The food distribution industry is experiencing its most significant transformation in decades. B2B marketplaces have emerged as the fastest-growing digital commerce channel, expanding seven times faster than traditional B2B eCommerce. This growth reflects a fundamental shift in how brands reach retailers and how distributors serve their markets.
The Real Limitations of Traditional Distribution
Within the traditional grocery supply chain, commerce centers around physical infrastructure and established relationships. Every brand is expected to secure space inside distributors’ warehouses, build extensive broker networks, and slowly expand their presence region by region. These constraints have historically limited innovation and restricted market access for emerging and even established brands. This is a universally felt pain point for every brand.
In addition, distributors face increasing pressure to expand their product offerings while managing warehouse costs and inventory risk. In fact, 58% of distributors surveyed by FMI reported they were over capacity and unable to bring in and sell new products – a blow to their wholesale customers who are demanding more choice from their distributor.
What’s Driving the Marketplace Revolution
- Rising warehouse, gas and operational costs are pressuring distributors to seek more efficient operational models that also benefit their retail customers.
Retailers are demanding from their distributors more product selection and faster access to innovative brands to remain competitive.
Traditional warehouse-based distribution cannot scale quickly enough to meet current market demands.
Advanced technology and AI now enable seamless integration between brands, distributors, and retailers on one platform like SFP’s Marketplace platform.
What is a B2B Marketplace, and how does it work?
A B2B Marketplace is a technology platform adopted by distributors to expand the number of products they can sell to their customers without taking these new products into their inventory. My company, Specialty Food Partners, has developed marketplaces for many of the leading grocery distributors in the United States. The key elements of a marketplace are a website featuring thousands of items the distributor does not carry in the warehouse that are available for sale to the distributor’s clients, and a supplier portal where details and photographs of the items are uploaded for free by the suppliers. The distributor’s retail customers place orders in the marketplace which are electronically sent to the suppliers, along with pre-paid shipping labels and all relevant documentation. The suppliers ship the orders direct to the store. The distributor, who does not touch the items, bills the customer for the order in the usual course, collects payment, and takes out of the proceeds a full margin, before passing the remainder of the proceeds to the marketplace operator who pays the supplier and the shipping company, while retaining a small fee for use of the technology. Marketplaces can be very profitable for distributors, as they earn a full profit margin on every sale with no associated expense, risk or investment.
The Business Case for B2B Marketplaces
For brands, the marketplace model transforms the economics of growth. Instead of investing in regional infrastructure and sales teams, brands can achieve national distribution through setting up their items for sale in multiple distributor marketplaces. This approach significantly reduces cost while accelerating time-to-market.
Distributor Adoption and Market Impact
From the work SFP has done with major distributors, we’ve seen firsthand the benefits that accrue to these distributors and how it impacts their wholesale customers:
- New SKUs are made available to their wholesale customers quickly – speed to shelf is key for retailers (and picky customers who know what they want).
Reduced handling costs and better margins for all parties – no chargebacks.
Better wholesale customer service with expanded product offerings.
Technology as the Enabler
From the distributor to the wholesale buyer to the supplier who signs up on the platform, every user has their needs met.
- Order management across multiple marketplaces for brands in one place
Seamless integration between the distributor, the brand, and the buyer, all in one place.
Automated order management and notifications for buyers, brokers, brands, and distributors.
The B2B marketplace model fundamentally changes the landscape for brands, and the impact on brands is only just starting to be felt. As traditional distribution models strain under growing retailer and customer demands for more choice, marketplace technology is a scalable, more efficient alternative that benefits all segments of the grocery supply chain.
www.specialtyfoodpartners.com