The Future of DSD
What an extraordinary time! We live in a world where we have more access to information than ever before, giving us the ability to evaluate, compare and make the best possible decisions.
Consumers can easily compare and evaluate products, read reviews, and find the cheapest and most convenient purchase options. With the click of a few buttons, they can have those products delivered to the trunks of their cars or doorsteps in rapid time.
As a result, consumers are growing their buying power and increasing their expenditures. According to the USDA, over $1.7 Trillion was spent on food and beverages in the U.S. last year.1 That’s a huge opportunity for retailers.
Amidst the intense retail environment fighting for every sales dollar, we see retailers trying to evolve and find more enticing ways for consumers to shop with them and remain loyal. How? Lower prices. Better assortments. Improved customer experience. Self-checkout. E-commerce. Store pickup. Home delivery.
The rising tide of online shopping and competitive retailers entering new markets has forced traditional brick-and-mortar stores to adapt and innovate or close their doors. Retailers are also trying to drive cost savings through efficiencies and better prices from the vendors servicing their stores. However, not all retailers are innovating and evolving, or not doing so quickly enough. As a result, they are losing sales, losing customers and are going the way of the dinosaurs.
Manufacturers are fighting for shelf space with new and improved products and lower prices. Many industries are in decline and are fighting for survival. Consolidation has been rampant over the last few years, with several major manufacturers and brands having closed their doors and sold off to various others.
Farm income nationally is expected to be half of what was earned half a decade ago. Milk prices are half what they were in 2014 and dairies are closing their farms at double the rate from a few years ago.2
Consumer tastes have changed and they are even more fickle. National soda beverage consumption is down as consumers drink more water and less sugary and carbonated beverages. Manufacturers are trying to catch up by developing new product lines and variations of old ones as they fight for market share.
However, as any manufacturer or retailer will tell you, distribution can make or break them. Distribution costs are notoriously high and distributors are often fragmented and inconsistent in service quality. To make matters worse, distributor turnover is increasing at an alarming rate in the midst of a national driver shortage crisis. According to the American Trucking Associations, the current driver shortage is expected to double within the next decade as the industry struggles to replace aging drivers with a shrinking pool of candidates.3
In a world that is embracing drones and artificial intelligence, the direct store delivery (DSD) processes, technology and equipment used by distributors have largely remained unchanged for decades. Distributors have failed to refine their processes and are plagued by a host of warehousing, ordering and delivery inefficiencies amidst rising costs. It is concerning the DSD industry has not evolved and innovated at the same rate as others in the supply chain as distributors are struggling to keep their footing in the rapidly changing industry.
It is becoming harder and harder for distributors to sustain their operations. Distributors are being squeezed by both retailers and manufacturers as they face increased service demands and shrinking margins, and as a result are not reinvesting in their operations to innovate for the long term. They are being expected to increase their delivery frequency, even at the expense of reduced drop sizes from losing items to warehouse programs and broad liners. They have to absorb volatile gas prices and the labor costs. They have to deal with new team members, long check-in times and assuming the risk of excess perishable product from poor orders.
The situation is only going to get worse.
The cost of a lost customer
Consumers are flexing their ever-increasing power and are expecting only the best customer experience. With so many options available to them, we are seeing customers not hesitating to walk and shop elsewhere if they can’t find their preferred products. While brick-and-mortar retail currently accounts for almost 90% of total U.S. retail spending, food and beverage E-commerce sales are expected to grow at a 23% rate.4 Companies must do more than simply hold on or they will fall.
Out-of-stocks and store-readiness are a pervasive issues that are contributing to lost sales. With items such as milk being purchased by 95% of U.S. households5, it is concerning to see retailers with consistent out-of-stocks, especially considering the walk rate is over 30% for milk shoppers.6
And out-of-stocks are just the tip of the iceberg. Looking beneath, one can see a myriad of operational challenges and inefficient processes including poor communication, low service visibility, and a lack of store-level execution. Retailers and the vendor community are perhaps overwhelmed by all the data available, from delivery information, retail scan sales, market trends and a myriad of other data points. They are not changing fast enough. It’s not an issue with access to information as much as it deriving actionable insights and the ability to apply them to their businesses.
The last mile
DSD Partners empowers retailers and the vendor community through technology with a human touch. We know first-hand what it takes to be a distributor, as a small portion of what we do is provide DSD service to over 1,000 stores across several states. We are also been intimately involved with retailers in helping them manage and grow their DSD categories. Because of that, we have identified and successfully created solutions for many issues affecting our industry.
However, our focus is on the bigger picture of real change and innovation for retailers, manufacturers and distributors—providing them with solutions for driving cost savings and sales growth in over 25,000 stores across the nation and growing strong.
You can’t afford to wait. Come join the revolution.
- USDA/ERS Food Expenditure Data for Food Prices and Spending, September 2019.
- “After Years of Catastrophic Losses, Dairy Farms Are Increasingly Closing Their Barn Doors,” USA Today, November 2, 2018.
- “Truck Driver Shortage Analysis 2019,” American Trucking Associations, July 2019.
- “Global Ecommerce 2019,” Emarketer, June 27, 2019.
- IRI Panel Data, 52 weeks ending 7/15/18.
- 2018 Inmar Analytics shopper loyalty database, 20 million households; Inmar four chain study 2018.