with a larger group of restaurants, to which we weren’t able to necessarily have an inside track. By default, we’ve had an ally to head-office saying wonderful things about us. We wait anxiously and hope we’re on the receiving end, but over a period of time, the one thing we do see is there’s a reason why they purchased the banner. They’re looking to drive further efficiencies and are often using the increased volume as leverage to drive their cost of goods down — that often falls back on the distributor.

SM: I look at it in two ways — consolidation is often an opportunity for Gordon Food Service as it’s a national distributor across Canada. If we have regional multi-units that branch out into other provinces, we can become a supplier of choice now in different divisions. The number of independent restaurateurs has declined over the years and that’s not a good sign for any of us because we need that independent marketplace. But it’s put more pressure on the independent so we have to step-up with more value-added programs. So, if we understand that the independent might be struggling to compete against a regional or a national multi-unit, we have to arm them with tools to help them — so we do staff trainings and menu analysis — and try to be more consultative as opposed to transactional order takers. That’s where the future of the business is going.

F&H: How have distributors had to change the way they market themselves to clients to cater to the demand for transparency and local food?

PB: We’ve had to make a concerted effort to market what we were probably already doing [in terms of local] and some of the new things we’ve brought to the table. It started with marketing, and Flanagan has got a great story to tell, seeing that we’re a wholly family owned Canadian company — it resonates well with the local-food people, particularly when independents, in particular, wouldn’t necessarily look to broadline distributors as their first choice for buying local. We’ve done a great job of branding and marketing what we’ve already done and also spent a great deal of time of helping some of our local-food suppliers tell their story. They’re often great producers of food and not as strong on the marketing end of things, so we’ve helped bring their story to market. We’re also utilizing technology by partnering with an organization called Local Line, which has allowed Flanagan to develop an online or virtual farmer’s market for customers to connect with more than 400 small local-food producers. It’s a new way of doing things for a broadline distributor where we’re, in fact, facilitating sales of product that doesn’t come through our traditional network. It’s allowed us to reach 400 farmers that, in our scale of operation, we wouldn’t normally be able to.

JT: When it comes to local, it’s about asking a lot of questions because, from a member perspective, it’s understanding what local means to them as everybody has a different opinion and a different objective in terms of providing local product within their operation. It’s about telling the story — gathering information and being able to tell the story effectively back to the operators in terms of what you have available that is, in fact, local and is going to meet their requirements. But the other challenge we face is the food-safety component and the traceability. A lot of the local providers tend to be smaller and don’t necessarily have the same supply-chain controls in place for us to promote the products in a way we feel confident about. It’s a double edged sword — you want to be able to make those products available, but you also have to be very careful about the due diligence in standing behind those local providers. We’re working a lot more closely with regional suppliers and helping them to get themselves up to a standard that we feel comfortable in promoting back to our membership.

SM: The perception, sometimes, around a broadline distributor is that they’re not nimble enough to do local and it couldn’t be further from the truth. We moved almost three million cases of local product this year alone, so it’s there, it happens, but it’s getting the word out — getting the perception changed. We’ve developed a couple of indicators through our ordering system and have a program called Clear Choice, which focuses on, not just local, but also transparency, offshore purchases, sustainability and raised-without-antibiotics. [The program] identifies items within certain attributes, whether it be sustainability, Ontario-only product, Canadian-only product, or if it’s ethically farm raised or fished. Then, through Clear Choice, we also have a local tag so operators can see products meet their criteria for what their image and brand is for their restaurant. The programs are there, but it’s getting the messaging out that’s always going to be the difficult part.

F&H: Which food trends are impacting your business?

JT: Culturally diverse options for menus continue to be something we’re very mindful of, but it needs to be extremely authentic — an authentic flavour profile and produced in a very authentic way. And it isn’t enough to just be able to offer products that meet some of the buzzwords — there’s a higher expectation from a quality perspective and that’s evolving rapidly. From one month to the next, from one week to the next and from one quarter to the next, it’s always ‘what’s new, what’s innovative?’ and restaurants are adapting their menus a lot more frequently than they used to. Being able to provide them with that constant flow of new and different product or different recommendations on how they can incorporate ingredients into their menus is important. We’ve brought on culinary specialists to help us navigate through that from a procurement perspective, but also being able to tell the story of the products that we have available to our members.

