Turnkey suppliers help distributors capture hefty margins without investing in costly proprietary programs.

by Bob Gatty

Key Takeaways
●  Distributors are looking to the leaders in branded foodservice for guidance.
●  Retailers are more likely to take on a program if it is easy to implement.
●  Proprietary programs still hold promise, but face more challenges.

What’s better than butting heads with a franchised foodservice operation known for quality products, excellence, and high customer acceptance without having any way of fighting back?

How about using that company as a model and implementing its ideas and procedures to help your customers succeed, while increasing your own sales and profits at the same time?

That’s pretty much what Richmond-Master Distributors, Inc., South Bend, IN, is doing with a Subway franchise they purchased and implemented at one of their 16 Bonkerz! company stores. It was part of an initiative to expand foodservice in the face of steadily increasing pressure on profits traditionally realized from tobacco products, principally cigarettes. Richmond-Master serves five Midwestern states.

“We’re using Subway as a learning experience,” says President & CEO Patrick A. Carrico. “When Subway puts one in, it’ll work. They have it down to a science.” So Richmond-Master is borrowing at least some of that “science” to help its retail customers succeed with their own sandwich programs, including Sub Express and other Omni Food Concepts, Inc. products, as well as Piccadilly Pizza, which Carrico’s company distributes.

“Subway is pretty disciplined in their operations and requirements, and if you don’t meet their standards, their sign comes down,” says Frank Davoli, Richmond-Master’s director of purchasing. “Now, we’re taking things from both Subway and Sub Express to come up with the best model for our retailers.”

Davoli says the biggest benefit from operating the Subway store has been the data that they provide, such as how their location ranks with others in the marketing area, as well as food and labor costs, and other pertinent information.

“It has provided us with an external data source that helps us confirm our own internal data in the Subway location, and also gives us a ‘starting point’ for data collection and analysis in our Sub Express locations and our other foodservice offerings,” Davoli says.

In addition, “The training program and compliance criteria that Subway demands forces us to look at other foodservice programs that we sell through their eyes.”

Of course, with Subway, there was the franchise fee and continuing royalties to be paid, while Sub Express is simply a program with products that are purchased and distributed to retail customers, even though it is supported with marketing and other initiatives.

It’s a different twist in what has become a growing trend among convenience distributors as they look to expand potentially high-margin foodservice operations to cope with today’s challenging marketplace. In the process, many distributors are finding a wealth of opportunities from suppliers like Omni Food Concepts that can provide the products and services needed to meet virtually every need – without having to develop their own branded operation.

“We’re on a learning curve right now,” Davoli explains, acknowledging that Richmond-Master is considering establishing its own branded foodservice program for customers, but for now at least, is finding success by using established turnkey operations such as Sub Express and Bellarico’s pizza from Omni, Piccadilly Circus pizza, and Squakers Chicken from Brakebush Brothers among other products, including roller grill and beverages.

Easy for retailers
One of the problems many distributors experience with convenience retailers is that many are reluctant to invest much in time, energy, or resources – including staff and staff training.

“A big problem,” says Carrico, “is that many convenience store operators want to put foodservice in, but they want to put in no effort. If it’s a basic prepared sandwich, it’s usually okay. Sometimes even with pizza, where all they have to do is unwrap it and put it in the oven, it can be a problem. Often, they want to sell it when it’s too old because they are afraid of waste.”

According to Guy Rocco, director of field operations at Omni, his company’s products solve many of those concerns and as a result, there has been “tremendous growth.”

For example with Bellarico’s pizza, which is fresh dough in a flash-frozen shell offered in six flavors, all the c-store employee needs to do is take it from the freezer, remove the wrapper and cardboard backing and put it in the oven. In addition, the product is available to distributors through Dot Foods, a redistributor, so smaller quantities can be purchased more frequently, allowing distributors to keep c-stores in inventory, control waste, without having to invest in large quantities and the required freezer/cooler capacity.

Richmond-Master Distributors also distributes the popular Slush Puppies, which Davoli says “has applications for stores with foodservice or simply to increase rings at the register.”

But developing a full-blown Richmond-Master branded foodservice operation would be much more complex than completing the puzzle with already established and well-recognized and supported programs, he adds. “If we go to operate our own program, then the onus will be on us for equipment needs, for staffing, for training, training, training. Then there are all the concerns about food safety and government regulations. And that’s something to take into consideration.”

Picking & choosing
At Gem State Distributors, Inc., Pocatello, ID, which serves some 350 stores in six western states, a similar strategy of putting the foodservice puzzle pieces together from existing turnkey suppliers has been employed for about the past five years, says Erik Chaney, comptroller and director of purchasing.

In fact, Gem State uses three different packaged sandwich programs provided by Deli Express, Pierre Sandwiches, and Landshire Sandwiches. “We find each company has different programs for different types of sandwiches,” Chaney explains, noting that Pierre offers a terrific breakfast sandwich and is supported with a good marketing program while Landshire provides excellent wedge and sub sandwiches.

In addition, Gem State offers frozen burrito programs through Ruiz Foods and Don Miguel as well as Broaster Chicken, which Chaney says offers both a wide variety of products and options, as well as high quality.

“I find that with branded product such as Broaster Chicken, people see and recognize their quality. Anybody can sell chicken, but not everybody can sell a Broaster program,” he says.

Gem State launched its Deli Express program this year because they had customers who were obtaining those products via direct store delivery and they wanted that business. “We found that we could capture some of that business and offer our customers higher margins at the same time,” he said, while reducing their spoilage because they could purchase smaller quantities more frequently.

“There has been a definite increase in interest among distributors,” says Rick Gemko, Deli Express northeast area sales manager. “They can get a 42 to 48 percent margin with these products, and it can help them replace profit that’s being lost in other areas, like cigarettes.”

Gemko points out that Deli Express’ modified atmosphere packaging gives sandwiches a 30-day shelf life, which vastly reduces spoilage. Plus, he adds, using such packaged products eliminates the need for distributors to operate kitchens and commissaries, as well as concerns about food safety.

“Pre-packaged food is on the low end of the spectrum in terms of ease of (retailer) preparation,” he says.

Sheryl Hinson, southeast area sales manager, points out that new packaging now being used by Deli Express helps create “a really fresh look,” which helps make the product “look like it just came out of the back room.”

Certainly, some distributors have established their own proprietary foodservice operations and do well, generating significant sales and realizing a nice profit. But they will tell you that it’s slow going as they seek to sell customers, both on the concept of adding foodservice offerings, as well as the need to commit to proper foodservice operations. At the same time, those distributors must market their own brands against established products that already have name identification – Broaster Chicken or Bellarico’s pizza, for example.

They will also tell you about the commitment that must be made for food safety, and the investment required for a kitchen or commissary – as well as additional cooling and freezing capacity – and a well-trained staff. All of that comes at a cost, even though, eventually, the results might be well worth the effort.

But for many distributors there is another solution: analyzing the needs of the customer base and then finding the right fit from existing suppliers with products that are supported with marketing initiatives, as well as marketing dollars.

For them, that’s the most cost-effective way to put the foodservice puzzle together.

Bob Gatty is a contributing editor and writer to Distribution Channels, and founder of G-Net Communications