Food Wholesaling Food Wholesaling

rfrDiFood Wholesaling Food Wholesaling oodwholesalers, along with manufac Fturers, retailers, and restaurateurs, ac counted for 9.8 percent of U.S. gross national product(GNP) in 1988. Of food system employees, 7 percent workedin wholesaling last year. There is considerable diversity within this less visible memberof the food marketing system. Wholesalers pur chase, assemble, transport,store, and dis tribute groceriesand groceryproducts. They serveretailers, institutions, busi nesses, industrial and commercial users, and as with wholesale clubs, they serve consumers. Merchants who buy and sell groceries directly account formost sales. However, sales branches of various grocery manufacturers,as well as agents and brokers who buy and sell fooditems 1 on commission, are also important mem Figure 1. Sales by Food Wholesalers Reached $417 Billion in 1988 bers of the industry. Billion dollars In 1988, overall growth in the 400 wholesalingsector slowed. Sales volume equaled $417 billion, less thana I-percentincrease from 1987, the small est rise during 1982-88 (figure1 ). This small increase primarily reflectsslower 300 growth in the numberof independent su Manufacturers' sales branches permarkets, the primarycustomers of wholesalers. The structureof foodwholesaling has 200 been affected by increased mergers and industry concentration. As the average grocery store has evolved, the industry Merchants has becomemore innovative and adapt able. Larger-than-average supermarkets 100 are becomingmore popular, and wholesale clubs-firms that sell groceries and nonfooditems directly to membercustomers at wholesale prices 0 .._____ ,.._ ____ ..__ ___ _....___ ____ .....__ ____ ...i..... _____, continue to grow. 1�2 M � M 'Includes nonfood sales. exports, and sales among these groups, such as brokers selling to merchants. Source: Food Marketing Review, 1988, ERS, USDA, in process. Contact Walter Epps (202) 786-1866. AuthorWalter Epps is an agriculturaleconomist with the Food Marketingand ConsumptionEconanics Branch, CommodityEconanics Division. Apr-June 1989 25 Food Wholesaling Aggregate Concentration and only 16 percenthad over $1 million 1981, the peakyear, while fewer than The wholesale foodindustry is highly (table 1 ). Corporations accounted for93 23,000 filedin 1982 (table 2). Smalldis concentrated. Large firmscontrol most percent of wholesale foodsales in 1982, tributors accounted formost of the assets. About 16 percent of the the most recent year forwhich data are volatility in numbers, reflectingwide industry's nearly 25,000corporate dis available. Individual proprietorships, swings in the entry and exit of small tributorsthat filedtax returns in 1986 partnerships, and cooperativesmade up firms. Between 1980 and 1986, the num owned 88 percent of the assets, a share the remainder. ber of firmswith assets worthless than that has beengradually increasing since The numberof corporations filingtax $100,000ranged from33 to 44 percent 1980. Of all these corporatefirms, 39 returnsfluctuated widely between 1980 of the industry's totalnumber of firms. percent had less than $100,000 in assets and 1986. Over 27,000 firms filedin Table 1. In 1986, Large Wholesale Food Firms Owned Most of the Assets Table 2. The Number of Small Wholesale Firms Has Changed Value of owned From Vear to Vear1 assets in Number Percent of Percent of Cumulative Cumulative thousands of firms all firms all assets percentage percentage Total Firms with less than of dollars1 of firms of assets number of $100,000 of assets Year wholesale Up to $100 9,606 38.5 0.1 38.5 0.1 food firms Number Percent $100 to $249 5,281 21.2 2.7 59.7 2.8 of total $250 to $499 3,647 14.6 4.0 74.3 6.8 $500 to $999 2,372 9.5 5.0 83.8 11.8 1980 24,299 9,146 37.6 $1,000 to $4,999 3,249 13.1 19.7 96.9 31.5 1981 27,149 11,774 43.3 $5,000 to $9,999 411 1.6 8.5 98.5 40.0 1982 22,698 7,486 32.9 $10,000 to $24,999 220 0.9 9.7 99.4 49.7 1983 24,066 8,890 36.9 $25,000 to $49,999 76 0.3 7.6 99.7 57.3 1984 23,089 8,271 35.8 $50,000 to $99,999 29 0.1 6.0 99.8 63.3 1985 24,808 10,901 43.9 $100,000 to $249,999 25 0.1 9.8 99.9 73.1 1986 24,933 9,606 38.5 $250,000 or more 17 0.1 26.9 100.0 100.0 1 Based on corporate tax returns for the year. Total 24,933 100.0 100.0 Source: Food Marketing Review, 1988. 1 Based on 1986 income tax returns. Contact: Walter Epps (202) 786-1866. Source: Food Marketing Review, 1988. Contact: Walter Epps (202) 786-1866. 