Distribution of Food
DISTRIBUTION OF FOOD
DISTRIBUTION OF FOOD. The distribution of food in the United States can be as short as the distance from a farmer's or a consumer's garden to his or her kitchen table or as long as the journey from vineyards in South Africa to homes in South Dakota. Typically, the distribution of food moves along a complex supply chain that starts with chemical, seed, and feed companies in the agricultural input or agribusiness sector and ends on the consumer's plate at home or in a restaurant. This discussion, using corn as an example, follows food along a few relatively simple food distribution channels to reveal the many paths it takes as it travels from farm to fork.
Corn (maize) is one of the most widely produced grains in the world. In the United States, corn represents more than 40 percent of all grains produced. Four times more bushels of corn than bushels of wheat or soybeans were produced in the year 2000 (U.S. Department of Agriculture, 2001). For decades, university researchers and seed company scientists designed hybrid corn varieties that increase yields and improve quality. In tandem, chemists in public and private laboratories formulated fertilizers and pesticides to further enhance crop yields. In the late twentieth century, many seed and chemical companies merged and redefined themselves as life science companies to reflect advances in biotechnology. The application of genetic science to create new types of seed for corn, soybeans, and other crops touched off a controversy around the world about the safety and efficacy of the new seed supply and the food it produced. The link between the life science companies and consumers leapfrogged over the entire food distribution network as consumers protested this new and relatively untested technology that they perceived as a threat to their health and environment. While the controversy continued, food safety agencies in developed countries struggled with safety and labeling issues surrounding foods made from genetically modified ingredients. Life science companies and other agribusiness firms meanwhile continued to supply farmers with the seed, chemicals, and equipment needed to produce their chosen agricultural commodity, in this case, corn.
Once a farmer harvests the corn crop for the year, distribution of the raw commodity begins. At least two basic types of corn are produced, sweet corn for direct food consumption and field corn for food ingredients and animal feed. Each type has numerous varieties, brands, colors, and end uses. A small portion of fresh sweet corn might be sold at a roadside stand or in a farmers' market. In smaller communities, a farmer may deliver some sweet corn directly to a local grocery store or restaurant. Most of the new sweet corn crop is sold to commercial food processors, where it is canned or frozen.
Corn designed to be used as seed, animal feed, ingredients for food, or industrial products is sold to a local grain elevator. The choice for the farmer is to store the field corn on the farm and wait for the best market price over the course of the next year or to sell it to a grain elevator immediately. Some grain elevators are independent businesses, and some are owned by large food or feed companies that collect grain from across the land. At the elevator, corn is usually mixed and matched to achieve the quality demanded by the next buyer. Occasionally an elevator may handle only one type of corn grown by a few farmers who have contracted with a large food or feed company to supply a particular quality and quantity of grain. In this case, the identity of each type of corn is preserved. With bioengineered corn and other new varieties, the issue of identity preservation became a major issue. Traditional farming methods and grain elevator operations were incapable of keeping all varieties of corn separated and identified throughout the food distribution chain.
At the beginning of the twenty-first century, however, the development of technology and methods to preserve the identity and origins of all types of food was under great pressure to succeed quickly. Tagging and following foods from their origins to the point of retail sale was considered important for consumer choice and as a way for superior foods to capture higher market prices. It would also permit foods proven unsafe or undesirable to be traced back to their sources.
After leaving the grain elevator, about 20 percent of the corn was exported to a foreign country in 2000 (U.S. Department of Agriculture, 2001). The rest was sent to a feed mill or to a food processing or manufacturing plant. Some went to industrial plants that produce products like ethanol or plastics. At a feed mill, corn is further mixed with other grains and additives on its way to being fed to animals, such as hogs or chickens, many of which are later slaughtered for food. In fact, the bulk of the corn produced is used as animal feed. Corn used for human food usually goes directly to a food processing plant that specializes in producing basic ingredients, such as corn oil, starch, or flour. These ingredients are sold to food manufacturers, who use them in manufactured foods for consumers to eat. More complex food products, like taco shells, corn flakes, or corn bread, generally use ingredients purchased from food processors.
