INSUBCONTINENT EXCLUSIVE:
Tri Tran
Contributor
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Tri Tran is a principal at Applico and the former
chief executive and co-founder of Munchery.
Investors may have already placed their orders in the consumer food delivery space, but
there still a missing recipe for solving the more than$250 billion business-to-business foodservice distribution problemthat begging for
venture firms to put more cooks in the kitchen.
Stock prices for Sysco and US Foods, the two largest food distributors, are up by more than
20 percent since last summer, when Amazon bought Whole Foods
But, these companies haven&t made any material changes to their business model to counteract the threat of Amazon
I know a thing or two about the food services industry and the need for a B2B marketplace in an industry ripe with all of our favorite buzz
words: fragmentation, last-mile logistics and a lack of pricing transparency.
The business-to-business food problem
Consumers have it good
Services such as Amazon and Instacart are pushing for our business and attention and thus making it great for the end users
By comparison, food and ingredient delivery for businesses is vastly underserved
The business of foodservice distribution hasn&t gotten nearly as much attention — or capital — as consumer delivery, and the industry is
further behind when it comes to serving customers
Food-preparation facilities often face a number of difficulties getting the ingredients to cook the food we all enjoy.
Who are these
food-preparation facilities They range from your local restaurants, hotels, school and business cafeterias, catering companies, and many
other facilities that supply to grocery markets, food trucks and so on
Ignoring all other facilities, just U.S
restaurants alone earn about $800 billion in annual sales
That based on research by the National Restaurant Association (the &other NRA&)
Specific to foodservice distribution in the U.S., the estimated 2016 annual sales were a sizable $280 billion.
How it works today
Every
one of these food-preparation facilities relies on a number of relationships with distributors (and sometimes, but rarely, directly from
farms) to get their necessary ingredients
Some major national players, including Sysco and US Foods, mainly supply &dry goods.& For fresh meats, seafood and produce, plus other
artisanal goods, these facilities rely on a large number of local wholesale distributors
A few examples of wholesalers and distributors near where I live in the San Francisco Bay Area are ABS Seafood, Golden Gate Meat Company,
Green Leaf, Hodo Soy and VegiWorks.
Keep in mind that the vast majority of these food-prep businesses don&t shop for ingredients the way you
and I may shop for ingredients from our local supermarkets or farmer markets
There too little margin in food and doing so would be too costly, as well as highly inefficient (e.g
having to pay to send staff out &grocery shopping&)
A few small operators do buy ingredients from wholesale chains such as Costco or Restaurant Depot
But in general, it way more efficient to place an order with a distributor and get the goods delivered directly to your food-prep
facility.
But that where the problems lie
These distributors are completely fragmented, and the quality of fresh ingredients varies meaningfully from one distributor to the next
Prices fluctuate constantly, typically on a weekly basis
What worse is delivery timeliness, or rather the lack thereof
These distributors each employs their own delivery staff and refrigerated trucks
There is a limited number of 6 am deliveries they can make for a given delivery fleet
As a food business operator, you may be ordering quality ingredients at the right price, but if the delivery doesn&t show up on time,
You won&t be able to prepare the food in time, all the while paying for staff who are sitting around waiting for ingredients to arrive
As a result, you keep getting seemingly random offline pitches with promotions and price breaks from these distributors
But there no way to ensure timely delivery
Everybody makes verbal promises and it all based on who you know
Things may work for a week or two until you get &deprioritized& by one of the distributors and you have to start the process of finding the
You intentionally rotate among the different distributors, just to keep them &on their toes.&
The opportunity for a food distribution
platform
What missing is a platform that hosts a catalog of products from these distributors, with updatable availability, pricing and
On it, food businesses could browse for products and place orders
Fulfillment can be done by the distributors at the beginning, but ultimately that operation may need to be done by the platform to maintain
consistent quality of service
Reliable fulfillment may end up being the biggest differentiator for such a platform.
I&m aware of startups that have tried to become the
dominant B2B platform for food service distribution
But it takes meaningful resources to get to critical mass, and these startups tend to flame out before reaching that point
It not necessarily their fault for not being effective
This industry has low margins, is slow to adopt new technologies and has many incumbent players
But the opportunity to design and execute on this platform is significant, with clear ROI as a reward and a built-in moat once it reaches
critical mass.
Food-prep businesses are hungry for a better solution
And as any food entrepreneur knows, hungry customers are the best kind
