Final Report to the Value Chain Partnerships for a Sustainable Agriculture project (VCPSA) and the Regional Food Systems Working Group (RFSWG)

Transcription

1 Final Report to the Value Chain Partnerships for a Sustainable Agriculture project (VCPSA) and the Regional Food Systems Working Group (RFSWG) Proposal Title: Characterizing Optimal Business Conditions for Commerce Between Farmers and SYSCO - Phase Two Principal Investigator: Jim Ennis Cooperative Development Services 400 Selby Avenue, Suite Y Saint Paul, MN jim@foodalliance.org Duration: January 2005 July 2006

2 Table of Contents Introduction Page 3 Executive Summary Page 4 Introduction of the Page 6 Businesses Why is it Strategic for Iowabased Enterprises and SYSCO to Work Together? Page 8 What Does It Take to Work Together, Iowa-based Food Enterprises and SYSCO? Page 9 What are the Major Challenges of Working with Small-to-Midsize Food Page 15 Businesses and SYSCO? What are the Essential Page 17 Elements for Successful Partnerships? Page 2

3 I. Introduction As part of the Leopold Center s Value Chain Partnerships for a Sustainable Agriculture (VCPSA) program, Cooperative Development Services (CDS) collaborated with VCPSA and the Leopold Center s Regional Food Systems Working Group (RFSWG) to study business dynamics between SYSCO, a national distributor of products to the food service industry, and three Iowa-based, small-to-midsize food enterprises. Through a series of interviews, CDS collected and analyzed data in order to identify both the challenges and the essential elements for small-to-midsize food enterprises to successfully work with a large food service distributor. Due to the sensitive and proprietary nature of some of the information gathered in the interviews, the names of the Iowa-based food companies are not identified in this study, and in some cases responses are aggregated to respect the wishes of the respondents. Study Methodology This study represents the second phase of a two-part research project that began in January 2005 through the Leopold Center s Value Chain Partnership for Sustainable Agriculture. The first phase of this research project involved the following steps: 1) Developing interview questionnaires one for SYSCO Corporation executives and another for Iowa-based food business entrepreneurs, 2) Identifying Iowa-based food businesses to participate in the study, and 3) Creating the parameters of the research study with the SYSCO executives and the food enterprises. In the second phase of the research, The Leopold Center contracted with Cooperative Development Services to interview the seven representatives participating in the study two from Iowa-based food companies and five from SYSCO Corporation. All the interviews were conducted over the phone, or in person, over the course of ten months, August 2005 June This project was funded by the Regional Food Systems Working Group as part of the Value Chain Partnerships for Sustainable Agriculture (VCPSA) project at The Leopold Center for Sustainable Agriculture at Iowa State University, with additional support from the ALCES Foundation. Page 3

4 II. Executive Summary The interviews revealed several major challenges and essential elements for small-to-midsize food businesses to successfully work with large foodservice distributors such as SYSCO. Some of the major challenges from the perspective of the food businesses included: 1) How to get marketing associates attention and focus on new products? 2) How can food enterprises support marketing associates without dedicated sales force or strong food broker? 3) How to build sales volume momentum quickly utilizing pull-through strategies? 4) As a small food enterprise, how does the business afford to keep developing new products, new packaging, and other innovations? From the perspective of SYSCO Corporation, some of the challenges included: 1) Lack of understanding of customers needs on the part of small-to-midsize food businesses; 2) Difficulty in focusing SYSCO s resources on products representing relatively small volume/profit; 3) Educating SYSCO marketing associates and SYSCO customers about organic and sustainably-grown foods Essential elements for successful working relationships between food enterprises and SYSCO were identified by both the food enterprises and SYSCO. The food enterprises essential elements included: 1) Professional sales staff, or specialized sales broker, to work the trade and food shows, to reach customers, and provide support to the distributor s marketing associates; 2) Effective pull-through strategies that get the distributors attention; 3) Sales and educational materials for marketing associates; 4) Resources for product development and packaging modifications/innovations; 5) Development of cooperative marketing model to strengthen negotiating power; 6) SYSCO needs to develop additional financial incentives for marketing associates to focus time on new products areas that may be underdeveloped, but have significant volume and profit potential, and consistent pricing policies for its new products. SYSCO s essential elements included: 1) Food enterprises need to thoroughly understand its target customers needs (customers defined as restaurants, colleges, corporate accounts, and healthcare facilities); 2) Food enterprises need to understand the needs of the distributors (product and packaging requirements, sales education and training, sales presentations, sales materials, and hot prospect list); Page 4

