With Razor Thin Margins, Wholesalers Can Reduce Cost-to-Serve and Improve Performance

FMI's report, The Whole Picture, finds that grocery wholesalers operating on thin margins can reduce cost-to-serve and grow revenue by adopting five collaborative strategies with their manufacturer and retailer partners.

By: Mark Baum, Chief Collaboration Officer & Senior Vice President, Industry Relations, FMI

Grocery wholesalers operate on net income margins of around 0.6%. It is thinner than the lean margins most grocery retailers work with. It leaves almost no room for inefficiency, inaction or partnerships that are not working.

And yet, notwithstanding many individual company efforts, significant inefficiencies doggedly persist.

FMI, The Dialogic Group, Oliver Wyman and dunnhumby spent more than a year examining exactly why and what it will take to change. The Whole Picture, What’s Next for Wholesalers and Their Retailer and Manufacturer Partners report draws on nine months of interviews and surveys with more than 120 stakeholders across the wholesale value chain: wholesalers, CPG manufacturers, independent retailers, sales and marketing agencies, and technology providers.

The operating environment they described is under more pressure than it has been in decades. Eighty-one percent of wholesalers expect retail mergers and acquisitions to continue. Three in four expect operating costs to rise. More than half believe additional brick-and-mortar stores will close. Add shifting consumer behavior, trade uncertainty and the competitive pressure from self-distributing retailers and digital alternatives, and you get a business that cannot afford to stand still.

The pace of change has, in many respects, outrun the pace of innovation and adaptation.

"The emerging wholesale model of the future starts with the courage to say that the current model needs to change." — Retailer survey respondent

The quote above from a retailer in the research is not an indictment. It is an observation — and a call to action. The organizations positioned to lead this industry in five years are not waiting for conditions to stabilize. They are already moving on to build trust and transparency, more effective and efficient collaborative business planning, technology investments and innovation.

The research makes the potential clear. Organizations that act can reduce cost-to-serve by 1,200 basis points and achieve 2% to 3% revenue growth. Those projections are grounded in leading wholesale businesses in adjacent sectors — foodservice, pharmacy, ecommerce and others, where they are delivering superior results.

The Whole Picture, What’s Next for Wholesalers and Their Retailer and Manufacturer Partners lays out the full landscape: structural improvements for the current business model, insights from the more than 120 industry participants and roadmaps (without being prescriptive) for future success.

Download The Whole Picture