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Grocery aisles

Wholesaling

Food wholesaling is a component of food marketing in which goods are assembled, stored, and transported to customers, including retailers, foodservice operators, other wholesalers, government, and other types of businesses.

There are three basic types of wholesalers, as classified by the Census Bureau's 2007 Economic Census:

  • Merchant wholesalers, excluding MSBO (manufacturing sales branches and offices)—also referred to as third-party wholesalers—are primarily engaged in buying groceries and related products from manufacturers or processors, and reselling these products to retailers, institutions, and other businesses. Sales by merchant wholesalers accounted for 57 percent of grocery wholesale sales in 2007, down from 61 percent in 2002.
  • Manufacturers' sales branches and offices (MSBO) are merchant wholesale operations maintained by grocery manufacturers to market their own products. The share of grocery wholesale sales accounted for by these establishments increased from 20 percent in 2002 to 23 percent in 2007.
  • Brokers and agents are wholesale operators who buy or sell for a commission as representatives of others and typically do not own or physically handle the products.
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Merchant grocery wholesalers are classified by the Census of Wholesale Trade by the types of products distributed:

  • Broadline distributors—also referred to as general-line or full-line distributors—are companies that handle a broad line of food products (for example, C&S Wholesale Grocers, Supervalu, Nash Finch, and Sysco).
  • Specialty distributors—operations primarily engaged in the wholesale distribution of items such as frozen foods, dairy products, meat and meat products, or fresh fruits and vegetables. They operate in niche markets where it is necessary to have specialized knowledge about the type of product being handled or type of operator being served. Specialty wholesalers serve a wide range of niche operators, such as airlines, convenience stores, hotels/motels, and club warehouses. They account for nearly half of grocery wholesale sales.
  • Miscellaneous distributors—companies primarily engaged in the wholesale distribution of a narrow range of dry groceries such as canned foods, coffee, bread, or soft drinks.
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Food wholesaling consists of both retail and foodservice sales. Some key findings on sales are highlighted below:

  • Sales to the food-at-home sector (retailers) were $351 billion in 2007, the most recent year of data.
  • Sales to the food-away-from-home sector (foodservice) were $190 billion in 2007.
  • Additionally, sales to other wholesalers—small specialty wholesalers who purchase goods from larger wholesalers—were a significant share (26 percent) of total sales.

Retail Foodstore Wholesalers

Grocery wholesale sales to retail food operations, such as supermarkets and convenience stores, totaled $351 billion in 2007, the most recent year of data, or 42 percent of grocery wholesale sales volume. This is down from 45 percent in 2002.

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The retail foodstore wholesaling sector continues to undergo important structural changes. In 2003, the Nation's largest grocery wholesaler, Fleming, divested the bulk of its operations shortly after its largest customer, Kmart, filed for bankruptcy protection and ended its supply contract with Fleming.

As consolidation in food retailing increases, manufacturers and large retailers offering a broad assortment of items have found it advantageous to negotiate directly with each other, reducing the power and influence of traditional wholesalers. Self-distribution is the preferred method of vertical coordination for large grocery chain stores (those with 11 or more stores).

Given uncertainty about the ability of independent retailers to compete with larger chains, some of the largest grocery wholesalers are placing greater emphasis on owning retail operations.   

Roundy's, formerly the eighth-ranked grocery wholesaler, added "Supermarkets" to its name in 2005 to better reflect the company's retail focus. The company also sold a portion of its distribution business to Nash Finch—the fifth largest grocery wholesaler—and Supervalu—the second largest grocery wholesaler. In 2005, 90 percent of sales by Roundy's Supermarkets were accounted for by its corporate stores, up from less than 50 percent in 2002. The company has since completed its exit from third-party wholesale distribution.

Foodservice Wholesalers

Restaurants and other foodservice companies are also major customers of wholesalers. Sales to these firms accounted for $190 billion in 2007, or 23 percent of all sales of groceries and related products by all food wholesalers, up from 19 percent in 2002. While retail grocery outlets and foodservice companies compete for the consumers' food dollars, wholesalers that distribute to the foodservice industry and to food retail outlets do not compete directly with each other for customers.

Industry analysts define three types of foodservice distributors:

  • Broadline foodservice distributors—companies that have traditionally purchased a wide range of food products from manufacturers and stocked these goods in one of their distribution centers. Most broadline foodservice distributors offer value-added services designed to meet the needs of single-store restaurants and small chains (for example, Sysco and U.S. Foodservice).
  • Specialty foodservice distributors—companies that do not stock a wide range of products; instead, they operate in niche markets where it is often necessary to have specialized knowledge about product sourcing, handling, or service. Market specialists serve a wide range of niche operators, such convenience stores, hotels/motels, and club warehouses.
  • System foodservice distributors—companies that serve a customer base that consists mostly of chain restaurants with centralized purchasing and menu development. Individual operators within chains may not require the value-added services provided by a broadline or specialty distributor, such as obtaining information about new products or assistance in developing and preparing new menu items.

Last updated: Wednesday, February 20, 2013

For more information contact: Stephen Martinez

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