Category management is a hot topic in the foodservice industry. Broadliners are undertaking n-step strategic sourcing (lower cost suppliers, demand aggregation, bidding and negotiation)–the more holistic catman comes later. Many manufacturers are participating in training programs. Some have or are going through the process assuming each progressive step is a sure sign that “preferred supplier” status is within reach.
But what if your company doesn’t make the cut? What if you end up on the outside looking in? What if your line is eliminated and your business is converted to a competitor?
Manufacturer CEOs struggle to find the logic in these questions. They believe their brands and products can bypass the principles of strategic sourcing, or that relationships with long-time category managers will influence outcomes. They predict operator revolt and hold-out if they are de-listed.
There may be some consolation in this thinking–and plenty of faulty reasoning. Distributors won’t sell fewer cases of French fries, spaghetti sauce or brownies after some lines go away; they will run more efficient and profitable operations. They will make it worth their end-users’ while to convert. Operators will source hard-to-find products online. On the flip side, the catman process is ongoing. Winners in Round One can expect margin pressure and significantly more resource investment to maintain their preferred status in Round Two.
When pressed about plans for various “what if” scenarios and outcomes, manufacturer CEOs are quick to say that chains are an option. Or regional broadliners. Or Restaurant Depot. These aren’t plans; they are reactions–fortified by assurances from VPs that recovery is a matter of shifting attention elsewhere and lost volume and profit will follow.
The hard truth is that events will turn out badly for many manufacturers. These are not like-for-like alternatives to what’s at stake. There’s limited volume available to suppliers excluded from strategic sourcing and category management. What’s more, brand reputations slip with every loss.
Serious Implications For Manufacturer CEOs
“Consolidation” is code for “stripping out”. Low innovation has produced an overrun of poorly differentiated, non-essential products in the supply system. As customers merge and strategic sourcing continues to strip out cost and duplication, volume and profit recovery for excluded manufacturers will be outpaced by time, aggressive competition for what’s left over and mounting investment to try to win new business in a risk-averse environment.
Please, think about this carefully. Without a meaningful assessment of what’s at stake and a build-out plan in the event of catman or consolidation fallout, your company’s worth will likely decline, leaving only three options: 1) manage the contraction, 2) merge, 3) sell off assets.
As the Keeper, Defender and Builder of Company Value, “what if” scenarios reside in manufacturer CEO’s wheelhouse. Decisions are high stake and there is little time to weigh their impact or options. Build out plans must be put in place immediately.