5 3) Food enterprises need to develop a compelling food story that describes how the food is grown, with authenticity and romance, and also explains the unique features and benefits of the product (clearly differentiating it from its competitors); 4) Food enterprises need to develop trust in the business relationship between itself and SYSCO; and 5) Food enterprises need to develop a marketing strategy that includes the 4 P s: product, promotion, price and place-distribution/logistics. Of the three enterprises analyzed, two actually developed business relationships with SYSCO. This report explores the major challenges facing these enterprises and the lessons that can be drawn from these business relationships. Page 5

6 III. Introduction of the Businesses Iowa-based Food Enterprises Three Iowa-based businesses were selected by The Leopold Center based upon several criteria, including: Willingness of food business leaders to work with the Leopold Center s researchers; Small-to-mid-size Iowa businesses marketing foods raised locally and using sustainable methods; Food businesses interested in expanding into foodservice markets; Food businesses representing diverse product lines with potential opportunities for more growers to participate in the future (dairy products, meat, and greenhouse produce). Of the three businesses selected, two of the business representatives were willing to be interviewed for this report. These entrepreneurs were seeking to work with SYSCO to deliver products to restaurants, colleges, and corporate work sites. Those interviewed included: The president of a dairy processing company, and The president of meat marketing business representing a coalition of growers. The third entrepreneur, who grows greenhouse produce and participated in phase one of the study, did not return multiple requests to be interviewed for the second phase of the study. However, Cooperative Development Services did review information available from interactions between SYSCO and the small greenhouse business to glean important lessons that were incorporated into this study. Description of Business Prior to Working with SYSCO The three Iowa-based food enterprises represent very different product lines. One of the businesses is a meat marketing company, marketing poultry, beef, pork and other frozen meat products and representing approximately family farms. The second business is a dairy processing company that markets three lines of products: a) premium ice cream; b) a new line of organic ice cream; and c) a new line of organic milk. It also plans to introduce additional dairy-based products such as drinkable yogurt in the future. The dairy processing company sources its milk from three certified organic dairies. The third enterprise markets a wide array of fresh greenhouse produce, including several heirloom varieties. The meat marketing company contracts out all of its processing, warehousing and trucking, utilizing certified organic processors and handlers. The company freezes its meat products to manage inventory and extend the shelf life of its products. The dairy processing company, on the other hand, owns its processing facility and Page 6

7 contracts for transportation. The produce grower owns his own greenhouse facility and distributes products directly to customers. All three businesses report sales of less than $1,000,000 per year. These businesses currently market products to both retail grocery stores and to food service, primarily restaurants, working through distributors as well as delivering directly to customers. Prior to working with SYSCO, more than 80% of sales were in retail markets for all three businesses. Two of the three enterprises also sell some products directly to consumers using a variety of methods such as farmers markets and websites. The businesses all have relatively small marketing budgets and do very little advertising. The meat business attends several regional and national food shows to showcase its products in front of grocery and restaurant food buyers. They advertise in a few trade journals and created product sell-sheets to promote and describe its array of products to potential customers. The dairy business developed a few radio commercials to promote its products in a very targeted geographic region. They also developed product sell-sheets and direct mail postcards to promote their products. The greenhouse produce grower developed a brochure to hand out to customers. All three companies rely on word-of-mouth and customer referrals to grow their business. When looking for new business, two of the three companies also target grocery stores and food service institutions and restaurants that value organic and natural products. These companies also track their competitors to see which stores and food service venues are carrying their competitors products, and then approach those particular outlets. The meat business employs three marketing/sales representatives and contracts with a food broker to assist in selling its products. The dairy processor employs seven employees at its plant operation, and contracts with a food broker to help in sales. At the dairy processing company and the greenhouse produce company, the presidents also serve as the primary salespersons for their respective organizations. Each of the three businesses faces cyclical demands for its products. Both the meat marketing business and the dairy processor reported sales volumes changes due to cyclical demands. For example, the meat marketing company sells a large volume of turkeys and poultry during the holiday season (Thanksgiving and Christmas). The dairy processing company reports stronger demand for its ice cream during the spring and summer months, compared to the fall and winter months. SYSCO Corporation SYSCO Corporation is a $30.5 billion company, operating from 170 locations throughout the contiguous United States and portions of Hawaii, Alaska and Canada. As a broad-line distributor, SYSCO has supplied foods and other Page 7

