Distribution 101: Understanding Foodservice

by Jenna Movsowitz

If you were a CPG brand just a few decades ago, your distribution flow was a lot simpler; you could stock a truck with full pallets, which went from a distribution center, to the retailer’s distribution center, to the retailer. Nowadays, the flow of distribution looks more like a complex web. CPG brands are now selling and fulfilling direct-to-consumer, sitting on fractional shelf space for delivery apps or ecommerce platforms, wholesaling to foodservice, and navigating a new world of brick-and-mortar retailers

Before you fall into a thought spiral on how to be (everything) everywhere all at once, we want to help you gain a better understanding of the landscape, starting with one of the most overlooked channels within it: foodservice. I spoke to Matt Cotton, Founder and CEO of Rooted Food Sales, and Kyle Peters, founder of former protein ice cream brand Carver & Oak and current Growth Hacker at Nestle, to gain a better understanding of this channel.

This article will be the first article in the Distribution 101 series, published in upcoming editions of The Spotlight and Startup CPG’s blog.

WHAT IS FOODSERVICE?

Though not often considered a primary distribution channel, there are more than 15 categories considered foodservice operators, including full-service restaurants (sit-down), quick-service restaurants (your local smoothie shop or salad joint), hospitals, universities, cafes, sports stadiums, airlines and more – providing endless ways to consistently reach new consumers.

Some major broadline foodservice distributors (the foodservice equivalents of KeHE and UNFI) include U.S. Foods, Sysco and Sodexo. There are also smaller distributors and convenience/specialty-specific distributors.

WHY FOODSERVICE?

Foodservice is often overlooked by emerging food and beverage founders. Matt believes this may have to do with input from investors, who are looking for quick wins – and traditional retail is undoubtedly a faster process than getting into foodservice. But foodservice accounts are generally much “cleaner” than their retail counterparts. “With markups – foodservice speaks in terms of markup, not margin – averaging around 25%, and no slotting fees, merchandising, or promotions necessary, you make money off the very first case sold,” says Matt.

“In Foodservice, the opportunities to enter are wide open. Unlike grocery, you can pitch your product at any given time and are not bound to a rigid, yearly schedule,” he adds. Matt also notes that entering foodservice may help you reach an entirely new market: “You can capture sports fans watching a game in a stadium, or students in their university cafeteria. Diversifying your retail strategy with foodservice accounts may be the factor that sets you apart from competitors.”

CRAFTING YOUR FOODSERVICE STRATEGY

Your point of contact for pitching foodservice is the key decision-maker at your target operator, not the distributor; in other words, foodservice initially requires a “pull” distribution.

Determining where to pitch for foodservice is similar to determining where to pitch for retail – it all comes back to product-market fit. For Carver & Oak, for instance, Kyle wanted to reach end users who needed an extra dose of protein and a nutritionally-dense treat. He focused on three target operators: healthcare, sports teams, and universities. He crafted his pitch around these target demographics, and got scrappy with discovering the point of contact for each account.

Kyle mostly used LinkedIn to connect with key decision-makers in his dream accounts (Foodservice Director or the dining program’s Executive Chef for healthcare and universities; Nutrition Coach or Strength and Conditioning Coach for professional sports teams). Rather than approaching them immediately with a pitch, he spent time engaging with their content and building up a natural relationship. Eventually, he would find a natural reason to approach with a pitch.

To build trust with these accounts, Matt suggests that you take the time to understand the segment you are pitching to and demonstrate your fit: “Become familiar with what these operators are looking for by attending national trade shows like National Association of Convenience Stores (NACS) and National Association of College and University Food Services (NACUFS).” He shares the following as important callouts for foodservice accounts (especially if you have the corresponding certification):

Gluten Free

Allergen-friendly

Vegan/Vegetarian

Local (this is especially important!)

Women- or minority-owned

Sustainable

Clean label

“Better for you”

After a successful pitch, the operator will ask their distributor to stock your product, so they can purchase it. “While someone like the Nutrition Coach of an NFL team may start out by purchasing your product with their own card, eventually, these decision makers will want to get the ordering process out of their hands,” Kyle says. “They’ll become your passionate salesperson, so you don’t have to be.”

Matt recommends focusing initial efforts on large operators, like a coffee shop with multiple locations or a major university: “Your target operators should be large enough to ‘force distribution,’” Matt says. “With larger operators, distributors will be forced to stock your product in their warehouse. Distributors aren’t going to bring in your product unless they’re confident they can move at least five or more cases per week.”

COMMON FOODSERVICE MISCONCEPTIONS

You Can’t Build a Brand or Expand Retail Through Foodservice

Contrary to what your hospital cafeteria’s half-chocolate-half-vanilla ice cream container with the sad wooden spoon may have made you think, you can still build a brand through foodservice. If anything, Kyle notes, having a solidified brand before approaching foodservice could set you apart in both your pitch and your ultimate sale to a consumer. For instance, a college student may be more likely to pick up your protein bar brand in their university’s convenience store if they recognize it from their local grocery store. Similarly, a recent college graduate may nostalgically seek out new ways to purchase and support the protein bar that got them through their studies.

In other words, foodservice is a way to expand your brand without risk of cannibalization. By catching a consumer and building brand awareness in a non-retail environment, you’re driving trial that could support retail accounts.

You Need a Broker

Matt, who is the CEO of his own brokerage, is the first to admit that you do not need a broker to start your foodservice journey. “A brand who is still in farmer’s markets or in under 100 stores should start pounding the pavement themselves. Identify channels that make sense for you, get in your first few doors and key distributors, and then bring a broker on board when you need more support and connections to drive national accounts.”

You Need a Different Pack Size

Apart from back-of-house foodservice accounts, many foodservice accounts look similar to retail accounts. For RTD beverages and most snacks, you do not need to change your pack size to succeed on shelf in foodservice.

CONSIDERING FOODSERVICE MAY BE YOUR SECRET WEAPON

“Foodservice is more about planting a seed, growing, and ultimately becoming a much larger tree,” says Kyle. While the turnaround for traditional retail is much faster, foodservice is known as a “cleaner” business that lends itself to much more stable growth, with fewer accounts purchasing at a higher volume.