Grocery Update #21: Wholesale Alternatives To The Status Quo.
Because It Is Time For A New Status Quo. Srsly.
Discontents: Wholesale Alternatives Issue. 1. Chex Foods. 2. Co-op Partners Warehouse. 3. Guest Post: Supplier’s Choice. 4. Seen In The Wild. 5. Tunes.
Wholesale Alternatives.
Because We Need A New Status Quo.
1. Chex Foods.
Someone needs to be the alternative. For the specialty shops and regionally based, family owned grocers, for the crunchy independent natural food shops and the scrappy cooperatives thriving in the niches too small, boring or stubborn for Amazon or Kroger. Chex Foods is still standing, based in New England, where their specialty food wholesale business can reach 1,000 retailers in a few hours by truck.
Chex Foods is old enough to be a pioneer but still young enough to be relevant to a changing marketplace. Their founder passed it on to his kids, who passed it onto their kids. The third generation now runs the operation. Like many founder-led operations, their longevity and success is based on relationships, quality and service. Not shady revenue grabs or strong arm belligerence. A throwback, or maybe a precursor, to a more holistic, transparent and convivial model of value chain partnership.
Chex Foods functions like many of their wholesale competitors. They are profitable, but not excessively so. They deliver stock to grocery retailers via the brands they aggregate. They import product, like lots of good olive oils, and have a successful private label program that provides everyday low prices with a specialty mindset. They are not out-Aldi’ing Aldi, but Aldi can’t out-Chex Chex. They provide category management and marketing to their brands and their retail customers, a suite of retail services adjacent to what a C&S or UNFI likewise offers. It is more or less required these days. They also have an in-house sales group that helps their brands find retail customers and then perform well enough stay on shelf. More old school, high touch service and respect. Transactional, but not exploitative. Commerce, but not extractive. It is possible, ya know.
What sets Chex apart are transparent markups to retailers that cover their costs of doing business.
This small miracle, this simple, elegant idea, to make sure their core function is profitable and sustainable, is a needle in the wholesale haystack. Everything else they do is just layered on top of that. You don’t remain a multigenerational enterprise by running in the red. So their markups can be a bit higher than their competitors, but this typically amortizes out to have minimal impact on retail price when you factor in the services, promotions, quality and important stuff like actually being in stock on top sellers. It’s the small things that count.
And their supplier contracts are three pages long, a fraction of what their competitors demand suppliers vet, understand and sign. No legalese, no grift, no bait and switch, just a very clear model to all parties. The requirements of the brands they stock are likewise very straightforward, regular promotional deals passed through to retailers as off invoice deals. Their limited warehouse space precludes too much forward buying. Sometimes there is an advantage to modest scale too.
They are still a for-profit business. They want to grow sustainably, but have no interest in market dominance. Their competitive strategy is taking care of their customers, their employees, their suppliers. They are family owned, pay good wages and salaries, have good benefits, low turnover, good morale, excellent customer service. That big wholesaler’s Just In Time inventory practice caused you to go out of stock on your big weekend promotion? Chex Foods is your huckleberry. Need some high quality, hard to find specialty items in this or that category to juice your basket sizes, increase foot traffic and fend off Trader Joe’s highly centralized faux-hipsterism? Samesies.
They remember their humble beginnings. They have stable and growing businesses with many retailers, providing services and products that set them apart. And they have leadership who work on the warehouse floor, not sequestered in cubicles, who go out to meet their retailer customers, sit across from brands in sales and product sourcing meetings, can look them in the eye, shake their hands and get a good night’s sleep, with a clear conscience. They are a visible, even jovial, presence at trade shows. They are huggers. It’s about accountability as well as marketability.
According to third generation Chex Foods CEO, Jeremy Isenberg, “Chex at its core is about nurturing committed relationships, building brands and categories, and creating excitement in the marketplace. We love what we do, and that the Specialty Food business is fueled by passionate producers and innovative new products. We believe by helping our customers be successful, it will come back to us. I feel very fortunate to be surrounded by a team that embraces our mission to make a difference in the industry, and am grateful for the opportunity my Grandparents and Dad gave me to build on the foundation they created.”
