Imagine the following scenario:

$20.00  Case price you would sell to a local distributor for a truckload order

$15.00  Bid price you are offering that same distributor for a piece of local operator business

$ 5.00   Case rate you expect to pay that distributor for each case they sell that operator

$18.00  Case price to an authorized redistributor for a truckload order [net of a $2.00 redi allowance passed through off invoice]

$24.00  Price that same redistributor charges the local distributor who is servicing the bid

$ 9.00   Case rate that distributor deducts for each case sold to that bid account   

The incremental $4.00 has no revenue offset, it is sourced purely from your operating income.  This is a simple scenario that is playing out across the foodservice industry with increasing frequency as the need for supply chain efficiency and order optimization drives the popularity of redistribution.  The magic question in this scenario is how to best control the variance.  If your organization is struggling to process deviated price deductions against redi volume, the following are some pragmatic suggestions for defining and controlling the financial exposure to your business. 

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No less than 10 years ago, what many of us in foodservice now refer to as “the good old days,” the majority of operator discounts and allowances were rebates – this much per case or that much per pound.  For special situations where the volume was large and the operator actually committed to buying your product, you would reluctantly offer a deviated price.  Those prices were well-controlled and were only offered after a thorough analysis and justification process.  The reasons most folks were reluctant to “open the flood gates” back then still hold true today –

• Deviated prices carry higher administrative costs than rebates due to the ambiguity of the effective claim rate.
   
• Uncertainty around how much of the discounted price would ever reach the operator.
   
• Risk that distributors would “go up and down the street” with the hot price, upsetting balance in the market and costing you money for volume that did not require the discount in the first place [the elusive “full list price street business”]. 

Flashing forward to 2010, the new reality is that Chet’s Chevron in Small Fry, Mississippi, now receives multiple deviated pricing offers on just about every category.  The flood gates aren’t open … they have been removed from their hinges and thrown away.  It’s at this point in the conversation that I often hear “that’s just the cost of doing business in foodservice.”  Before we jump to that conclusion, consider the following statistics from a recent survey of the industry:

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