Changing relationships between food distributors and retailers.

Food distributors and retailers are changing the way they interact with each other. Traditionally, distributors bought food from many manufacturers, organized and loaded the food onto trucks, and delivered the food to retailers.

Today, an increasing number of food manufacturers deliver their own products directly to individual retail stores and arrange it on the shelves. Food products delivered directly by manufacturers tend to be beverages, sweets and salty snacks, bread, and ice cream.

Direct delivery programs are often complemented with ECR-based techniques, such as scan-based inventory management. Manufacturers that deliver directly to stores tend to favor scan-based trading because the system allows them to monitor store stocks and replenish diminishing stock in a timely manner. Retailers may also favor direct delivery and scan-based trading programs because they reduce instances of retail out-of-stocks. Delayed payment for goods offers retailers a further incentive to implement direct delivery programs. In such cases, retailers do not pay for products until they are sold and money is not tied up in slow-moving inventory.

Simultaneously, many retail chains now operate their own distribution centers. In 1999, 47 of the largest 50 food retailers, including Kroger, Wal-Mart, and Safeway, operated distribution centers. Products not delivered directly to individual retail stores are received at these companies' distribution centers and held as inventory. For example, Safeway operates a distribution center in Arizona that serves 103 Safeway stores in Arizona and 1 Safeway store in New Mexico. When the distribution center receives an order from one of these stores, it uses existing inventory to fill the order. Consolidated orders are filled and delivered to the stores in one of the center's own trucks. Orders placed by Safeway stores prior to 5 a.m. are filled by 10 p.m. on the same day.

While self-distributing food retailers may manage inventories more efficiently in some instances, traditional wholesalers still have a role in the industry. In addition to serving smaller retailers, traditional distributors could provide specialty foods to niche retailers. For example, Unified Western Grocers, the nation's ninth largest food wholesaler, acquired a specialty wholesaler that caters to the growing Asian and Hispanic communities in California.