GLOBAL CORPORATE REAL ESTATE ADVISORS
Unique Approach. Unparalleled Results. SEPTEMBER 2016 INDUSTRY NEWSLETTER FOOD WHOLESALERS
IN THIS ISSUE: • Overview • Updates • Trends • Challenges • Opportunities
OVERVIEW Companies in this industry distribute food and related California and other key agricultural regions are pushing products on a wholesale basis. Major companies include vegetable prices up by double-digit percentages. C&S Wholesale Grocers, McLane Company, SUPERVALU, Sysco, and U.S. Foods (all based in the U.S.), as well as Food wholesalers may be able to widen their profit Loblaw (Canada), Kokubu & Co (Japan), and Metcash margins if meat prices decline through the rest of 2016 (Australia). as expected. However, companies that specialize in salad and vegetable items could see margins shrink. Rising global populations and demand for food are expected to drive growth in the food distribution TRENDS industry, especially in emerging markets. Distributors The Consumer Price Index for food, an indicator of food are expected to benefit from a trend among food distributors’ product values, rose 0.2% in July 2016 manufacturers toward outsourcing of logistics services, compared to the same month in 2015. The average U.S. according to Frost & Sullivan. retail price for diesel and regular gas, a major operating cost for food distributor fleets, fell 11.7% and 20.9%, The U.S. wholesale food distribution industry includes respectively, in the week ending August 15, 2016, about 35,000 establishments (single-location companies compared to the same week in 2015. and units of multi-location companies) with combined annual revenue of about $875 billion. U.S. retail sales for food services and drinking places, a potential measure of food demand, increased 6.5% in the UPDATE first seven months of 2016 compared to the same period Food wholesalers in the U.S. are benefiting from lower in 2015. U.S. tourism spending for food services and food costs as record output of pork, chicken, and beef drinking places, an indicator for food distributor revenues, has inflated meat supplies. Red meat and poultry increased 6.1% in the first quarter of 2016 compared to production reached an all-time high through the first the same period in 2015. six months of 2016, and the USDA predicts that output will continue to rise through the second half of the Total U.S. wholesale sales of nondurable goods, a potential year. Overall wholesale food prices were down about measure of food products demand, fell 2.6% in June 2016 3% through April compared to the same period last compared to the same month in 2015. year, according to the National Restaurant Association. However, while meat prices are dipping, fresh produce U.S. wholesale food prices are leveling off after increasing is becoming more expensive. Drought conditions in steadily for several years. The U.S. producer price index for GLOBAL CORPORATE REAL ESTATE ADVISORS
Unique Approach. Unparalleled Results. SEPTEMBER 2016 INDUSTRY NEWSLETTER FOOD WHOLESALERS
Industry Output Forecast
Domestic demand for food, an indicator for wholesalers, is forecasted to grow at an annual compounded rate of 4% between 2016 and 2020. food products was about 15% higher in 2015 compared to of rising costs, facility managers investigate new, more 2010, but about 5% lower than in 2014. Due to increasing affordable technologies to reduce consumption. Electricity production, the USDA predicts that wholesale prices of costs can make up a significant portion of a cold storage foods such as beef, pork, and poultry will decline over the building’s ongoing operating costs. next two years. However, drought conditions in California are likely to push fruit and vegetable prices higher in the As consumers increasingly search for healthier food items, short term. frozen foods have not been making grocery lists as frequently. Frozen food manufacturers have increased spending on To control rising operational and food costs, wholesalers marketing and product development in an effort to break have incorporated technology to improve efficiency and out of a multiyear sales slump. Food wholesalers that boost margins. Distributors are using advanced software carry a large percentage of frozen foods may be negatively to process receivables, integrate the supply chain, and impacted by slowing demand in the category. However, analyze and forecast demand. Distributors with truck fleets consumers are showing some interest in frozen foods with use computerized routing systems and may have onboard natural ingredients and no preservatives. computer systems to monitor driver performance. Technological advancements are extending to mobile OPPORTUNITIES handheld devices, improving communication between a Big distributors such as Sysco and SUPERVALU receive higher driver and the central office. margins on proprietary brands of products they sell to the food service industry. CHALLENGES Wholesaling is the business of transporting products, These private-label brands are either manufactured for the and fuel prices play an important role in a company’s distributor or processed in the distributor’s own plants. overall profitability. The cost of diesel fuel can represent Customers often prefer to buy these brands because they a significant portion of total wholesale operating costs. can carry an implicit guarantee from the distributor. Many distributors pass this cost to suppliers in the form of fuel surcharges, but some smaller companies may Imports of fresh fruits and vegetables to the U.S. have not have this leverage. Cold storage and temperature- increased significantly over the last 15 years, enabling food controlled facilities have high energy requirements, wholesalers to source more products from international contributing significantly to operating costs. In times suppliers. GLOBAL CORPORATE REAL ESTATE ADVISORS
Unique Approach. Unparalleled Results. SEPTEMBER 2016 INDUSTRY NEWSLETTER FOOD WHOLESALERS
The total value of imported fruits and vegetables tripled In addition to transporting products to grocery customers, between 2000 and 2015; imports now make up more many food wholesalers also offer various support than half of the fruit and nut market and about 30% of services such as pricing analysis, shelf management, the vegetable and melon market. The majority of imported and merchandise planning. Some companies send sales produce comes from Central and South America, and trade reps to educate store employees about effective product volume from those regions is expected to continue growing display strategies, and some firms hire specialty buyers to in the years ahead. Distributors that operate in major port introduce grocers to new items. Wholesalers may also offer regions are investing in new cold-storage equipment and customized marketing materials and advanced business promoting services such as customs clearance assistance intelligence tools for retail clients. in an effort to win more business from foreign suppliers.
ABOUT MOHR PARTNERS Mohr Partners, Inc. is a global corporate real estate firm offering tenant advisory and consulting services. Mohr Partners has 20 offices in North America, providing corporate tenants with portfolio services including strategic planning, portfolio and lease administration, research and site selection, project and construction management, comprehensive demographic analysis, and economic incentive negotiation. Since 1986, Mohr Partners has been managing real estate portfolios for corporations in all 50 U.S. states, all Canadian provinces, and many locations around Data for this newsletter was sourced from First Research® Industry Profile, 09-30-2016 First Research forecasts are based on INFO- the world through its strategic alliance partners. RUM forecasts that are licensed from the Inter-industry Economic Research Fund, Inc. For more information please visit our website at www.mohrpartners.com.