Chex Foods, a good model for a decentralized and anti-fragile wholesale provider. Maybe 1,000 Chex Foods could rebuild the middle ground of wholesale, decentralize it, make it more diverse and transparent. And less… belligerent.
They are not alone. Located precariously between dying breed and iconic iconoclasts, such as produce distributors like Four Seasons, Organically Grown and Veritable Vegetable. These throwbacks, exceptions to the rule, regional players in a highly consolidated industry are also glimpses into a possible future. As Q-Tip said, things come in cycles.
And as Chex Foods demonstrates, you don’t have to fuck people over to survive, let alone grow. Or even thrive.
2. Co-op Partners Warehouse.
Halfway across the U.S., north of the 45th parallel, is the the Co-op Partners Warehouse (CPW) in the Twin Cities. A business unit of the iconic Twin Cities Co-op Partners, including The Wedge, CPW is a model for how for-profit wholesale can adapt and grow beyond its extractive practices, selling good food and growing the local economy.
CPW distributes a range of organic and locally grown produce, as well as an assortment of local, small scale packaged foods, to over 450 retail customers in seven states. They are not a “food hub” or some other inefficient NGO-speak for basic wholesale aggregation and distribution functions. They focus on minimally processed products and fresh produce, so there is also a health component. They also broker such products to sister operations across the country, such as high-road, independent wholesalers like Veritable Vegetable and Four Seasons Produce. They have a clear mission, to help provide suppliers with additional scale as an alternative to large, extractive corporate wholesale operations. CPW is spreading the love while scaling good food.
And the food is quite good. A delectable catalogue of local, sustainable, organic and regenerative groceries, grown and made by people who are treated as partners, not resources for exploiting. Empanadas, tofu, A2 milk, fair trade bananas, organic fruits and vegetables, pasture-raised eggs, salad greens, chips, snacks, kombuchas and smoothies. A wholesome pantry, a panoply of delights that can stock most aisles of a grocery store, or at least fill in the blanks with a differentiated assortment that may be too high touch for UNFI, Spartan-Nash or KeHe.
According to Kirk Sorenson, Operations Manager for CPW, “Our mission at Co-op Partners Warehouse, as part of Twin Cities Co-op Partners, is to build community by developing a strong local food system. We differentiate ourselves from other larger companies by partnering with small farmers, retailers, and vendors that share a similar vision and values. We would not exist without the local farmers that we have partnered and grown with over the last 23 years.”
“Our shared success is our only success.
“CPW prides ourselves on working with local vendors and having a variety of local grocery items to complement the wide range of nutritious organic produce we sell. One example would be Crystal Ball Farms out of Osceola, WI. They exemplify sustainability by selling their products in returnable glass bottles. This model of sustainability may require more work and be less profitable, but it is the right thing to do and that is why CPW is proud to partner with them.
“We strongly feel that by partnering with responsible and sustainable businesses we are meeting the expectations of our retailers and ultimately the end consumer. Most people shopping at co-ops or natural food stores assume that the retailers have reviewed and vetted the products they are selling so customers can buy with confidence. The success of our unique business model can be attributed to sharing the same values as the community we serve, both earning and keeping their trust.”
Their mission is to create a sustainable network of local growers, processors and retailers foundational to a regenerative food system. CPW doesn’t need the efficiencies of scale to compete with wholesalers shipping container loads of blue box mac and cheese. They compete by not playing the game.
The types of local products they distribute are built to keep revenue in communities, create jobs, support livelihoods.
Circular economies, solidarity economies, doughnut economies.
Not to fatten PE/VC portfolios or outsource/offshore jobs to the lowest bidder.
