Food Distribution is a multi-billion dollar ($300B+) market in the U.S. each year. It can be characterized by fragmentation and logistical challenges, which is why certain dimensions shifted in the pandemic years.
The Business Model Trend is to rely less on centralized wholesale distribution hubs and more on decentralized warehouse-retail storefronts.
- Due to a trucker’s shortage in 2020+, US Foods (Ticker: USFD) remodelled their business model and opened up Chef’s Store, a new retail concept in wholesale to move distribution closer to customers and cut dependency on truckers – there are now 80+ Chef’s Stores across the U.S.
- This type of ‘Cash & Carry’ model is simple in form, yet it completely changes the model from delivery to pickup (although Instacart is a partner for Chef’s Stores) for restaurateurs within a certain radius of each location (20 – 30 miles)
- In effect, this type of model is a hybrid Dark Store-Retail model, with the target Customer Segment remaining restaurants and more niche suppliers
- Restaurant Depot is a reference business model to look at, a company that has been around since 1996. With a network of 130+ warehouse outlets across the U.S., they can sell goods at a lower cost compared to other mainstream wholesalers
- This model may lead towards Future Trends of some time of Industrialized Retail, where the customer experience becomes progressively less of a priority relative to saving money
- Warehouse-Retail Business Model: Bullet Points
- Reference Business Model: Restaurant Depot
- Future Trend: Industrialized Retail
- Top 3 – Learn More
- Case Studies Cited
Warehouse-Retail Business Model: Bullet Points
- Value Proposition is walk-in retail space with a wholesale model, available principally to restaurant owners, offering lower prices compared to other wholesalers
- Revenue is typical to a ‘Cash & Carry’ type retailer, where a margin is earned between the Landed Cost of the good and the price the customer pays. Sell all food types and adjacent kitchen supplies
- Customer Segments are independent restaurants and small businesses
- Key Resources are the network of warehouses/stores across the country, giving the brand the ability to drive efficiencies of scale
- Cost Structure is driven principally by the need to acquire + manage large industrial spaces, along with staffing those spaces and managing logistics of goods
Warehouse-Retailer for Restaurants Business Model Canvas (Mockup)
- Chef’s Store – “Great Food, Wholesale Prices. No Membership Required”
- Restaurant Depot – “Where Restaurants Shop”
Reference Business Model: Restaurant Depot
With the exception of extraordinary circumstances (during the pandemic when they let the general public shop), Restaurant Depot is a ‘Big Box Warehouse’ type of Buyer’s Clubs open to effectively anyone in the food/restaurant space with a business license. Memberships are required, but they are free and there is no minimum buy.
Restaurant Depot is not a retailer, nor is it your typical wholesaler. The difference is in their distribution model, which relies only on transport of goods to one of their 150 stores (ie. ~50,000 square foot warehouses), but not from their warehouse to the end-customers. This saves a lot of money compared to other wholesalers/retailers who rely on localized transport networks to move goods to local restaurant networks. The ‘Last Mile’ represents approximately 30% of the logistics cost for delivery.
Network Effects of an Warehouse Model
At a time when inflation is rising and the margins of restaurants are being squeezed, a ‘Cash & Carry’ model like Restaurant Depot may help some save enough money just to survive and compete for another day.
“We are a warehouse store. You come in and you can buy a unit, you can buy a case, you can buy a pallet.” The store will sell food, cups, napkins, utensils, refrigerators, kitchen equipment and other restaurant supplies. A bulk of the business is fresh meats and produce.NWI Times
Future Trend: Industrialized Retail
In looking at the different variations of the model, Customer Experience seems to be at the top of the list:
- on one hand, you have a full-on warehouse experience with the ability to single units or pallets and need a business license to enter #Business2Business
- on the other had, you have a more retail experience in a less industrialized setting that caters more to a ‘general public’ audience #Business2Consumer
- in the middle lies the difference in cost and the fact that one company is only a warehouse-retailer, while the other one operates a full-scale distribution business at the core and the wholesale-retail business adjacently
The Need To Save Money
At this moment in time, cost savings is the principal driver for restaurateurs. If inflation dives, the economy revives itself, and restaurants go through a Gatsby-esque boom then maybe they will prioritize a more refined retail experience in the future.
But the likely Future Trend is Industrialized Retail where we are down to barebones concrete floors and grey wall “customer experiences.” The restaurateur customers care less about ‘the vibe’ when they go to purchase something and more about their bottom-line.
Many of the earliest empires back in the early 1900s like Woolworth’s (original five-and-dime) were built in much the same way, at a time when wars, the Great Depression, and general economic malaise were the norm. Their earliest priorities was not delivering a lavish retail experience, but delivering a good at the lowest cost because that’s what the consumer needed.
Overall, it is rare to see these types of major business model shifts in established industries. Food Distribution is one such industry that can still perform well in both down and up economic cycles; but during the process of a down cycle like we are in now, innovators can rise and incumbents can fall. Unless the incumbents innovate, which is why the dynamics of this particular Business Model Trend are so intriguing to follow into the future.
Top 3 – Learn More
Business Model Canvas – Restaurant 2.0
Strategy & Restaurants – Paradox of Choice