Take a glance at the topline figures in IGD’s new report on the grocery wholesale sector and you will see that it enjoyed a pretty good year in 2003, with sales up 2.7%. Delve deeper into the data, however, and you see that market growth is being driven by the delivered wholesalers. That trend, when combined with the ever more intense competition from the multiples, means the traditional retail customer base of the cash and carry operators is being squeezed. Little wonder, therefore, that these wholesalers are looking to tap into new growth areas. And for many, developing a strong foodservice business has become a key strategy.
But if this is, indeed, the path down which C&C operators must tread, IGD’s research suggests they are still very much at the beginning of a long journey.
Its report shows that just 6% of sales in the grocery wholesale sector come from foodservice customers. More worrying than that, it also reveals that sales slipped back by 0.5% last year in what was a sluggish market for the pubs, restaurant and hotel trades.
Nevertheless, 73% of grocery wholesalers quizzed by IGD predicted sales to their foodservice customers would rise in 2004, with some even predicting that growth would hit 10%. Despite their apparent confidence, IGD’s report identifies a number of challenges still facing those wholesalers keen to tap into the foodservice opportunity. For starters, it says foodservice customers are often looking for specialist ranges, particularly in chilled and fresh, where C&C operators have traditionally lacked expertise. Caterers also require different pack sizes to retailers and demand higher quality products. They often require specialist support as well.
As IGD acknowledges, such hurdles can - and are - being overcome.
It says: “A number of wholesalers are developing their foodservice offering in terms of extensions to the catering own label, improvements in product consistency and advice to caterers on areas such as consumer trends and menu development.”
The report also reveals that wholesalers think suppliers should also be doing much more to maximise the opportunity.
“Despite the fact many suppliers claim to have a dedicated business plan in place for reaching foodservice customers through wholesale channels, few wholesalers believe that suppliers have the necessary breadth of knowledge and understanding to effectively tackle the foodservice market,” says IGD.
Clearly there is some way to go for both suppliers and C&C operators (who tend to be the grocery wholesalers who are most focused of developing foodservice).
Yet there’s no doubt that the potential prize is huge - with one prediction in the report suggesting sales to foodservice customers could be worth £1.5bn for grocery wholesalers by 2007.
That would be some achievement, given that IGD’s research shows sales in 2003 were still below £1bn. And don’t forget - C&C operators face stiff competition in the foodservice sector from both specialist delivered wholesalers and the big distributors such as 3663 and Brakes.
But IGD points out that cash and carries are unique in that they can act as a top-up shop for those who use a delivered foodservice wholesaler, while those who don’t want added value services like menu development or pre-preparation of products can use a C&C for all their requirements.
There’s more good news, says IGD, which points out that the foodservice sector is still very fragmented, with an estimated 260,000 outlets operating nationwide. Better still, it feels the foodservice customer base of C&Cs will not experience the same degree of large operator competition as retail customers.
The message is clear: the foodservice path is worth treading and more C&Cs really need to start heading down it.