By Tim O’Connor
Communications Manager
The last few years have seen a historically strong period for the distribution industry. Profitability levels among distributors are at an all-time peak, with profit before taxes soaring as high as 7 percent compared to the normalized level of about 3 percent, according to Al Bates, principal of the Distribution Performance Project, a research group devoted to distribution issues.
While part of that success is due to pent-up demand coming out of the COVID-19 pandemic, Bates attributes a significant portion of the uptick in profitability to an often-maligned economic factor: inflation. Most distributors saw their expenses rise by about 3 percent due to inflation, Bates notes, while they realized a sudden 10 percent increase in sales largely because of rising product prices. This difference led to significant profitability windfall at many distributors. “The economy is strong at the distributor level,” Bates explains. “Demand is steady and inflation, while still high, is kind of under control. The key is that product inflation has outstripped employee wage increases (in the short run), which has driven profit up.”
But, like all good things, Bates says this unusual imbalance between pricing and expenses is unlikely to last. “The large fly in the ointment is that there are early hints of deflation. That will have a serious negative impact on profit if true deflation results.”
So how can dealers prepare for these kinds of economic and market shifts? One important tool is benchmarking. Comparing an individual organization’s business performance to others in the industry is essential to understanding best practices and how they match up to competitors. “Benchmarking can help with regard to reviewing sales and gross margin per employee,” says Bates, who serves as a strategic adviser to Benchmarking Analytics, the firm that conducts FEDA’s annual benchmarking survey. “It is also extremely important to look at the invoice numbers, number of lines per invoice and average line extension.”
A Roadmap for Action
Benchmarking surveys are one of the few ways dealers can get real, quantifiable data about their position within their market, says Ryan McPhail, president and CEO of Curtis Restaurant Equipment and co-chair of the FEDA Small Dealers Council. “This comparative analysis empowers us to make informed strategic decisions, ensuring we allocate resources efficiently and align our business objectives with market demands,” he adds. “Essentially, these surveys provide a roadmap for navigating competitive landscapes, fostering innovation and driving sustainable growth.”
The FEDA benchmarking survey is the only one solely aimed at dealers in the foodservice equipment and supplies industry. The survey, which will launch April 1, provides a complete analysis of FEDA dealers’ financial results and covers aspects such as gross margin, operating expenses, payroll expenses, liquidity ratios, employee productivity, and financial trends. Using 2023 financial figures, the survey will break results down by region and according to sales level, from under $15 million to more than $100 million. As the nature of financial data is sensitive, Benchmarking Analytics ensures the complete confidentiality of all data shared during the survey. Dealers are asked to send their information directly to Benchmarking Analytics, guaranteeing that submissions remain private and secure, even from FEDA.
Participating dealers will receive that information in the form of an Excel dashboard, which is designed to allow users to easily create customizable reports derived from the data. An included “What-If-Toolkit” further enables companies to test different strategies for improving profitability, making it a solid foundation for planning and budgeting.
At Curtis Restaurant Equipment, McPhail says information from past FEDA benchmarking surveys highlighted that the company’s turnover rate was lower than the industry average, signaling a need for enhanced inventory management practices. “In response, we have begun diving deeper into our inventory, how we control the inventory, and the processes we use to make sure we are turning the inventory we have in stock prior to bringing in new inventory,” McPhail says. “The implementation of a WMS (warehouse management system) has allowed us to dial these metrics into tighter tolerances.”
Similarly, Gary Thiakos president of Zepole Restaurant Supply and the other co-chair on the FEDA Small Dealers Council, says the annual report gives dealers a better understanding of their strengths and weaknesses from a pure numbers standpoint, which leads to more informed decision making. “Generally speaking, this benchmarking survey has helped us understand what areas we do well in and what areas need improvement, and some data points may be surprising,” he explains. “Again, this data pushes you to work to make the necessary adaptations to improve your business’s health.”
At Zepole, Thiakos and his team used the survey to identify where it needed to shed some of its business to improve its overall financial stability and hit objectives for accounts receivable. “Believe it or not, we hardly lost any business over time,” he says. “It came down to us allowing certain behavior and patterns, and customers only following what we set for them. Once we started to see these objectives through, most customers understood our position and continued to follow the new path we set. In a relatively short-term period of years, we really moved the needle in a good direction.”
Key Metrics
Because the data in the benchmarking survey is so comprehensive, it can be a bit overwhelming to know what to look for. Fortunately, McPhail and Thiakos have some advice for dealers who are less experienced with benchmarking surveys. Both pointed to performance metrics such as gross margin percentages, cost of goods sold, employee productivity ratios, average pay days for accounts receivable, and net profit as key numbers in the report. “These data points are crucial as they directly impact our bottom line and reflect the effectiveness of our operational strategies,” McPhail says.
Both also noted the importance of reviewing the sales per employee results because it can lend vital insight into whether their organization is at the right staffing level compared to their competitors. “It is difficult to measure a role’s capacity and even more so how that is being fulfilled,” Thiakos says. “This data is very helpful in starting to understand those things.”
Illuminating Paths to Improvement
Each year, FEDA’s aim with the benchmarking survey is to maximize the number of dealers involved — with a significant representation from high, mid and small volume companies — because more data, and a wider range of data, means a more complete picture of the industry and better comparisons for each individual company. To that end, McPhail and Thiakos are encouraging their fellow company leaders to participate.
“To other dealers contemplating participation in the benchmarking survey, I would emphasize the invaluable insights and competitive intelligence it provides. Participating in the survey not only benefits your organization by illuminating paths to improvement and growth but also contributes to the industry’s overall health by sharing best practices and benchmarks. The collective data helps elevate industry standards, fostering a more dynamic, innovative and competitive marketplace.”
Thiakos credits the survey with helping Zepole better educate staff on how various data points affect the entire business, and how they can become part of the solutions that drive improvement and progress. Because of this, Zepole has been able to better align its team members toward shared objectives, and Thiakos says other dealers can similarly benefit. “Before Zepole had been a FEDA member, I had been told by a dear friend that even if for just the benchmark survey alone, it was worth joining FEDA,” he says. “That is how much value this survey can provide for our businesses.”