New Year’s Resolutions for Foodservice Distributor Owners

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As we start the new year, I can think of no better time to identify your company’s key priorities for 2010 and make a few key personal resolutions that improve your business, your management team, and your relationship with your customers. As you read and analyze your year-end reports from 2009, look for opportunities as well as potential threats to your business.

As we presented in our executive track session at the October IFDA Distribution Solutions Conference in Baltimore, it is our firm conviction that owners need to become experts in finance and strategy, not just in delivering groceries. Make 2010 the year you drive hard to achieve that goal.

Our list of resolutions for distributor owners for 2010 breaks into several categories, all geared to help you capitalize on opportunities, and to protect and grow your market share:

• Finance
• Infrastructure
• Leadership and Staffing
• Marketing and Sales
• Purchasing
• Understanding your End Game

In our experience working with scores of foodservice distributors of all sizes and in all geographic regions, we find that all of these ideas have merit, and they can provide a system of checks and balances to help you keep your business on track for success. Many of the recommendations below you can undertake on your own, depending on your level of expertise and that of your management team. Other areas may require the assistance of a skilled advisor. After you’ve read through the recommendations, please call on me to discuss your questions confidentially or to suggest ideas for future columns.

Financial Objectives for 2010

Taking charge of the financial aspects of your business means going beyond regular meetings with your controller and accountant: it means understanding your financial position today, outlining objectives for the future, and measuring your progress each and every quarter to be sure you stay on track. The financial objectives we recommend include:

1. Evaluate the value of assets you own, including the value of your operating company and the value of your real estate.
2. Determine if your lines of credit are adequate to act on opportunities as they arise. Talking to your banker before you need the capital will help to prevent unwelcome surprises, give you time to do any repair work if appropriate and/or renegotiate in advance of issues or opportunities.
3. Develop a 3 to 5 year wish list for capital spending: warehouse space, computers, your fleet. Break out the list by year and draft a rough estimate of the capital requirements for each project.
4. Review and fully understand your income statement:

1.  
   • Know your cost per delivery and the cost for moving a case. Set targets so that you can quickly figure out whether a new business opportunity is right for you;
   • Identify low margin business and decide to either improve it or weed it out;
   • Develop scenario assumptions for 2010 for fuel, at low, mid and high cost, and
   • Develop a plan to optimize your total gross profit, incorporating check points to assess your selling profit and your earned income.

Helping distributor owners think like financial strategists instead of managers is our sweet spot. If you would like a copy of our IFDA presentation on distributor owners becoming financial experts, please email me at bbeattie@ksadvisorsllc.com.

Leadership and Staffing Objectives for 2010

Executing any plan requires that you have the right people on board who are properly trained and who clearly understand your objectives for the business. At the top, you should have a leadership team capable of charting the course with you, inspiring your staff to perform to the best of their ability, and monitoring successes and failures. Staff should be internally motivated and passionate, not just governed by their managers, with their own eye on constant improvement of your overall business.

1. Outline or clarify your own succession planning, whatever the time horizon may be. In our work with distributor owners, we help them evaluate the performance and potential of key executives, managers, and family members. The goal is to inventory each key player for business skills, commitment and passion. For family businesses, crafting what each person’s role in the business will be for the next 5 to 10 years can be a challenge. We often find owners sometimes avoid these hard conversations, and our assistance helps to bridge critical gaps that exist today.
2. Conduct a brutally honest evaluation of senior management and establish a process for them to fairly evaluate their teams. Our industry demands qualified people and you want to be sure you have the right talent on board. It may be the right time to weed out the underperformers and there is a large pool of talented people out there now. Determine what additional training and coaching your leadership group needs. Determine if you can provide that training or if you need outside help to provide it.

