Merchants Foodservice

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April, 2004
Merchants Foodservice: The Sleeping Giant Wakes Up; At 100, Southeast Broadliner Nears $200 Million in Sales
By Ihor Dlaboha

APRIL 23, 2004 -- For Merchants Foodservice, the erstwhile sleeping giant distributorship based in Hattiesburg, MS, spring came in the mid-1980s, when its management team decided to unabashedly dive into foodservice distribution.

The fateful shift from retail to commercial and noncommercial foodservice, current executives believe, has not only kept the regional broadliner in business but converted the lethargic enterprise into a worthy competitor in its seven-state southeastern marketplace.

"At that point we completely got out of the retail business and changed our focus to foodservice," said Don Suber, president and ceo, who was part of the group of farsighted decision-makers. "In 1987 we did less than $10 million in foodservice sales and we began to develop our programs, sales force and technology. Now our customers see us evolving from a sleeping giant to a progressive foodservice distributor."

Foodservice Saves Merchants
Andy Mercier, executive vice president, who joined the company in the early 1990s, is convinced that foodservice saved Merchants. "That's the decision that catapulted the company into a new century of business," he added.

Merchants was founded in 1904 as Fain Grocery Co. and became Merchants Grocery Co. in 1905. Until 1982, the company steadily built a strong presence in Mississippi by supplying processed meats and frozen food items. Beginning in a frame building that once housed a church, the company acquired new headquarters about three years later in downtown Hattiesburg. Over the next four decades, it built grain elevators and mills, cold storage plants, and packing plants where it needed them, including the Mississippi Gulf Coast, where a young Don Suber began his Merchants career as a counter clerk in the early 1950s.

The company continued to grow through expansions and consolidations until the early 1980s, when company officials saw the inevitable. "We began to see a trend in the marketplace away from retail grocery to total foodservice," remembered Suber. "If we were going to continue to grow as a company, we had to change our focus."

The ID Top 50 distributorship commemorated its centennial year by finally adjusting its name to reflect its true customer base. "The Merchants Co. was fine when we were selling to retail stores but this is more definitive of what our company does. We are in the foodservice distribution business and that is our total thrust and that's what we're all about. The new name will deliver the proper message to our customers about the kind of business that we're actually in," Suber said in a recent interview with ID Access. Suber recalls that when the company switched gears and entered commercial foodservice distribution, its sales team, which was adept at selling products such as barbed wire and corn meal, had to make an abrupt adjustment to sell pies and cakes and other food products.

Always keen on sales training, Suber said Merchants' reputation as a people company did not allow it to abandon its longtime reps so it began an aggressive training program. "At that time we had 28 sales reps. We did not terminate anybody. We basically divided up the area, gave all of the sales people new accounts and new areas, and told them this is the full line and you need to sell everything," Suber said.

DSRs Don't Leave Merchants
The company also phased in a new wage structure that evolved from full salary to a combination of salary and commission and finally, once the sales reps developed their marketplace, to all commissions. "We don't lose sales reps to competitors. The commission is structured so that if they get out and really work, they can do real well," he noted.

In 2002, Merchants placed No.24 on the ID Top 50 roster with $146 million in sales and its volume the following year was up 18%. Mercier said the company is growing at a rate of 18-20% this year. "This is followed by several previous double-digit years.

We have a lot of momentum and good sales management in place that is keeping everyone excited and going forward," he added

"Our current budget projects sales of about $188 million," said Suber. "Personally, I'll be disappointed if we don't break $200 million."

In order to expand its sales volume, Merchants is capitalizing on DSR training, technology, new distribution centers and a good business climate, Mercier said. Its go-to market strategy is also paying off. "We are an alternative to the big two distributorships. Operators are tired of being dictated to. In the past we were learning about the foodservice business, now we have a lot of momentum. We changed our name to Merchants Foodservice, which has been well received. We've upgraded our transportation equipment to stainless steel trailers and operators see us as a professional company," Mercier explained.

Not being burdened by bottom-line pressures of a public company, Mercier said Merchants is reinvesting money back into the company. The distributorship's new $10 million distribution center in Clanton, AL, the third one after facilities in Hattiesburg and Jackson, MS, is equipped with wireless technology and barcode tracking systems and has eight temperature zones. The company spent more than $8 million on a new distribution center in Jackson located in the Hawkins Field Industrial Park. The new 227,000-sq.-ft. warehouse is more than twice the size of its predecessor. Merchants converted a second site to a cold storage facility capable of storing 12 million pounds of meats and vegetables.

"Our technology and our facilities, including our transportation equipment are better than or equal to anybody's in our market. Operators see us evolving and building new facilities and bringing in new items and new products. Our sales people aren't leaving us to go to the competition because of our compensation plan. All that has just built a lot of excitement going forward," he added. "Warehouse personnel use radio-frequency devices to check on all of the products, make sure they're slotted correctly and in proper quantities. Everything is being readied to be bar coded, all of our palette locations are bar coded and we moving in that direction."

Week-long, In-House Training
Merchants' 63 DSRs undergo required week-long training in an in-house facility that is equipped with a test kitchen. Sales reps can participate in one of two levels of DSR training, which makes them better prepared to face their operator customers than they had been in the past, Mercier pointed out.

With the growing popularity of Mexican restaurants, Merchants has been successful in penetrating those accounts not only by offering them Spanish order-entry forms but by adding a Hispanic specialist to the sales team. "We have a woman of Mexican descent, whose parents have a Mexican restaurant in our community, working with DSRs. So far sales in the Mexican category are 250% ahead of last year," Suber indicated, with Mercier clearly placing the credit on the specialist's ability to communicate to the operators exactly what the firm can do for them.

The FAB-member distributorship also added a healthcare specialist to its team who prepares menus for its seven accounts in that segment. This expertise has allowed the company to seek new contracts with an additional 13 facilities. "We're targeting two segments that are outside our normal family-restaurant market, i.e., Hispanic and healthcare. We've done a good job in growing both of them," Mercier said.

Furthermore, Merchants is enjoying success with its school and military business. In the later segment, seven years ago the company won the contract to provide foodservice products for all military bases in Mississippi and Louisiana and has been named Distributor of the Year for the southeast region by the Defense Personnel Support Center (DPSC) for three years in a row.

Military sales constitute 12-15% of its volume and chain accounts are expanding, but street sales, currently at 40% and growing, offer the greatest potential. The reason for its street success, said Suber, is its sales management's aggressive approach to doing business.

"We've also added more than 1,200 new items in the past year to make us compete better with what we carry. With the two new expanded facilities, we were able to add product lines. That's helped us tremendously," Mercier said.

Another facet of its business plan is three food shows that are conducted in relaxed fashion in north and south Mississippi and the Florida Panhandle. Mercier believes that 65-70% of the sales at a food show is business that the distributorship would not have otherwise gotten.

While success and growth are enviable, Mercier said Suber, he and the remainder of the management team must now pause and assess their accomplishments. "We have to pinch ourselves and make sure that we are doing everything to make sure we keep the momentum going," he said.

While categorically discounting being acquired by another distributorship, Suber did say he is "open to any type of scenario that we could develop with companies that are contiguous to our geographic territory." In the meantime, there is a lot of business still to be had in its marketplace. "There are a lot of territories that we aren't selling and a lot of penetration that we could do with our existing accounts," he said.

As for his and Merchants' greatest accomplishments, Suber listed first of all surviving the doldrums of 1950-80, converting the company to a foodservice distributorship, "becoming a competitor in the marketplace and finally getting the company to the point where we are a player in the marketplace."

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