Food Service CRM Overview for Non-Industry Speakers
The food industry is traditionally comprised of retail (supermarkets) and food service (restaurants). The main point
of difference is that retail sales are typically prepared by the consumer at home, while the food service patron is
looking to buy ready-to-eat meals.
Food Service is also referred to as “Food Prepared Away from Home.”
While chain and independent restaurants make up a large portion of food service, there are many other subsegments that contribute to this industry’s complexities. These include k-12 schools, colleges, corporate cafeterias,
hospital cafeterias, healthcare patient feeding, sports arenas, and airlines & cruise ships etc.
The supply chain for the Food Service industry consists of 3 primary levels:
1. Manufacturer’s (sometimes referred to as Suppliers)
2. Distributor’s (Need to handle dry goods, equipment, and highly perishable frozen and fresh vegetables)
3. Operators – The ultimate decision makers that drive demand. The restaurants, schools, cafeterias etc. There are
independents and chains, buying groups, and other variables that add to the supply chain complexities.
The food service industry was nurtured and became more recognized in the forties and fifties. The food away from
home phenomenon with 2 working parents caused the industry to explode in the 70’s and 80’s. Most companies
prospered easily and many bad habits and poor processes were allowed to persist.
During the 90’s industry consolidation began to take hold at all 3 levels. The biggest variable became the
distributors quest to control the supply chain. In order to control their destiny in the local marketplace, distributors
began to pursue private label strategies that they could control more easily. This immediately created new brands
that competed against the manufacturer brand strategies.
Control of the ultimate decision maker became the mutual goal of both the distributor and the manufacturer. If the
manufacturer could get the 5% largest operators to demand their brands, they would hold the slots they had at
anyone given distributor. This was something the distributors despised, but it was a matter of brand survival for
manufacturers. These operators were referred to as Large Leverage Operators (LLO’s).
Industry consolidation continued into the new millennium, and for the past 10 years, the operator community has
also consolidated and become more aware of their power to influence the supply chain. Buying groups emerged to
help independents achieve purchasing power and scale. The Operator Chains have leveraged technology and
purchasing experiences to further refine their own contract and program requirements.
One major difference between the food service and retail channels is the sheer number of accounts. In retail, there
are hundreds of chain supermarkets that can be managed by a fairly small sales force working within a fairly
sophisticated and refined process.
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Food Service on the other hand is much different. While the larger Restaurant Chains are sophisticated and
managed similarly to the supermarket chains, there are many smaller and regional chains as well as hundreds of
thousands of independent restaurants that remain unsophisticated.
Thus, there are literally, hundreds of thousands of independent purchasing decisions that can be influenced to
“Drive Distribution” in the local market place. If we use the 5% rule and consider there are most likely at least
400,000 independents, we would have a “Large Leverage Operator” target base of 20,000 operators. These are
accounts where the manufacturer desires to create and maintain a “Relationship” in order to protect their brand
opportunity.
In order to provide local market service to these independents, manufacturers have commonly chosen to
“Outsource” their local selling and relationship building to “Manufacturer Rep Groups.” In Food Service, the
common term that evolved over the years for these reps is “Food Broker.” These companies are assigned a
territory, which consists of specific food distributors. The Food Broker is paid varying commissions for products
sold to each of their distributors.
The Food Broker has also become motivated over time to understand which Operators are influential to drive and
hold product placements at their distributors. To this end, the Food Broker is embarking on CRM initiatives to
ensure they maximize their selling process in the local market places where they operate.
Until recently, a typical manufacturer might divide the country into an average of 50 local market areas and
appoint one food broker to represent them in each area. It was not uncommon for a manufacturer to have 50 of
these food broker rep groups appointed, with as many as 1,000 total sales reps working for the combined
companies.
In the past couple of years, regionalization has become vogue in food service at the Food Broker level and the
footprint for the country is now commonly broken down into 10 or 20 regional areas. The main driver of the
regionalization is the mutual desire between the manufacturer and food broker to leverage scale and enhanced
tools and processes to achieve great communication and selling efficiency. The main argument for regionalization
is that if a manufacturer has 15 points of contact instead of 50, it will be easier for them to implement and execute
business plans.
The jury is still out related to Food Broker Regionalization and it may take a couple more years to fully refine the
model. Many in the industry are divided in their beliefs regarding regional brokers. For the most part, they do agree
that creating relationships with the LLO, controlling distribution for the brands are the top priorities and CRM is
becoming increasing sought after in Food Service.
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Food Service CRM Challenges & Considerations
Food Service selling has traditionally been a face-to-face relationship driven process. During the industry’s growth
years, there was not much pressure to achieve goals and most companies and sales teams did well. Over the past
15 years as the industry slowed, selling has become more challenging.
The well established food service professionals could weather the turbulent waters and find ways to leverage
existing relationships to maintain business. There are less and less first generation food service professionals
around these days and the second and third generations are facing new variables and in many ways, a new food
service supply chain.
Niche industries like Food Service seem to lag larger mainstream industries and concepts like CRM are only now
getting some initial attention. While we’ve not yet conducted may formal surveys, many of our informal
interactions suggests a large gap in understanding around CRM as a business process. A surprisingly large amount
of food service professionals would struggle to articulate a reasonable definition of CRM.
Food Service is also a complex industry because the customers can be sub-divided in many smaller categories or
“Segments” based on the variables they consider when making purchasing decisions as well as even the types of
products they require for their operations.
In addition, the choice for most food manufacturers to “Outsource” their local market selling to the “brokers” (rep
groups) adds yet another complication to the selling process from a CRM perspective. The brokers prefer to
leverage their own internal business processes and technologies rather than leverage the systems and tools from
the manufacturers they represent.
The manufacturers want to control their own destiny and as they pursue CRM initiatives, they will require the
brokers to also help execute certain elements of the CRM process. The challenge is to facilitate the broker system
to talk to the manufacturer system so information can be shared with the least amount of duplicated efforts.
It is fair to say that Food Service CRM is in its early stage of adoption and understanding.
There seems to little doubt that the Food Service CRM opportunity is significant because of the current state of
the Food Service Industry. Real growth is limited and for companies to grow, they will have to protect the business
they have, sell more product to the customers they have, and steal new customers from their competitors.
The companies with the best strategy, process execution, and tools should win!
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