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Risks and opportunities
Product cost volatility
Foodservice distribution is characterised by high inventory turnover at
relatively low profit margins. Volatile product costs have a direct impact.
Our profit levels may be negatively affected by product cost deflation, even
though our gross profit percentage may remain relatively constant.
We tend not to enter into long-term customer agreements, as
such, our businesses are able to react quickly to changes in
product pricing.
Extreme weather conditions and natural disasters
Some of our facilities and our customers’ facilities are located in areas
that may be subject to extreme, and occasionally prolonged, weather
conditions. Such extreme weather conditions may interrupt our operations
and reduce the number of consumers who visit our customers in
such areas, and may impede our access to customers, all of
which could have an adverse effect on our business.
Third-party product supplier dependencies
Most of our products are sourced from third-party suppliers.
We typically do not have long-term contracts with suppliers.
Although our purchasing volume can provide leverage, suppliers
may not be able to provide the quantities and prices requested. Hence
we may incur delays caused by production interruption and costs based
on conditions outside our control.
Group purchasing organisations
Some customers purchase through group purchasing
organisations (GPO) in order to reduce prices paid on the
foodservice orders, in turn placing pricing pressure from these GPOs
on us. GPO membership has recently included smaller, independent
restaurants. If GPO membership continues to add a significant number of
our customers, we may be forced to lower the prices we charge in order
to retain the business.
Timely infrastructural investment
Timely future investment in infrastructure development is key
to creating the capacity demanded by growth. Expansion
requires distribution centres and depots to be large enough
to be economically viable, yet small enough to be agile and
customer focused.
Fuel and other transportation costs
Fuel costs often negatively affects consumer confidence and
discretionary spending. This could result in a reduction of the
frequency and amount spent on food prepared away from
home. Increasing fuel costs often increases product prices,
and delivery costs to our customers. These factors affect our
sales, margins, operating expenses and results.
Warehousing and distribution
Intense competition
Foodservice distribution is highly competitive driven by local presence,
geographic reach, private label offerings, purchasing power, cost
efficiencies and meeting varied customer requirements. By not having
exclusive agreements, customers switch suppliers easily to lower
prices, differentiated products or perceived better customer
service. The cost of switching is very low as are the barriers to
entry in this market.
Industry pricing practice changes
Foodservice distributors generate some gross margin from supplier
promotional allowances. Promotional allowances are based upon
efficiencies provided to suppliers through purchasing scale and
marketing and merchandising expertise. Promotional allowances are
a standard practice, however changes that might impact these
allowances could be adversely disruptive.
Cash collection
Should customers suffer significant financial difficulty which
results in an inability to pay debts timely. Even when contracts
with these customers exist, if customers are unable to meet their
obligations, it does adversely affect our collections, resulting often in
negotiating discounts or financing terms.
Sales and customer mix
Foodservice distribution is a low margin industry.
For customers in the independent or street segments, we provide
a higher level of service and therefore create a higher operating
margin. Our ability to grow this key customer base
is a key element of our strategy.
Service excellence
Decentralised business models and geographic diversification is key to effective risk management
within Bidcorp.
Sourcing and procurement
1
Sourcing and procurement
2
Warehousing and distribution
3
Sales and service
4
Innovation
5
Horeco - to market
Strategy
1
Sourcing and procurement
2
Warehousing and distribution
3
Sales and service
4
Innovation
5
Horeco - to m rket
1
Sourcing and procurement
2
Warehousing nd distribution
3
Sales and service
4
Innovation
Page 6
| Bidcorp Limited Annual integrated report 2016