8 foodservice products (napkins, detergent, flat ware, etc.) to the food service industry for over 36 years. SYSCO customers include restaurants, schools, healthcare facilities, colleges, and corporate worksites. Each SYSCO location is operated as an independent subsidiary, with purchasing decisions made primarily at the local level. In this study, we interviewed SYSCO executives who dealt first-hand with at least one of the three Iowa-based enterprises. SYSCO Iowa s territory includes all of Iowa, and eastern Nebraska. SYSCO Minnesota covers all of Minnesota and parts of western Wisconsin, North Dakota, and South Dakota. SYSCO Minnesota opened a warehouse in Fargo, North Dakota in 2005 to cover North Dakota and surrounding areas. SYSCO Chicago covers all of the Chicago metropolitan area. Of the five SYSCO representatives, four representatives work at SYSCO operating companies located in Iowa, Minnesota and Illinois; and one representative works at SYSCO s corporate headquarters in Houston, Texas. Those interviewed included: Steve Gress, CEO and President, SYSCO Iowa; Chuck Heitbrink, Vice President Business Development, SYSCO Iowa; Jeff Larson, Vice President, Marketing & Merchandising, SYSCO Minnesota Kevin Piscitello, Vice President, Marketing & Merchandising, SYSCO Chicago; Craig Watson, Vice President, Quality Assurance and Sustainable Agriculture, SYSCO Corporation, Houston, Texas. IV. Why is it Strategic for Iowa-based Enterprises and SYSCO to Work Together? All three Iowa-based companies wanted to increase their respective businesses, targeting foodservice restaurants, colleges, and corporate worksites to expand into new markets. One company leader reported they are trying to represent the farmers in the middle and hope to develop a model to sell larger quantities of products that bring in more revenues and access to more markets. SYSCO represents a partner to help them achieve that. Each food business thought SYSCO could deliver their products more efficiently. Said one entrepreneur, SYSCO is already going to many of the restaurants and colleges I am interested in selling to. Working with them (SYSCO) would save me a lot of time on the road, not to mention the transportation costs (fuel, wear and tear on trucks, etc.). Page 8

9 Consumers are eating outside of the home or taking prepared foods back to their homes nearly 50% of the time. 1 In food service, a $420 billion industry, sales for natural and organic foods are expected to reach $2.5 billion by 2007, with an annual growth rate of more than 45%. 2 This trend offers a significant growth opportunity for companies seeking to differentiate their products by offering organic or sustainable food choices. SYSCO, a leader in the foodservice industry, is constantly looking for value-added, highly differentiated products it can offer to its customers (restaurants, colleges/universities, corporate worksites, hospitals and other institutions) and distinguish SYSCO from other distributors. SYSCO also tracks food trends and is keenly aware of the growing interest among chefs, students, employees, and other consumers in knowing where their food comes from and how it is grown. As one SYSCO representative stated, Customers are looking for natural and organic products something different to put on their menus. V. What Does It Take to Work Together, Iowa-based Food Enterprises and SYSCO? Products The meat business sold frozen chicken, pork, and beef; a total of 12 products. All of the meat products are certified organic. The dairy business shipped organic ice cream in three-gallon containers, consisting of four flavors. The greenhouse produce grower did not successfully make a sale to SYSCO, and some of the reasons for the lack of sales are discussed in this report. There must be proven demand for a product in order for SYSCO to carry the product in its distribution warehouse. Customers must ask for the products. In the greenhouse produce grower s situation, SYSCO s customers were not asking for heirloom produce. Volume per week The meat company would not disclose specific volume numbers, but the company did report that its products were slotted in two of the three SYSCO operations: SYSCO Chicago and SYSCO Minnesota. The dairy company shipped only one order of ice cream products. There were no additional orders after the original shipment. The reasons for this poor performance are discussed in this report. SYSCO representatives reported that weekly sales volumes for the products were well below their normal minimum thresholds. Although a concern for the SYSCO representatives, they were willing to give the products a chance to succeed given 1 US Department of Agriculture, Economic Research Service, The US Food Marketing System, 2002, June Natural & Organic Foodservice Report, The Hale Group and SPINS. January 20, 2004 Press Release. The report examines the penetration of natural and organic foods into foodservice. Page 9

