Valuation of the food wholesalers industry
Due to the maturity of the Wholesale Food Distribution Industry, consolidation continues to serve as the primary growth vehicle. Its mature status has also made growth in this sector extremely difficult to come by. However, despite the intense competition, the companies should still be able to post higher sales and profits over the long haul and into the early years of the next century.
Acquiring other businesses is a prime method for growth in this mature and slow-growing industry segment. Fleming and SUPERVALU, the two largest food wholesalers, have risen to the top primarily because of their buyouts of smaller rivals. Catching up, however, are Nash Finch and Richford Holdings, highlighted by the former’s buyout of Super Food Service in 1996. Most recently, Rykoff Sexton has agreed to be acquired by JP Foodservice, creating an industry giant, second only to Sysco.
The consolidation trend does not look like it is going to end anytime soon. Size plays an incredibly important role in the Food Wholesalers Industry since the larger distributors can spread the costs of automating operations to increase efficiency over a large customer base. The bigger players also have the necessary buying clout that will get them the best deals and the ability to buy huge quantities when the price is right.
These advantages held by the larger companies make it much more difficult for the smaller ones to remain competitive. When this is the case, selling out to a larger competitor becomes very attractive.
Aside from acquisitions, growth in the Food Wholesalers Industry is very tough to come by. Since the industry is mature, the primary method of increasing sales is to take business away from competitors, at both the retail and the wholesale level. However, at the retail level, that is becoming quite difficult. Chain grocers are the traditional competitors of wholesaler’s corporate owned stores and of independent retailers . These chains are always working to become more efficient and to lower prices to win customers. Even worse, other businesses have started to increase the sales of their food items. Deep-discount drugstore chains and general merchandisers are carrying more food items, putting additional pressure on independent retail grocers.
The larger companies do have a valuable resource. Due to their size, their big customer base allows them to invest in modernizing their facilities to increase efficiency. As a result, they are able to serve their customers at the lowest cost possible. Fleming and SUPERVALU, have already begun to restructure the way they do business so that they can wring out all possible costs and pass manufacturer’s deals on to customers. Despite the increasing competition, this Industry is likely to prosper in the years ahead.