Saturday, July 05, 2003

Food Brokers: an oligopoly in the middle Even more dramatic than the concentration of supermarkets has been the concentration of food brokers, the middlemen in the food industry. There are now just three privately held companies in the U.S. that dominate this field: Acosta, Advantage Sales and Marketing, and Crossmark. All three have quadrupled in size over the past decade. At that point there were around 2,500 regional grocery brokers. Through acquisition and hard competition, these three dominate the majority of the business between them. They are now working on expanding abroad, buying up local distributors from Europe to Australia. Broker are in charge of selling and stocking products to food sales outlets from supermarkets to convenience stores to corner grocers. The advantage they give is that they can coordinate sales nationwide and manage warehousing and delivery efficiently, something most food manufacturers have traditionally not wanted to do or couldn't afford to do. The fact that these three divide the market between them means that they tend to represent one competitor in each category, such as ice cream, potato chips, hot-dogs. They can't really represent a fourth competitor in any one category. For the most part, this leaves out small and new manufacturers in general. Besides, there's no incentive for them to introduce a new product in an area they already cover, because the sales will tend to even out (a zero-sum game). As one bitter producer noted: "You have to guarantee huge sales and nationwide appeal for them to take you."("Food Brokers are Bigger; so Shelves Look Smaller", Wall Street Journal, Sept. 2, 2001) These are very hard things for a new product, a new company to prove. The big brokers have developed in response to the big food manufacturers and the big supermarket chains. Big companies only want to deal with other big companies, to reduce the number of vendors they handle. Likewise, the overhead in dealing with a single-product company is seen by the brokers as excessive; they'd rather deal with a company with a full line of products. If you are the guy who is making specialty salsa, you now have even one more obstacle. In the old days a small food broker might take a chance on you, and push your products to local markets. Now most of the decision-making is between big national brokers and national supermarket chains. Even if you can compete in quality and value against the Krafts and General Millses of the market, you can't easily get the attentions of the crucial food brokers. Like other middlemen, the food brokers are themselves being squeezed. More and more supermarkets are maintaining their own warehousing and distribution; on the other side, the biggest food companies have their own regional warehouses and distribution systems. The brokers are in danger of being squeezed out of much of their market. There will always be smaller markets and smaller food manufacturers, but the big money is looking to avoid the middleman. 11:15:09 AM

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