10 the unique features of the products. SYSCO, like other distributors, sets threshold targets for each product regarding the number of cases sold through the SYSCO warehouse on a weekly basis (warehouses have a limited amount of shelf space). If a product does not reach the minimum threshold, SYSCO will stop carrying the product. SYSCO gives each new product a specific window of opportunity to develop sales momentum or velocity in order to meet the minimum targets. For example, one of the SYSCO distribution centers introduces hundreds of products each year, with about a 6% success rate. The rest of the new products are discontinued. Product volume is critically important; the product has to move quickly to be successful. Special storage or handling One of the food businesses invested $1 million in its operations to develop the sophisticated tracking and inventory systems required to work with SYSCO. They raised funds from both the public sector (USDA) and private sector. This company s business plan rationalized the investment to support getting into the fast-growing foodservice market. A second business reported it did not require additional financial resources beyond what it budgeted for in its business plan to get its products into the local SYSCO warehouse. SYSCO handling and storage specifications are available to all its suppliers at SYSCO s web site. Quality assurance Two of the companies use federally inspected (USDA) processing facilities for meat and dairy, and both processors are organically certified. Restaurant chefs, on the other hand, raised a few concerns about portion sizes and packaging. The chefs wanted different sizes of product that required custom cutting. SYSCO also requested more consistent weights of the meat products. SYSCO representatives were satisfied with the level of quality of all the products the Iowa-based food businesses sold to SYSCO. In most cases, the product quality was excellent. SYSCO must be responsive to its customers requests; therefore, when chefs began requesting different sizes of products for the meat products, SYSCO notified the meat business. Changes within production system The major changes within the meat business included: 1. Changing portion sizes and packaging. Chefs wanted different sizes of product, requiring custom cutting. SYSCO also wanted consistent weights of products. 2. Developing the retail ground meat program (hot dogs, sausage, and hamburgers). Page 10

11 SYSCO also requested consistent weights for its internal inventory and financial systems. With the dairy business, SYSCO requested small size containers of ice cream for the grab-and-go market (colleges, corporate cafeterias, etc.), but the dairy company could not produce the size SYSCO needed. Extra time required One of the businesses cultivated relationships with SYSCO representatives over a two-year period. The company hired professional sales people to develop those relationships. The product development process also required approximately two years. As the president of the company said, We invested funds into sales samples, so people could taste our products. The second business worked at one of the SYSCO operating company s bi-annual food shows. SYSCO operating companies host these food shows at least twice a year to showcase to their foodservice customers all the food products available at SYSCO. Food companies must pay for booth space at these shows and be prepared to aggressively sell their products. Both businesses expressed concern about the unanticipated time required to educate and support SYSCO s marketing associates and participate in SYSCO s food-shows. The staff time required in preparing for the food show, to cover the two days of each food show, and to follow-up afterwards was much more than either of the companies planned on. All of the SYSCO representatives stated, one way or another, the need for the food businesses to educate SYSCO marketing associates and customer accounts about products. With over 8,000+ products at a SYSCO warehouse, the marketing associates have very little time to focus on any one particular brand or product. As one SYSCO representative stated, SYSCO marketing associates know what size and packaging the products come in, but the food business sales person is the one who really sells the products. Special delivery requirements One food company president stated, SYSCO wanted the products always available. In other words, the distributor wanted assurance the product would be available whenever they received orders from their food service customers. SYSCO needs to know when products will be available. There needs to be lots of communication between the farmer and the distributor. There also needs to be enough volume to meet the estimated demand for the product. The food products need to be available in sufficient volumes for SYSCO to put time into selling product. Timing is critical in the food business. Restaurants and institutions must serve their customers, so SYSCO must deliver products and meet their customers expectations. Page 11