26 National Food Review Food Wholesaling Industry Profits Although foodwholesaling remains Figure 2. During 1980-87, Small Wholesalers Reported Higher Profit Rates Than Their highly concentrated and large operations Large Counterparts control most of the industry's assets, Amount of owned assets Profit rate small firms seemto enjoy higher average Thousand dollars Percent of shareholder equity' profitsthan large firms (figure2). Be $100 to $249 2.7% tween1980 and 1987, profit rates (firms' It net income divided by shareholder equi $250 to $499 13.1% ty) of businesses with less than $1 mil I $500 to $999 lion worth of assets rarely fell below 111.1% those of larger firms. These differences persistedeven afterallowing forvaria $1,000 to $4,999 j 9.9% tions among firms in their financialstruc $5,000 to $9,999 18.9% ture and level of capitalization. The phenomenon also suggests that there $10,000 to $24,999 19.0% may befavorable growth possibilitiesfor small firms. $25,000 to $49,999 ] 7.8% But the higher rates often seen among $50,000 to $99,999 such firms may simply reflect the greater IB.4% risk involved in running a smaller com $100,000 to $249,999 16.7% pany. In fact,small businesses often have a higher incidence of losses as a $250,000 or more 17.5% group. For example, in 1986, the 11980-87 weighted average. wholesalingindustry saw 40 percent of Source: Food Marketing Review, 1988. its firms with less than $1 million in as Contact Walter Epps (202) 786-1866. sets reportlosses. The industry-wide average was 21 percent. According to ERS analyses, entry, exit, and failure rates also tend to be greateramong smaller firms than larger ones. Much of this may be due to the lower capitalization and limited re sources thatmany small firms must deal with. Apr-June 1989 27 Food Wholesaling Mergers Table 3. Mergers Have Increased in to its sales volume in 1988 by acquiring In 1988, mergersset new records for Recent Years CFS Continental, Inc., the third-ranked the value of assets acquiredand the size foodserviceoperator, locatedin Rolling of the firmsinvolved. The number of Acquisitions Meadows, Illinois. PhilipMorris Com mergers,however, fellby 16 from panies-the foodconglomerate head 1987's record high of 71 (table 3 ). Year By food By other quarteredin New YorkCity-bought Fleming Companies,Inc., of Ok wholesalers1 firms2 Total Kraft,Inc., along with its $2.8-billion lahoma City became the clearleader volume subsidiary, Kraft Foodservice. • Number among distributors to retailfoodstores The $5.3 billion combined sales of CFS with its purchaseof the $3-billion 1982 36 2 38 Continental and Kraft Foodservicemade volume Malone and Hyde, Inc. 1983 34 4 38 these acquisitions historichighs forf ood Fleming's acquisitionof the Memphis 1984 33 4 37 service distributionmergers. based wholesaler was the largest merger 1985 61 3 64 Wholesaleclubs also consolidated 1986 52 13 65 ever in the wholesale sector. Also in 1987 44 27 71 throughmergers and acquisitions in 1988, the Penn Traffic Company, a firm 19883 40 15 55 1988. Price Saver's Wholesale Club- involved in wholesale and retailfood, the Kroger Company's 16-unit wholesale bought P and C Food Markets,Inc., a 1Assets acquired by U.S. food wholesaling firms. club headquarteredin Cincinnati-was 2Food wholesaling assets acquired by nonfood $1-billion-volumewholesale and retail wholesalers and other firms. 3Preliminary. acquired by a management group. firm located inSyracuse, New York. Ex MakroSelf Service Wholesale merged Source: Food Marketing Review, 1988. ecutives of the Peter J. Schmitt Company Contact: Walter Epps (202) 786-1866. withK mart Corporationof Troy, bought the firm-headquarteredin West Michigan. The PriceCompany, located Seneca, New York-from its parent, in San Diego, bought AlfredM. Lewis, Loblaw Companies, Ltd., Toronto. Several transactionsinvolving slightly Inc., of Riverside, California. Lewis is a Super Rite Foodsof Harrisburg,Pennsyl smaller businesses, those with sales rang general-line, cash and carryfirm with vania, and B. Greenand Company of Bal ing from$ 100 million to $500million, sales of $337 million. Altogether, these timore, Maryland-both $600-million were also completed last year. For ex transactionsinvolved firmswith sales volume distributors-wereacquired by ample, Wetterau, Inc., of Hazelwood, totaling$1 billion. their respective managements and out Missouri, bought Roger Williams Foods, But mergers were not the only activity side investors. These fivetransactions in Inc., of Cumberland, Rhode Island, a shrinking the number of wholesale clubs. volved general-line wholesalers-firms firm with $425 million in sales. In mid-1988, the American Wholesale that handle a broad range of dry Already the top-rankedfoodservice Club of Richardson, Texas, sought groceries,health and beautyaids, and distributor,Sysco Corporation,head bankruptcyprotection, further lowering household products-with combined quartered in Houston, added$2.5 billion the number of such firms. sales of $6.3 billion. 28 National Food Review Food Wholesaling General-Line Wholesalers earlyin 1989. All are likelyto be served roomspace. They alsotend to restock Sales of the top 20 general-line by one or more of the largest wholesale more at night and on weekends.

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