Marketing and Sales

1. Conduct business reviews with your top twenty customers. Prepare well and take along your sales manager and the relevant DSR so they learn how to truly capitalize on opportunities and/or head off threats. Our own belief is that you should personally visit one or two key customers a month. It makes such a difference when you talk with people on their own turf and listen as they tell you their problems (which can become your opportunities).
2. As the strategic leader for your company, use the ideas you generate from these meetings to help your sales staff think strategically. Let them know it’s all about capitalizing on opportunities and eradicating threats instead of taking orders and issuing credits day in and day out.
3. Assess the data from these reviews carefully to determine your marketing sweet spots and business opportunities. Identify what you’re good at and determine how you can get more business in those areas. Look for new openings, like capturing a larger percentage of your customers’ spend or expanding to new geographies. Identify weak segments and, as they say, either “get good or get out.”
4. Conduct careful analysis of customer credit risk to determine if you should screen your customers more carefully at the start of a relationship. Can you bring more stringent credit requirements to your customers as a result of the business review process?
5. Look for customers with whom you can automate the payment process.

Purchasing

1. Make this the year you maximize your relationship with your buying group. Work with your purchasing team and your buying group’s management team to leverage synergies to save money. Drive demand from your customers so they are more likely to purchase your higher-margin products.
2. Conduct a strategic review of your vendors. Evaluate the top 10 vendors by purchasing volume and examine the earned income programs of each. Determine if these programs are at risk or if there will be fewer opportunities than in years past. For example, if one of those vendors tells you they will have reduced or no marketing funds for the coming year, parallel track your response by 1) renegotiating with them to provide greater support by illustrating the win-win opportunities, and 2), looking hard at other suppliers in the same categories who are lower down on your list to determine if one of these can help you drive more revenue or more earned income.
3. At least annually, review what you buy direct vs. what you buy from a re-distributor. There may be changes you want to make for slow moving items, and there may be former slow movers that have gained volume and frequency.

Infrastructure

1. Determine if your information systems are adequate and up-to-date. Consider how you can leverage standards to automate information flow like GS1 and EDI. Project potential opportunities or savings from deal and income tracking technology. From your analysis, forecast what changes are needed to carry you through the next 5 to 10 years and estimate a budget.
2. Determine if your fleet configuration is correct for your current business mix. Do you have the right mix of straight trucks, pup trailers and full trailers? Are your specs for engines and cooling equipment aligned with environmental and efficiency standards?
3. Determine your 5 to 10 year requirements for your distribution center. Will you have enough space, with the right ratio of dry storage, freezers and coolers? Will you have enough dock doors and dock space?

End Game or Evolution of Your Business

1. Understand that circumstances may offer you the opportunity to be a buyer, holder or a seller in 2010, or in the future.
2. We believe you should be prepared to make your next strategic moves judiciously. Consider these issues:
   • Are you near capacity in your DC, or is there potential for you to add a specialty business like fresh meat, produce, equipment or jan san?
   • Is a neighboring distributor struggling? Could they be a potential merger or acquisition candidate?
   • Is it time for you to retire, or do you have financial or other reasons for considering selling all or part of your business?
3. Secure an accurate valuation of what your assets are worth so you can make good decisions for your employees, your family and your future.

Regardless of your end game, executing upon the objectives above will help inform your end game by making you more knowledgeable and more profitable. We encourage you to call on us in the early stages of even considering expansion, sales or acquisitions. This is where we can help drive the greatest value for you.

In Closing

We encourage you to make the most of 2010 to improve your business by charting your own course and preparing for the future strategically. The last year left many distributors feeling like they were just bailing out from the crisis. Times of uncertainty require a steady hand on the wheel and creative, assertive vision for the future. Please call on us for a confidential conversation at any time to help make the most of your business today and tomorrow.

Bill Beattie, Managing Director, Keiter Stephens Advisors

Keiter Stephens Advisors is the foodservice distribution finance and consulting subsidiary of Keiter, Stephens, Hurst, Gary & Shreaves. They have worked with over 50 privately-held distributors across the country. KSA services include:

• Mergers and Acquisitions: guiding the sales and acquisitions of foodservice distributorships and regional sales territories
• Profitability Improvement on both the vendor and customer sides
• Custom Strategic Services, including transition planning for family-owned
  distributors and driving management consensus with KSA’s 3-1-1 Planning Process
• Custom Finance Solutions, including finance strategy development,
  distribution center expansion analysis, lease or buy decisions on real estate
  and equipment, and cost segregation studies.

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