12 Seasonality issues By using frozen products, the meat company had a plan to address any concerns about an adequate supply and managing seasonal demands. The dairy company on the other hand did not introduce its organic ice cream at the best time of the year. According to the dairy representative, September is not a good time to introduce ice cream March or April would have been a better time. Seasonality is an important issue for SYSCO. Each SYSCO distribution center must manage its inventory and suppliers to guarantee their customers the products they expect throughout the year. SYSCO representatives pointed to different reasons for the lack of movement of the ice cream products (see below). Unused product The meat company did not reveal the amount of product returned or unused. The company made one major change. It developed its retail ground meat program (hot dogs, sausage, hamburgers). The company sells most of its prime cuts to food service; therefore, it needed another market to sell the remainder of the meat. As stated above, if products do not sell, SYSCO will eventually stop carrying the products in its warehouse. SYSCO shares the risk and the costs of products with the suppliers for products that do not sell. Managing increased production risk The meat company determined to go with a line of frozen products to provide for anticipated demand throughout the year, while managing the risk of increased production. The company also pursued other food service and retail customers to diversify its business. Increased production did put pressure on the company to find markets for the other unwanted cuts of meat. SYSCO also manages its risks by requiring marketing funds from suppliers to support new product introductions. Determining prices The meat company and the dairy processor determine prices for their products in a very similar manner, using a two-step strategy. First, each company evaluates what the market can bear. This is accomplished by determining what competitors are charging in various stores and in food service venues, and then working backwards taking into account retailer s mark-up (35%-45%), distributor s mark-up (20%-30%) and any sales commissions (4%-7%). Second, each company determines their costs of production (fixed and variable costs) including labor, and sets a profit margin target. Third, each business determines its positioning strategy and defines how its products compare with the respective competition. The meat company has positioned its products as organic plus, promoting multiple product attributes that they believe are important to their target consumers. The dairy processing company positioned its organic milk and ice cream products as a good Page 12

13 value, pricing its products at a slightly lower price than other certified organic milk and ice cream companies. The food businesses were satisfied with prices they negotiated with SYSCO, but they questioned the prices SYSCO charged its customers. In some cases, the prices appeared to vary, not only between regions but also between marketing associates territories within the same region. All distributors add a mark-up to cover costs for transportation, inventory management, and marketing. The mark-ups vary depending upon the promotional dollars and marketing allowances the food businesses provide the distributor. Therefore prices for the same product may vary considerably from one region to another, or even within the same region, depending upon the policies of the distributor. According to the SYSCO representatives, the food businesses need to understand the importance of a pricing strategy within an overall marketing plan, and of adequately funding a new product introduction. Small businesses need to know their pricing strategy, including funds for marketing and promotion. Marketing includes professional quality brochures describing his products, the features and benefits, explaining the farm and food story, and the value of his products. Promotion includes direct mailings to key target customers (restaurants and institutions), sales presentations to customers, driving along with marketing associates, education materials, free food samples, etc. Several SYSCO representatives thought the prices for the meat products and ice cream products were very high, and that these prices affected initial sales. Without adequate marketing and promotion support, the SYSCO marketing associates did not focus on the high-priced products. Without support from marketing associates, the products do not move unless a customer orders and requests the products. Contract alternatives Neither the meat company nor the dairy company had a contract with SYSCO. Both companies worked out basic purchase order arrangements. A contract for a specified amount of volume would be a great help for the meat company and allow it to develop a fresh meat program. Additional marketing fund requirements SYSCO did not require any additional marketing funds (an exception to the rule), but each food business was expected to participate in the semi-annual food shows and pay for booth space on the show floor. Both food companies talked about the hidden costs of the food shows and the importance of budgeting for these events. Page 13

14 SYSCO expects food enterprises to support their brands and new products with an array of marketing support. As one SYSCO executive said: Small businesses need to know what is required to kick-off a new product: Product training for SYSCO marketing associates; Availability to support marketing associates on sales calls; A list of customers interested in the new products; ideally having a sense of potential volume, quantity, etc.; Availability to attend food shows, to support a booth and present product line very well (enthusiastically, creatively, informatively, and appealingly); Provide sales samples of products for potential customers to taste; Funds for promotion program; A specialized broker to help sell your products (broker works with both the distributor and the end-users internal and external to help push and pull the products through the system); and A great story about the farm/operation. Insurance (including liability) SYSCO did require each company to carry product liability insurance (approximately a $5 million policy). Both companies viewed the insurance as a cost of doing business in food service. Many of SYSCO s customers colleges, institutions, and foodservice management companies require SYSCO to carry product liability insurance coverage. Therefore, SYSCO requires its suppliers to carry product liability insurance. Impact on profitability and volume The meat business profitability remained the same after developing a business relationship with SYSCO. Volume did increase, although not as quickly as originally planned. The president of the meat company remarked, Growers must guard their margins. At the time of the survey, the meat company had been selling to SYSCO for approximately three months. The dairy company did not sell enough products to SYSCO to make it profitable. The SYSCO representatives reported no incremental profit as a result of these businesses at the time of the survey. It s too early to tell. The products have only been in our warehouse only a few months, reported on SYSCO representative. The (sales) volume definitely needs to increase. Page 14