At the food manufacturer, major research and development departments create and test the safety and efficacy of food ingredients, flavors, and additives. They also experiment with new recipes, new packaging, and new ways to use corn in foods. Much attention is paid to the image of the food, its safety, its shelf life, its nutrition, and labeling. Several hundred new corn products are introduced to grocery shelves each year in an attempt to meet consumers' preferences and to capture part of their food dollars. This is also true for foods from other raw commodities, like rice, milk, eggs, and wheat. The average annual number of new food products introduced during the 1990s was 12,700, peaking in 1995 at 16,863 (Food Industry Institute, 1999; Food Industry Institute, 2000). Less than 5 percent of these new products were still on the grocery store shelves two years later.
Food products designed for the food service distribution channel also undergo extensive development and market research before going to market. These foods need less elaborate packaging and labeling and less advertising. They are designed to solve problems in a restaurant kitchen, problems of consistency and fail-safe cooking. Food service firms, such as quick service chains, purchase large and predictable quantities of food, often tailored to their specific needs. The distribution channel to food service firms was growing while the grocery channel was stable to declining at the end of the twentieth century. In any case, by the time the food product containing corn leaves the food manufacturer's warehouse, corn represents less than 20 percent of the value of the product. By the time a consumer purchases that product, corn represents less than 5 percent of the value (Elitzak, 2000).
The Grocery Channel
When a consumer food product leaves the manufacturer's plant for a grocery store, it has three channels through which it may travel. One is through a wholesaler's warehouse, where it is stored until a grocery store orders it. A traditional way of doing business is for the manufacturer to discount large quantities of freshly made food products to entice a wholesaler to "forward buy" the product. The wholesaler then stores it, marks it up, and sells it to a grocery store, making a profit on the difference in price. The costs of holding large inventories of food drove the industry to find more efficient ways to distribute food. With low inflation and fierce price competition at retail stores, wholesalers could not mark up their products enough to make reasonable profits. The quest to decrease distribution costs led to a consolidation of wholesale and retail firms and to the adoption of new information technologies.
Trade associations of retail food companies and manufacturers, such as the Food Marketing Institute (FMI) and Grocery Manufacturers of America (GMA), have long led the industry in adopting information technology. In the early 1970s, with the high cost of labor amplified by price inflation, the grocery store industry saw great potential in automating pricing activities. The Ad Hoc Committee on Universal Product Codes was established with representatives from major retailer and product manufacturing associations to develop a set of standards for identifying products that both the retailers and manufacturers could agree upon. Two years later the committee decided to adopt a ten-digit Universal Product Code (UPC) as its standard (Kinsey, 2000). The ubiquitous bar codes were born, and in 1974 a supermarket in Troy, Ohio, became the first to implement scanning. The first grocery store chain to implement scanning chainwide (Giant Foods) did not do so until 1980 (Walsh, 1993). By 2000 virtually every supermarket used scanners, though they were not widely adopted in convenience stores. At the time, scanners were still not widely used in the food service sector due in part to a lack of standardized products and packages for food service buyers.
Using the information in banks of scanner data can give retailers valuable information with which to forecast sales, design customer loyalty programs, and control inventory. When Wal-Mart appeared as a major competitor with the most sophisticated information and distribution system yet known to retailers, it became obvious that those in the retail food industry would have to learn how to do business in the same fashion. In 1992 an industrywide program called Efficient Consumer Response (ECR) was developed to solicit conversion to electronic technologies and sharing of retail data with suppliers. By 1999 this program was declared dead by industry leaders partly because it had outlived its usefulness, partly because only the largest chains were able to invest in the technology and talent that would make it work, and partly because many ECR activities had already been adopted under separate names, such as category management and activity-based costing. By the end of the twentieth century, however, developing systems that would allow business-to-business, electronic-commerce methods of sharing information about final sales at retail stores with wholesalers and manufacturers became an industry goal. With real time sales data, manufacturers could adjust production and shipment of new products to match the flow of sales and accomplish continuous replenishment and lower distribution costs.
