Distribution Opportunities for Small Food Manufacturers

The sector saw growth of over 11% between 2008 and 2012, notably higher than the 7% increase for all businesses in the five boroughs, and this growth shows no sign of slowing down. However, in order for new food and beverage manufacturing firms to increase consumer demand, they need access to markets, which allow them to increase sales and company visibility A critical step in gaining this access is by securing a contract with a third party distributor. A third party distributor manages transportation logistics so that manufacturers can focus on production and sales, another key factor for growth. Yet the transition from self-distribution, which almost all firms begin with, to third party distribution is challenging.

Pratt Center was commissioned by the New York City Council Speaker to assess the distribution challenges facing these firms and identify strategic interventions the City could implement to better position the sector collectively for growth.

For this project we leveraged our established presence as a leading food manufacturing advocate and service provider, interviewing over 25 industry stakeholders including food and beverage manufacturers, private distribution companies, brokers and buyers, production incubator managers, export assistance providers, market coordinators, and representatives from business loan programs and small trade associations.

We focused on young food and beverage manufacturers that self-identify as part of the artisanal or specialty food industry and sell to grocery retailers and markets. While some specialty manufacturers sell to restaurants, the vast majority sell primarily to grocery retailers so our emphasis was on the distribution of products to retail outlets.

We found that, in order to grow, a company must eventually transition to a third party distribution model for two main reasons.  The first is that distributors offer greater access to larger retail accounts across a wider geographic range which allows the businesses to demonstrate an ability to fulfill orders on time. The second reason is that it enables manufacturers to focus on production and sales without the distraction of managing shipping and handling logistics.

We also identified the specific challenges food and beverage manufacturers face when transitioning from self-distribution to a third-party. These include uncertainty of the distribution market and required terms; inadequate cash flow and financial backing to meet distributors’ timeframes; limited marketing capacity to attract distributors and/or to leverage distributors’ marketing services; and difficulty finding adequate, affordable space to scale production.

While the private market has addressed some of these challenges, there is still a need for the City to intervene with discrete, distribution-related strategies to support the maturation of young firms into mid-sized companies with a larger workforce. The recommendations that emerged from this project include the following:

• The creation of  a Specialty Food Industry Development Corporation to address sector-wide challenges and opportunities through the delivery of educational, marketing, exporting, and cooperative services;
• The provision of  financial assistance, education and investment connections that are tailored to companies transitioning to third party distribution; and
• The promotion of land use policies and real estate development projects that bolster New York City’s food distribution infrastructure.

To learn more about this project, click here to read our report, Distribution Challenges and Opportunities for NYC’s Small, Specialty Food & Beverage Manufacturers.