Facing pressure from all sides in wholesale food and logistics business.
In the grocery business, product turnover is vital. From offering the right product to logistics to retail shelf space, effective inventory management is critical. My client, a food distributor and logistics business owner serving retail grocers in BC had a solid top line, but little was falling to the bottom. Like all distributors, inventory management can make or break you.
The wholesale food business is tough. See our case study here.
Besides generally meagre margins, the squeezed wholesale distributor feels it from all sides. I suspect the wholesaler will be pressured even further….think David and Goliath. Operators who are not willing to aggressively change and work on their business will go the way of the dinosaur. There are many challenges we read about every day. Think about the way Amazon is changing buying habits of the public and causing bricks and mortar retail to change or become defunct. In the food retail business locally we see changes in Safeway, Stong’s, Whole Foods, and how people buy from farmers’ markets to organic home delivery.
Key challenges in food distribution business:
- Consolidation in the industry – big guys getting bigger
- Cost of sales
- Demanding customers
- Doing more with less , microscopic margins
- Traffic congestion
- IoT Technology – enabling real-time cloud-based ordering and inventory management
- Specialization – customers and retailers wanting something different
- Data management – from inventory to buying trends
Case Study: Logistics & Wholesale Food Distribution Business
In this case study of a Vancouver-based food distribution business, you can see the challenges, the solution and the steps we went through to improve operations and profitability.
After an examination of key business drivers, the owner ended up with three critical business improvements:
- A compensation strategy that motivated the sales team and protected yield
- An inventory management system that optimized and controlled turnover
- Better line of credit terms to allow for flexibility and growth
A 50-year old owner of a logistic and food distribution company has 2 children who work in the business but lack ability to assume control , due to age and experience. Currently in a leased property and has 32 employees. This historied company has been around through 2 generations and 30+ years.
As is frequently the case, this owner was too busy in “doingness” day-to-day (we see this more often than not). He confessed he had no time to work “on the business” as there were too many pressures. The main problem seems to be microscopic profitability on $20MM gross sales.
Sales people were making sales at the expense of profit margin.
The owner's bank line of credit was too small and overly restrictive meaning any growth was a challenge to service.
Inventory control was a significant problem as all the SKUs had a best-before date. Turnover needed close attention.
During the initial discovery phase, the first action was to populate a secure cloud-based data room, Strategic Succession’s Central Document Registry(CDR), with core corporate documents for review and analysis. We discovered several issues; poor bonus and compensation for sales staff, inadequate inventory control and evidence of insufficient key-man coverage on the owner for personal protection and bank requirements.
After the CDR was populated the client received a business valuation along with benchmarking the business with industry peers. As expected he was in the bottom quartile.
We engaged a CPA with expertise in the HR and compensation. The new pay and bonus package caused some initial grumbling. One of the eight in sales resigned. The remaining sales department embraced the new system once they understood they could make more money.
Next, we took on inventory control by researching, implementing and populating a software package with barcodes and scanners. BDC assisted with financing. After a 3-month build-out phase with 2 new employees, it became evident that 10% of his inventory was non-productive and the system could be run by one fulltime employee.
After 6 months, positive changes enabled him to easily re-qualify for new and increased lines of credit to help with working capital.
How the Trusted Advisor™ network helped move the client move forward:
- CPA specializing in the Human Resources business for compensation package;
- BDC Loans Specialist to finance software and system;
- Commercial Banker from Schedule A bank for line of credit;
- Employee Benefits Advisor to take care of risk management tools and fix benefits platform.
Our client is now seeing his profit margin re-appear. He has better control of his inventory. Working capital was increased and revised bank lines allowed for partial repayment of shareholder loans. Proper risk management tools are now in place.
The business is moving forward with KPIs (Key Performance Indicators) being worked on in 90-day sprints. Currently, he is working IN the business 4 days/week and working ON the business 1 day/week. His goal by end of 2018 is to only work 4 days/week and be an industry leader as measured by profit margins.
Interested in seeing another case study on how owners can build value in their companies and create a more secure future for themselves? Here is our Metal Fabrication Business Case study.; From an Uncertain Future to Peace of Mind.