SM: The global mash-up component is still trending large. But if we look at trends affecting us, certainly the plant-based centre-of-plate offerings are exploding. Through our Clear-Choice program, we’re looking at all of those types of items we’re now going to have to procure and keep in our inventory to feed those needs. The other one is the portability piece. Numbers are showing a steady rise of the consumers income spent on purchases from a restaurant that are consumed off-premise. Procurement-wise, that brings us into all of our non-food categories — what are we buying to fit [the food] and is it biodegradable? We’ve had to go on waste-management courses because every municipality is different.

Another trend harkens back to the labour. The non-skilled piece of the pie is causing operators to build in efficiencies through more just-in-time or speed-scratch-style products. The good thing is, back in my day as a restaurateur, I couldn’t get a good barbecue sauce, and now manufacturers are making incredible stuff that some of our chefs would have a hard time replicating. So, we’re seeing the portioned [meat] products or pre-cut vegetable offerings to help [operators] alleviate some of their own labour issues as not a new trend, but one that’s escalating.

JT: We’re seeing the real-estate prices impacting that trend as well. People can’t afford the large footprint they need to have prep areas and storage area, so everything has to be streamlined.

PB: That means the pressure comes on the distributor to help manage that supply chain. With the increase in the minimum wage last year, we’re seeing operators looking to us for help to reduce labour costs. Oftentimes, it’s coming in one or two steps to grill-type of products. Whether it’s precut products, thaw-and-serve or par-baked in the bakery section, we’re seeing a lot of demand. We’ve put a tremendous amount of effort into making sure we have the right product offerings with respect to takeout and packaging and are helping operators decide on when to use what product — what holds better when there’s steam, or when to use something that maybe is perforated. We’ve had to educate ourselves and then go educate our customers, but we’re seeing tremendous growth due to the influx of the app world, whether it’s SkipTheDishes, Foodora, or Chowhound. It’s much easier for an operator to enter that space than it used to be and that’s a good thing for them and it’s a great thing for us.

F&H: How is your business using technology to be more efficient, customer-friendly and, ultimately, more profitable?

JT: Our members are looking for access to information — quickly, anytime, anywhere. So, something we’re investing in this year is a member-facing portal that allows them to access information related to their business and their purchasing decisions quickly and, again, in a meaningful way. There’s always going to be the need for our account managers to be able to support our members in person, face-to-face, but also making all of their information accessible to them anytime anywhere. From the data perspective, we’ve got an excellent proprietary data-collection system, but we’ve had it for several years and we’re just going through a refresh. It was re-launched in November and is far more comprehensive — allowing us to be a lot more flexible in terms of what we’re able to offer. It features far more customization and transparency of information back to our members — a lot of stuff that’s happening behind the scenes. But it’s allowing us to then package the information that we have accessible for our members so that they can make better decisions.

SM: Outside of the labour issue, the investment in technology is by far the largest that our company is doing. We’ve recently introduced a new ordering system and it features built-in artificial intelligence. We’re trying to make the ordering process similar to what it would be on a Wayfair or Add2Cart — as if they’re sitting at home, doing what they do now on a regular basis. It’s going to be intuitive so it will remind them about things they haven’t had or recipes that they’ve done in the past.

We’re also building a new distribution centre in Ajax, Ont., which will be open in early 2020, and it will be highly automated. We’ll still employ more than 300 people there, but it will reduce some of the issues we have with labour, be more efficient for our customers and ourselves.

PB: We’ve been concentrating on trying to interpret and analyze some of the customer data we get through their use of our social-media channels during their perusal of our website and really finding out what they’re interested in — measuring the response rate or the click rate on our newsletter. We’ve had a number of great findings and some of that has just reinforced what we believed our customer wanted. And then other things we’re finding that maybe we thought our customers were interested in, but it doesn’t seem to be working as well for whatever reason. So, it’s utilizing that data and being able to tailor our content to what is really meaningful for them.

JT: [Technology] has to be fast and simple. It’s a lot of evaluating the data and the stop/start/continue. [To determine] what we need to stop doing because it’s no longer relevant and what to continue doing because the data suggests that what you’re doing actually resonates with the customers? Then, what are the new things you never even thought were important that you need to start offering solutions for?

F&H: In terms of geography, which Canadian markets are most profitable for your business and which ones are on your radar moving forward?

JT: Ontario continues to be a very strong market for us, so that’s where a lot of our emphasis is. However, we do see a lot of opportunity in Western Canada and are starting to see a bit more of a shift going east, as well. So, we’re touching on all the provinces, but Ontario and Western Canada are the strongest for us at this point.