Wholesalers were vulnerable in this new distribution system since retailers could bypass them by using their own distribution centers. To keep their retail customers, wholesalers developed new services, like helping stores with their billing, merchandising, inventory management, and a number of other tasks. Wholesalers make it possible for small stores to carry a large number of items even though they may sell only a few of some specialty items each year. Some wholesalers specialize in particular types of foods, such as organic food, imported food, or fresh produce. Those who handle the whole line of groceries are called broad line wholesalers. Shipping food from manufacturers to wholesalers and from wholesalers to retail stores involves a large number of trucks, many of which need to be refrigerated to keep cold and frozen foods at a consistent and safe temperature. One of the difficulties in transporting food is the attention that must be given to temperature and the time the product will last before its quality or safety deteriorates.
The third party, broad-line wholesaler channel declined in size with the rise of large grocery chains like Wal-Mart and Kroger. Large chains have their own distribution centers in which to aggregate, store, and ship foods to their own stores. In this case, manufacturers sell food products directly to supermarket chain's distribution centers. In 2000, forty-five of the largest fifty supermarket chains in the United States were self-distributing chains.
A third channel by which food reaches grocery stores is called "direct store delivery." In this case, manufacturers have their own delivery trucks and sales representatives who deliver products to individual stores, stock the shelves, remove out-of-date products, and promote their products in stores. Most beverages and salty snacks are delivered directly to stores by manufacturers' trucks and personnel. At the beginning of the twenty-first century, each of the three distribution channels carried roughly one-third of the volume of food to grocery stores.
In 1999 about 127,000 grocery stores operated in the United States, of which 25 percent were supermarkets and 45 percent were convenience stores. At that time a supermarket was defined as a retail store that carries a full line of groceries, meat, milk, and produce and has over $2 million in sales per year. Supermarkets captured 77 percent of all retail food sales, while convenience stores had only 6 percent. About 70 percent of the food eaten was purchased at some type of grocery store, where consumers spent about 53 percent of their food dollars in the late 1990s (Carlson et al., 1998).
With the advent of large and efficient supermarket chains, the propensity for grocery chains to build long-term relationships directly with manufacturers increased. The sharing of sales forecasts based on large volumes of computerized sales data facilitated these relationships. Knowledge about customers' preferences and shopping habits gained through analysis of sales data made it possible for large retail chains to negotiate for bargain prices as they placed orders that matched what they needed, when they needed it. In some cases this eliminated the need for "slotting fees," the price retailers charge manufacturers to place new products on their shelves. Computerized scanner data and Internet communications made it possible to integrate the supply chain between manufacturers and food retailers and to streamline the inventory in distribution centers. Sharing sales data and mutual tracking and analysis made it possible to substitute information for inventory, cutting costs in the distribution channel. It became possible to match deliveries more closely to the time of sales, converting the food distribution channels into a semblance of just-in-time delivery. The adoption of business-to-business e-commerce, a new way to do business for retail food stores and their suppliers, focused mostly on ways to save labor costs and to speed up ordering, delivery, and invoicing. The goal was to move products through the system as freshly and as quickly as possible.
Food Service Channel
The food that goes to food service establishments (restaurants, fast-food places, cafeterias) goes through a separate distribution channel. Here again are broad-line wholesalers, specialty wholesalers, and some distribution companies dedicated to a large retail chain like McDonald's or Burger King. This complex distribution channel links over 740,000 food service locations with more than 2,600 distributors. Consolidation among broad-line wholesalers was rapid around the beginning of the twenty-first century. They distributed about half of the food to various food service places (Friddle et al., 2001). Over 30 percent of the food eaten in the United States went through the food service channel. Consumers spent almost half of their food dollars in food service places.
Food service is divided into commercial and non-commercial enterprises. The noncommercial segment comprises about 10 percent of the food service sector and includes schools, hospitals, prisons, and the military. The commercial food service sector includes bars and restaurants, travel and leisure, vending machines, and take-out (ready-to-eat) food from grocery stores and various types of restaurants. Restaurants and bars comprise about 62 percent of all food service sales and are further defined by the type of service they provide. Quick service (fast food) restaurants captured thirty-three percent of consumer expenditures at food service places, while full-service restaurants captured 28 percent. Full-service restaurants are further classified by whether the average size of the check is over or under $10. The lower-priced full-service restaurants were growing in importance as a proportion of food service sales in the late 1990s. These restaurants also represented the largest consolidation of individual units into national and international chains.
