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Consolidation and Competition Driving Change in Food Distribution: FMI Report

WASHINGTON, DC -- Retail consolidation and an increasingly diverse consumer marketplace are forcing food distributors to protect their sales base by attracting key customer accounts, pursuing new business by buying it, and by eliminating unprofitable business units, according to a new report from the Food Marketing Institute (FMI).

The study, "2004 Food Industry Transportation and Fleet Maintenance Report," also shows that distribution companies are seeking to reduce the capital expense of fleet ownership through alternatives such as leasing and third-party logistics contractors, and they are increasingly exploring labor costs reductions afforded by outsourcing the driving function.

"This is a very critical period for the food distribution industry," said John R. Block, FMI e.v.p. and president of FMI's wholesale division. "There has been significant change within the industry in the past year. That, combined with growing competition from alternative channels and a more complex customer base, has compelled distribution companies of all sizes to reassess their growth strategies across the board."

Some food retail/wholesale companies simply ceased business operations in 2004, leaving their competitors to divide up their former territories. At the same time, many companies closed divisions and stores, seeking to eliminate unprofitable operations. Finally, the four-month strike in California was costly, and many of the retailers there closed unprofitable stores. The resulting consolidations reduced the number of fleets in the industry as the larger companies absorbed the new business into their existing supply chain infrastructure. All of these factors have made fleet planning much more complex, according to the study.

A convergence of factors has been driving up transportation costs, and corresponding attempts to contain costs, the report said. Fuel costs, for example, continue to rise and remain a key component of distribution costs. The costs of employee benefits packages also continue to grow, although many companies have introduced programs that limit the growth of insurance and workers' compensation expenditures.

The report covers a full range of factor bearing in one way or another on the economics of food distribution, from activity-based costing to backhauling. For more information, visit
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