January 2003

labor issues, mass merchants put pressure on food distributors

There’s good news and bad news for food distributors in the newest study of industry trends.

First the bad news: The 2002 Food Industry Distribution Center Benchmarking Report indicates that food retailers and distributors are continuing to lose sales to mass merchandisers like Wal-Mart. According to the report, which was prepared for the trade organizations Food Distributors International and the Food Marketing Institute by Richard Kochersperger of the Food Marketing Group, 27 percen t of the food distribution centers responding to the latest survey reported lower volume than they did the previous year. Not surprisingly, the industry is consolidating in response to pressure caused by acquisitions or the closing of smaller-volume facilities.

Upping the pressure is the age-old difficulty of finding and retaining workers. “[A]lmost all food distribution centers are experiencing difficulty finding qualified associates,” the report says, “with 23 percent indicating the problem is severe or critical.”

But not all the news is grim. The research shows that food distribution centers continue to increase productivity, defined as cases handled through the DC divided by direct labor operating hours, with cases per hour up to 73. (Direct labor includes labor assigned to handling product, but excludes support activities such as maintenance.) In the report, Kochersperger says reasons for the gains include the growth of larger-volume DCs as a result of consolidation, the trend that finds DCs serving larger-volume food stores, and implementation of technology.

But the report also identifies the labor issue as a key factor limiting productivity gains. “Finding and keeping good people,” Kochersperger writes,“ is the number one issue facing every part of the food supplychain.”