Food is distributed from retailers to consumers primarily through grocery stores or take-out food places. For the most part, consumers shop and take home their own food. Home delivered food experienced a resurgence with the rise of Internet food companies in the 1990s and beyond. Online shopping and home delivery made up less than 1 percent of all food purchased for home consumption but was a persistent phenomenon in some neighborhoods. Food distributed through food service became ubiquitous by the end of the twentieth century. Food and beverages could be purchased from vending machines, street-side stands, drive-through eateries, office cafeterias, shopping mall food courts, and home delivery.
When consumers finally eat the food that has traveled all the way down a long supply chain, few think about the corn delivered to a grain elevator or the canning plant months earlier. Corn oil is in their salad dressing, their soft drink sweetener, and their taco shell, but it is largely taken for granted. It is assumed that it is fit to eat, nutritious, and safe. Few think about the hundreds of people involved in producing and transporting the final food product or the plethora of food regulatory agencies that license, monitor, and inspect the process. Food distribution is a long and complicated journey, but somehow an army of scientists, truck drivers, forklift operators, computer specialists, government scientists and inspectors, and many others make the system work.
See also Biotechnology; Consumption of Food; Food Supply and the Global Food Market; Green Revolution; Marketing of Food; Political Economy.
Elitzak, Howard. "Food Marketing Costs: A 1990's Retrospective." Food Review 23, no. 3 (September–December 2000): 27–30.
Food Industry Institute. Food Industry Review 2000. Elmwood Park, N.J.: Food Institute, 2000.
Friddle, Charlotte G., Sandeep Mangaraj, and Jean Kinsey. "The Food Service Industry: Trends and Changing Structure in the New Millennium." Working Paper 01-02. St. Paul: The Retail Food Industry Center, University of Minnesota, 2001.
U.S. Department of Agriculture, Economic Research Service. Agricultural Outlook. (October 2001), Table 17, p. 39.
Walsh, John P. Supermarkets Transformed: Understanding Organizational Technological Innovations. New Brunswick, N.J.: Rutgers University Press, 1993.
Jean D. Kinsey
Food Distribution Systems in Countries Other than United States
The food distribution system used in the United States is similar to that used in most of the westernized world (Europe, Australia, New Zealand, Japan). It requires good transportation and telecommunication systems and a modern food processing/manufacturing sector. In the United Kingdom there are few broad-line wholesalers, since the retail sector is more consolidated and handles its own distribution through tighter relationships with food manufacturers and producers. In other countries, large supermarket chains and chain restaurants receive food in much the same way as those in the United States, but there are a larger number of small retailers that procure their food directly from farmers or through third-party specialty wholesalers. In lower-income and emerging economies, the distribution of food is developing along the lines of the system used in the United States. Some level of household income and urbanization must emerge before supermarkets will become part of the retail food scene, and roads and communications need to be in place before a third-party distribution system can develop. For example, in China in 2002, Western-owned food manufacturers provided their own delivery to large supermarkets like Wal-Mart in the absence of a wholesale sector in the supply chain.
Globally, a few very large retailers are appearing around the world; their buying power tends to drive the delivery system and the types of food being purchased for retail sale. As these large retailers become more prevalent, the delivery system gets more consolidated, more responsive to consumers, and less open to small producers and farmers.
"Distribution of Food." Encyclopedia of Food and Culture. . Encyclopedia.com. (December 14, 2018). https://www.encyclopedia.com/food/encyclopedias-almanacs-transcripts-and-maps/distribution-food
"Distribution of Food." Encyclopedia of Food and Culture. . Retrieved December 14, 2018 from Encyclopedia.com: https://www.encyclopedia.com/food/encyclopedias-almanacs-transcripts-and-maps/distribution-food