Kirk explains further, “The Twin Cities (Minneapolis and St. Paul) has the highest rate of food co-ops and active members per capita in the United States. This community has fostered multiple James Beard award winning chefs that CPW has provided with quality ingredients for their wide-ranging global cuisines. CPW also serves the community by collaborating with a variety of non-profits that provide food access to those who otherwise might go without. Very little of the product we cannot sell ends up being composted. Retailers, restaurants, food makers, and small businesses are working together to strengthen each part of our food system.”
“Over the years CPW has evolved with the increased business from our local co-ops, restaurants, independent retailers, and the growing demand for organic produce from retailers in neighboring states. Our customers rely heavily on us to provide them with accurate orders, quality product, fair prices, and timely deliveries. If we fail to deliver on these, we are not only letting down our customers but our vendors as well. This is why, as our business grew and our product lines expanded, we needed to leverage technology to meet the expectations of our customers and vendors alike. Implementing a warehouse operating system was no small task and required dedication and patience from the CPW team, our local farmers, our grocery vendors, and our customers. We feel we are now poised for success with greatly improved order accuracy, a historically high fill rate, and a dedicated team that truly cares about the business and the community we serve. Our mutually beneficial partnerships with the farms, local vendors, and our customers will be paramount to sustaining and expanding our mission of creating a strong and sustainable local food system.”
Balance as a business model, self-reinforcing by ensuring all stakeholders are taken care of. Unthinkable in Late Stage Capitalism. And yet.
The model also spreads out the risk, it is anti-fragile. The opposite of Just In Time inventories, the truck to shelf deliveries that keep cash off the balance sheets but fold at disruptions in weather, disease, tragically regular mass shootings. This way, suppliers aren’t holding the bag on inventories, or retailers aren’t hung out to dry with out of stocks, or their own operation isn’t struggling to keep the lights on. Shared fate is a popular retail term, rarely accurately portraying how work gets done. But CPW puts it into practice.
Ayn Rand, rolling over in her grave, fetid corpse shriveling at the “collectivism” she and her acolytes so despised. That solidarity economics that can be scalable and profitable. That the little people can pull their shit together and run it themselves, John Galt and his superiority complex be damned.
This model of cooperativism is replicable and scaleable. CPW fills in crucial blanks in such cooperative supply chains, which bring in over $2.5 billion at retail. According to a 2014 report by Cooperative Development Institute, cooperative business models:
Commit to pay a fair price based on a producer’s reported cost. Local, organic, sustainably produced food is often more costly. Producers of such food must earn a price premium to cover costs and stay in business. The cooperatives work with local producers to set a price that covers production costs and a return to producers. “The typical distributor makes money by hammering producers on price. This is not our model.”
They retain source identification for local product through to the point of sale.
They “tell the producer story” in multiple store communications such as store signage, newsletters, inviting the producer to be an active part of an in-store demo, and in-person testimonials from staff. Not Localwashing. The real thing.
They make preseason buying commitments to producers for both price and volume and honor those agreements.
They generally do not price shop and will not engage local producers in price wars to lower costs.
They are flexible purchasers that will purchase direct from the producer or from a distributor and will switch channels as needed.
They maintain a loyalty to long-term suppliers.
They will hold open a market position for a producer who is unable to meet demand due to a flood, drought or other farm crisis
CPW offers long-term and supportive relationships; its buyers carry out extensive preseason planning and commit to both volume and price, allowing producers to “plant to order” and stabilize income.
CPW conducts ongoing searches and handles many queries for new local items.
CPW offers refrigerated and other storage space for local producers for reasonable fees.
CPW offers price support and flexibility with producers during shortages or difficulties as well as during peak harvest conditions.
