image of person placing an online order

Last September, we completed a second report for foodservice executives on Exploring Opportunities in Foodservice E-Commerce. Unlike in 2017, however, in 2020, Covid-19 had accelerated usage while the likes of GFS and Sysco were struggling to keep warehouses stocked. 


We recently (in February) reached back out to a few e-commerce firms to see what has changed and how manufacturers can educate themselves on e-commerce prior to making any serious investments in the initiative. With vaccines on the way and cases of Covid-19 dropping, we wanted to learn what manufacturers need to know as e-commerce becomes more of the norm in the industry moving forward.


In these interviews, performed by senior FSIP analysts, you will learn that e-commerce firms believe manufacturers must first get their understanding in check before even thinking about pursuing an in-house or third-party strategy.



FSIP: What are the differences among open-to-operator platforms, closed-end systems (Sysco) and closed-end online ordering apps? What should manufacturers be wary of when making these kinds of strategic decisions? 



One, there are online FS e-commerce platforms like us: We are open to the public and anybody can place an order. No membership or min order requirement.


Two, there are closed-ended online ordering platforms from distributors: Sysco, GFS ordering platforms etc. So the operator puts the order in these vs calling the sales reps. The platform is only accessible if you are a customer of that distributor. Reps also use these portals when they are taking orders on the spot. So it’s more like a portal instead of e-commerce.


Three, there are closed-end online ordering platforms/apps  (i.e. FoodBAM and a bunch of other ones):  They have operator members and the app consolidates the product offering from various distributors and compares the prices. The operator doesn’t pay anything to become a member. Instead they order through this platform and the platform distributes the orders to the distributors for delivery. But the operator needs to have an account with each distributor. Invoicing still happens from the distributor. The distributor pays a commission to the platform.



FSIP: Is there a level of trade spending with e-commerce firms? Similar to what broadliners like Sysco and USF charge? What percentage is taken? Is it 3-5%? Higher? 


It really depends on the e-commerce pure player company. But below is the overall structure. I know it from my previous roles in the manufacturer side as well because I used to deal with different e-commerce companies with a manufacturer hat.


Our “partnering manufacturers” give us anywhere between 5% to 35% trade rate. It depends on their A) Margin B) How sophisticated their e-commerce team is C) Senior management goals to grow the foodservice e-commerce business.


The majority of partnering manufacturers are in the 12% to 18% range though. And this is 100% variable trade.


In our case, we pass the majority of this trade funding (80%) to the end customers so that our partnering manufacturer products are more competitive vs other manufacturers. We also provide a number of free banners, free targeted email campaigns etc with the sign up.


FSIP: A manufacturer wondered if there was a “pay to play” expenditure for say, banner ads and other information that would put a supplier online in a better position. Is this usually a flat rate or is it negotiated?


FS e-commerce companies also offer one-off promos through banners and targeted email campaigns. There is usually a fixed $ cost for these and we quote it based on the offer in the banner or in the email. But ongoing variable trade funding is way more productive vs one-off campaigns.


FSIP: What would you say is a best-in-class manufacturer going solo? Or using an outside firm like Amazon, Foodservice Direct, etc?


There are manufacturers that usually don’t engage with us, even though we sell their products already through say, DOT. I think certain manufacturers are missing a lot – they are super active in social media ads and when you click on the ad, the link goes to their website and specific product page (which is great) but they don’t have a “Buy It Now” button there to close the sale immediately online through partnering e-commerce sites.


Instead, they direct those people to distributor sales reps (which would be fine for some operators) but it wont work for many small operators (food trucks, small caterers, small restaurant / café, even bulk buying consumers). Many salespeople at manufacturers are not very educated about digital/e-commerce.

Tim Powell is a Managing Principal of Foodservice IP. Tim serves as a trusted foodservice adviser to management at several food companies.

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