SM: The large urban centres are going to be your cluster where there is lots of stuff happening, but that doesn’t necessarily mean it’s the best food scene. It’s just a factor of the population in those areas. When we talk to our culinary teams across Canada, we’re seeing that in areas that might be slightly underserved with national chains, such as Halifax, Dartmouth, or Saskatoon, we’re seeing the independents step up and fill that void.

F&H: What new initiatives has your company introduced this year (or planned for 2019) in order to remain competitive?

JT: The people piece is a huge objective for us this year. We’re putting a lot of emphasis on supporting the people within our business and offering training opportunities, coaching-and-development opportunities, as well as special-project opportunities so they’re able to get more experience within our business and within different portfolios of clients. Just to help us to expand the access to information and the knowledge base within our team and, hopefully, help us retain great people and also make us an employer of choice so that we’re able to attract new associates more easily. If you get the right people on the team that are operating at a very high level, everything else falls into place.

PB: Earlier this year, Flanagan opened a new distribution centre in Whitby, Ont. — the single-largest investment in the history of Flanagan Foodservice. That initiative took hold earlier this year and bringing on new customers and onboarding new business will be a continued focus for us. It was built with the intent to grow the company and to be able to better service our customers in the GTA and in Eastern Ontario. So, that will remain our single-biggest focus and area of opportunity for the foreseeable future. We built a state-of-the-art facility with the hope of if you build it, they will come and that’s the plan, to turn customers into fans.

SM: We’ve introduced some aggressive initiatives internally around our culture. As you grow, the culture piece becomes more difficult to maintain. We now have about 1,500 employees that work in Ontario overall and approximately 20,000 employees in North America. This is a family owned business that is more than 120 years old and founded on certain values and culture. We have to really make it clear that that culture is still there as we grow. So, we have put in a Chief People Officer to oversee that.

We have also introduced, in a pilot program, an extended product offering. Right now, we might have 18,000 or 19,000 products in our warehouse that we provide for our customers with new listings all the time and then things falling out to maintain our inventory. But imagine if a customer could then go onto your ordering site and see an endless aisle of another 20,000 products that aren’t in your building, but can be delivered to them through you and invoiced through your company.

F&H: What challenges and opportunities do you envision for your business in 2019 and beyond?

SM: We’ve talked a fair amount about the challenges and, quite frankly, there are a lot of opportunities that come out of that. We’re fortunate in that we’re continuing to grow our business and look to reinvest in the province, so those are opportunities for us. There is a continued pressure from those non-traditional disruptors. If those choices continue to permeate the mindset of an operator, we have to arm ourselves against that type of intrusion into the market. I’m bullish on our independent-restaurateur marketplace because we’ve gone through enough of a shift now. We’re really looking for those stronger operators to flourish and take-back a little bit of market share because they’re nimble, they can make changes and they can do limited-time offers. They have those advantages that a chain restaurant might not have. From a business perspective, we have to find ways to continue to streamline costs and we do that through innovation and technology. If we can’t streamline our cost system, it’s going to be that much more difficult to fight those disrupters so that’s why we’re investing further.

JT: People are leaning on us more for help and recommendations. Members that were previously not as engaged are becoming more engaged — realizing they can’t do it alone and that any bit of help is going to offer them cost-saving solutions. That’s why people are so important to us because there’s a certain element of support that we provide to our member base that is that human interaction — being able to go through somebody’s facility and point out areas where there is opportunity to make changes in terms of the products they’re buying, or rationalize the items that they’re purchasing and streamline their menus to be able to be a little bit more efficient with the ingredients that they’re buying. It’s also important to be supporting the members we currently have today, while being able to effectively support new members joining our business.

PB: We’re very optimistic about what 2019 and beyond will bring for Flanagan. We’re in a great position, having opened a new distribution centre, having the luxury of having some excess capacity for the first time in a number of years. We’ve positioned ourselves uniquely in the marketplace as a Canadian company with deep roots in Ontario — that brings unique value to the broadline landscape and we’re going to leverage that. We’re poised for growth and one thing we’ll be cautious of is keeping a good mix of customers onboard. Distributors are always mindful of their ratio from independent restaurants to national accounts to multi-unit accounts. It might be a little bit easier to fill a building with one very large customer, however, that puts downward pressure on your margin. So, our challenge will be to grow at a steady, consistent rate with the right customer mix.

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