Drop-shipment (cross-docking) provides logistical support for small producers and for larger producers to reach smaller or more distant customers. This service enables a small producer to make one stop that will get the producer’s product to any CPW customer for only a small per pallet charge, usually $25-30. Unlike conventional distribution where the distributor buys the product and adds an operating margin, with cross-docking the producer retains ownership of the product until it arrives at the customer. It allows producers to move “in and out” of CPW distribution without penalty, a flexibility that few distributors offer. This reduces CPW revenue but increases the producer’s margin and also supports retail buyer options. (Editor’s note: this is somewhat ironic because the practice of cross-docking was invented by Walmart to move product through their DC’s as quickly and cheaply as possible, not to support small suppliers. Quite the opposite.)
CPW is essentially striving for a true cost accounting model, based on variable markups that work for growers and customers. Their CPG promotions are also pretty straightforward. No opaque MCB upcharges or unexplainable deductions. They either split the markdown difference with suppliers or pass it through to customers as an off invoice or a per unit rebate. Their goal in running such promotions is to drive volume for themselves and their brands and build customer acquisition, retention and visibility for the brands they stock. They don’t bridge buy or forward buy. They are only one warehouse and space is limited. Why hold inventory after the sale is over when you can be selling a wider range of unique, authentic locally manufactured products?
The model builds relationships, to help spur local investment and to provide products across geographies based on need and demand. It is elegant, simple, so common sense and so “why the fuck isn’t everyone doing this >facepalm<”. Why, indeed?
And if they can it keep going, it’s ready made for the era of pandemics, social upheaval, climate instability, you-name-it-chaos. Co-op Partners is building an anti-fragile wholesale operation, an ecosystem more so than a supply chain, a sustainable model made for the future, while taking care of everyone today.
3. Supplier’s Choice: A Novel Concept to Reduce Inflation.
Submitted Anonymously by a brand founder in the “better for you” grocery sector.
Due to concern of repercussions, we agreed to publish anonymously:
“If you haven’t yet heard, the prices customers are paying for groceries have risen astronomically in the post-Covid era. There are numerous reasons on both the supply and demand side of the equation for this rampant inflation and there is plenty of finger pointing on both sides of the political aisle for this inflation, yet very few actionable and practical solutions have been presented that would actually lower the prices Americans pay at the checkout register. This piece is not meant to be a political commentary or conspiratorial rant. My purpose is to introduce a concept, Supplier’s Choice, that will create a competitive environment in the food distribution system that will force distributors to eliminate artificial friction in the system that will ultimately lower the cost of getting goods to market. Like any effective solution, Supplier’s Choice is a very simple – it is simply retailers giving their suppliers the choice in their distribution partner.
“For context, the current model is for the retailer to dictate which distributor distributes any given suppliers’ products to their stores. Retailers typically contract with one of a few major national distributors to distribute most of the goods to their stores. To win these contracts with retailers, the distributors bid down to an impressively, almost impossibly, low mark up on goods sold to that specific retailer. In exchange, these distributors get the almost exclusive right to distribute products to that retailer and any meaningful competition from other distributors is eliminated.
“One of the greatest truisms of all – Power tends to corrupt and absolute power corrupts absolutely – can be seen very clearly with the near monopolistic power granted to distributors via their exclusive right to distribute goods to a specific retailer.
“When the distributor doesn’t have to compete, there is no incentive for them to operate efficiently or with integrity. This lack of competition gives the distributor license to drive up their costs and pass them on, by force, to their suppliers. The supplier is then forced to increase prices to protect margins and these price increases trickle to the end customer who now has to pay more for the same goods. These pseudo-monopolies not only give distributors the power to be financially abusive to both their retail and supplier ‘partners’, but also disincentivizes efficient operations which leads to spoilage waste, which is another moral issue altogether.
“A Supplier’s Choice model would be value generative for all stakeholders and paradoxically most valuable to customers at checkout. In a world where suppliers were empowered to choose who delivered their product to market, distributors would have to compete amongst one another for the business of each respective supplier.
“In a scenario where distributors compete with one another for the business of their suppliers, they would have no choice but to increase their operational efficiency and do away with their value-destructive and abusive policies that create artificial friction between themselves and their suppliers. Competition amongst suppliers would lead to much healthier business relationships throughout the supply chain.