15 VI. What are the Major Challenges of Working with Small-to-Midsize Food Businesses and SYSCO? Iowa-based Food Business Perspective How to get marketing associates attention and focus on new products? SYSCO s marketing associates are focused on large volume, high profit items. The marketing associates compensation and commissions are based on volume and profit. With thousands of products to sell to chefs and foodservice directors, there is very little time or financial incentive for marketing associates to focus on very small volume items. It is difficult to get the attention of SYSCO s marketing associates. SYSCO needs to develop additional financial incentives for marketing associates to focus time on new products areas that may be underdeveloped, but have significant volume and profit potential. Challenging to support marketing associates without dedicated sales force or strong food broker Both businesses identified inadequate sales support as a significant challenge for their respective businesses success in foodservice. SYSCO expects its suppliers to staff the bi-annual food shows, educate and support the marketing associates, and generate customer leads. Products with a complex story (what is organic, why is it important, etc.?) need specialized food salespersons to educate the marketing associates, tell the brand story, and sell the products. Need to build momentum quickly with strong pull-through strategies Both food businesses recognized their very inadequate amount of marketing dollars to promote their brands and raise awareness of their products at the enduser level (college students, employees at work sites, consumers in restaurants), at the customer level (college/university institutions, corporate worksites, restaurants), and at the distributor level (marketing materials and sales incentives for marketing associates). Food businesses need to develop pull-through strategies that develop demand for the products at the customer level, so that SYSCO s customers begin asking for the products. SYSCO will respond to its customers demands. Need to keep innovating products SYSCO requested certain packaging that the meat business could not afford, and expected the meat company to provide the product at the same price. The meat business had to figure how to supply the custom cuts and still remain profitable. With the dairy business, SYSCO requested small size containers of ice cream for the grab-and-go market (colleges, corporate cafeterias, etc.), but the dairy company could not produce the size SYSCO needed. Page 15

16 VI. What are the Major Challenges of Working with Small-to-Midsize Food Businesses and SYSCO? (Continued) SYSCO s Perspective Lack of understanding of customers needs SYSCO representatives thought the three businesses did not fully understand the needs of the food service customers (colleges, universities, corporate cafeterias, institutions, etc.) and the needs of SYSCO as a customer. Several SYSCO representatives thought the businesses were attempting to sell products the customers were not asking for at the time. The foodservice customers are very price sensitive and the pricing of both businesses products appeared to be out of line with SYSCO s customers expectations. SYSCO representatives also thought the businesses did not understand SYSCO s relationship with its customers. SYSCO seeks to meet its customers expectations of dependable, high quality food at competitive prices. For example, the dairy business tried to promote its low-fat organic ice cream as a premium ice cream. In the foodservice world, premium ice creams usually have 14-16% butterfat. The low amount of butterfat and the relatively high price for the ice cream, along with the lack of marketing support, were the main reasons why the ice cream products did not succeed in SYSCO. Difficult to focus SYSCO s resources on products representing relatively small volume/profit SYSCO representatives also identified the lack of marketing associates time on these new products as a major challenge. Given the incentive system within SYSCO and the very small volume and profit represented by these three businesses, it is very challenging to expect marketing associates to spend much time on these food products. SYSCO had already spent significant time and resources on these businesses, giving each business valuable exposure at business meetings, marketing associate meetings and food shows. The free exposure was equivalent to thousands of dollars in marketing funds. In the case of Organic or Sustainable foods, additional challenge of educating SYSCO marketing associates and SYSCO customers In addition to the challenge of marketing associates time, the complexity of the organic or sustainable story is also a challenge. With very little time to tell the story, the marketing associate will rely on the food businesses for support. Marketing and selling the organic and sustainable food story requires some expert knowledge that is not easily assimilated. Local is an easy concept to grasp and tell a story, but organic and sustainable are more complex concepts requiring more information. Brochures that briefly and simply explain these concepts would be extremely helpful to the marketing associates and the food service customers. Page 16