“Aside from harmonious relationships from supplier to retailer created by Supplier’s Choice, the net result would be lower prices for customers. In a world where prices are rampantly rising, giving suppliers the choice of who and how to get to market is a simple solution to lower costs and create value for all.
“Supplier’s Choice is a solution for so many of the industry’s woes, now the question is who moves to change the status quo? The answer is counterintuitive, yet simple: The retailers.
“What incentive does the retailer have to give their suppliers choice in distribution? Again, the answer is simple: Competition. The grocery industry is widely considered to be the most competitive of all and retailers are constantly looking for ways to draw in shoppers by offering better prices to their customers. Competition between distributors for the business of their suppliers will ultimately drive down the price of good delivered to the store and allow retailers to offer their customers lower prices.
“The first major retailer to move on Supplier’s Choice will have a leg up on competitors as they will be the first to reap the benefits of a lower price of goods and drive more customers to their stores. And in order to stay competitive, the rest will have no choice but to follow. It will take time, but customers will ultimately be the ones to reap the benefits of Supplier’s Choice as they see their bills at checkout deflate.
“Instigating change in an industry that has been doing things one way for as long as anyone can remember is going to be unpopular and met with resistance.
“But we are charged with providing wholesome and healthful food to our communities and there is a reward of both financial success and fulfillment for those who are willing to instigate change.”
4. Seen In The Wild
MerchNerd: Pretty assertive brand block at a quiet rest stop somewhere on the New Jersey Turnpike.
The Fucktangular CPG Mash-up of the Century. Oreo Flavored Coke. Coke Flavored Oreos. In case you needed a reminder that in Big CPG product development, their heads are so far up their asses they can see daylight. (Oh, don’t worry, I am sure they will sell a shitload of this.)
On the Upper East Side of Manhattan, Stan Lee (RIP) graffiti truck. Excelsior!
(BTW, why does that Iron Man armor look like it was made for Cartman? lol.)
5. Tunes.
Who would win in an arm wrestling watch, Lemme or God? Trick question. Lemme is God. If you need a soundtrack to logistics and wholesale, this is your huckleberry.
peace.
From the anonymous author ( I do not necessarily agree, but the last sentence is spot on):
"My initial thoughts: Under the suppliers choice model, grocers would still work with several major distributors, not so many that you'd bottleneck the store at receiving. You wouldnt have a dozen DSD's plus a half dozen consolidated distributors. The big point with suppliers choice is you take away the ability for distributors to make these cost plus contracts that are not feasible and they would have to begin marking their products up at a rate that is reflective of their actual costs. Competition would also force the distributor to operate more efficiently as their suppliers could leave them if they are unable to keep up with orders."
Another great article! I have a question re 'Supplier's Choice'. I'm old enough to have been around in the Chicago grocery market when Kehe, Skandia Foods, European Imports, Ryser Foods, Blooming Prairie, HFI, Rainbow Wholesale and about a dozen other smaller specialty foods distributors were stocking a lot of the same products and brands (Wasa Brod, Lindt Chocolates, Stonyfield Yogurt, etc.). The major grocers at the time, Jewel (American Stores) and Dominick's had an issue with manning the receiving docks at store level to accommodate all these distributors, along with Coke, Pepsi, Frito, fresh bread vendors, Ice cream trucks and the other 'roll in to the store' DSD suppliers and receiving clerks would have to be paid overtime if a truck was running late etc. The impetus to consolidate to one or two distributors from 8-12 was simply a labor management issue at store level and controlling the hours the back door was opened and manned. How would 'Supplier's Choice' address this issue? Why would a major retailer go back to the days of too many receiving hours at store level to benefit the vendors? And if the answer is to cross-dock all these distributor's items at a grocer's warehouse, that means more receiving hours at those warehouses and doesn't address chains and stores that don't have warehouses, like Whole Foods Markets, Gelson's etc.