17 VII. What are the Essential Elements for Successful Partnerships? Food Enterprises Perspectives Professional sales staff to work the trade and food shows, to reach customers, and provide support to the distributor s marketing associates All the food businesses recognize the need for dedicated, professional, and knowledgeable sales staffs to support the marketing effort, educating customers and distributors, and traveling to food and trade shows. At the least, the businesses need to identify a specialized sales broker who is small enough to focus time on supporting the products. Effective pull-through strategies that get the distributors attention The food businesses need to develop strategies for pulling products through distribution. Several SYSCO representatives commended the efforts of the meat business and how the sales staff collected a long list of prospective customers interested in their organic meats. SYSCO representatives were very intrigued by the list of prospective customers, several of whom SYSCO was not delivering to at the time. Strategies vary from direct mail promotional campaigns to developing relationships with significant customers who are influential with the distributors. Sales and educational materials for marketing associates Developing product sales materials to educate the marketing associates about the features and benefits of the food products are essential. Simple fact sheets about the organic and sustainable foods are also important. Finally, the ability to develop authentic and interesting stories about the brand and the farm families behind the brand. Resources for product development and packaging modifications/innovations Small-to-midsize food enterprises often do not have the funds to continue to invest in ongoing product development. Partnering with Iowa State University and its researchers is one way some of these companies can pursue product research and development. Other sources of funding need to be found to help these companies to innovate and succeed. A cooperative marketing model to strengthen negotiating power As small-to-midsize food businesses, it is challenging to negotiate prices and terms with a large distributor that is mutually beneficial. These small food businesses need to figure out how to cooperate with other food businesses, and develop a marketing model that will represent a critical mass of volume and sales to enable more bargaining power. SYSCO needs to be consistent in the pricing of its new products SYSCO needs to provide more consistent pricing for the same products across a region for specific periods of time. The meat company had difficultly explaining to a few customers located in the same region why there were variances in the prices at the local SYSCO warehouse for the meat company s products. Page 17

18 VII. What are the Essential Elements for Successful Partnerships? (Continued) SYSCO s Perspective Thorough understanding of target customer s needs The food businesses need to understand the needs of the food service customers (colleges, universities, corporate cafeterias, institutions, etc.) and the food products they are interested in purchasing. The food products features and benefits, pricing and packaging all need to align with the customers expectations. Understanding of the needs of the distributor The food businesses need to understand SYSCO s relationship with its customers. SYSCO seeks to meet its customers expectations for dependable, high quality food at competitive prices. As one SYSCO representative said, SYSCO does not have time to pioneer a product line that is such a niche product in a niche category. The food business will have to do that legwork, and get involved in helping the distributor. The product also has to have a significant appeal. There is a lot of education, knowledge and support that the food businesses need to provide SYSCO in order for marketing associates to feel comfortable introducing new products to customers. A well developed food story, able to tell the story with romance and authenticity The food businesses need to tell authentic and interesting food stories that differentiate their products and appeal to the customers. As another SYSCO representative put it: The food businesses need to sell the sizzle, to communicate the features and benefits to restaurants and institution. They have to be able to tell their story, and sell the romance and story of their products. They ultimately have to stand out above their competitors. Trust in the business relationship between SYSCO and the food enterprise Successful business relationships are built on trust and reliability. As a SYSCO representative stated: In the food business, successful sales boils down to good relationships. You must build credibility and trust. SYSCO will not work with food businesses that appear to deceive or provide misleading information. In the case of the one enterprise, SYSCO was led to believe it would have an exclusive relationship to distribute particular products. Page 18

19 SYSCO representatives later learned from other sources that the enterprise was selling the agreed upon products directly to some of SYSCO s customers. SYSCO immediately stopped pursuing the business relationship. From SYSCO s perspective, the enterprise undermined the trust and relationship that had been developed between SYSCO and the food enterprise. A marketing strategy that includes the 4 P s of marketing: product, promotion, price and place-distribution/logistics Small companies can do well with SYSCO. They need to understand basic marketing and know what it takes to promote their products, educate the marketing associates, communicate to customers, and raise awareness about the food products. The more promotional tools in the marketing associate s tool bag, the better. Marketing associates need information. One SYSCO representative summed it up well saying: The food enterprises need to understand that getting the product placed at SYSCO does not end the sale, it is just the beginning. The product must be sold to the customer. That s a win, when those sales are made. Page 19