Labatt Food Service

August 1993

Robert Civin

ID Magazine

It can be said without fear of contradiction that Labatt Food Service is a distributor like no other. The San Antonio, Texas-based Company has flourished by following its own unique vision of what foodservice distribution is all about. It has moved forward and evolved, more often than not, by flouting conventional industry wisdom.

In an arena where the distribution function may seem murky and mysterious to customers and suppliers alike, Labatt Food Service sees itself shedding light. The company acts as an educator, tutoring its customers in such high-level subjects as the “true costs of distribution” and the “components of margin.” Similarly, Labatt Food Service has avoided taking the private-label route, considered by almost all other distributors in the industry to be the only road to margin maintenance. Labatt instead differentiates itself as the home of the brands, emphasizing nationally known names even in commodity-heavy categories such as produce. This is certainly in keeping with its mission statement, which defines the company as the “home of the best-best in people, best in products, and best in service.”

This approach has served Labatt Food Service well. In 1968, buoyed by winning the bid to supply foodservice at the San Antonio Hemisfair, the company began branching out from its roots in retail wholesaling. It was not until the early 1980’s, however, that the company’s annual foodservice volume passed $10 million.

FAST GROWTH TRACK
In the 10 years since, Labatt Food Service has really taken off. In 1992, sales reached $117 million-an eleven-fold increase in one decade, and more than three times the $40 million in annual sales generated six years ago-and promise to push $130 million for calendar ’93. This places Labatt squarely among the three-dozen largest broad line foodservice distributors in the country.

From its distribution centers in San Antonio and Dallas, and from sales offices and distribution hubs located in Harlingen in the Rio Grande Valley and in Houston, Labatt services operators of every type throughout Texas (except the Panhandle and the far western part of the state), as well as in parts of Oklahoma, Arkansas, and Tennessee.

A third distribution center opened less than two years ago, in Mexico City. The first U.S. foodservice distributor to set up shop in Mexico, Labatt is plowing virgin soil as it preaches the advantages of single-source purchasing to hotel chains and upscale restaurants in the Mexican market.

NATIONAL REPUTATION
Thanks to this geography, Labatt Food Service defines itself as both a regional and an international distributor. This definition is perhaps overly modest, however. While the company’s U.S. distribution is indeed regional, Labatt is nationally known as a company in the vanguard of foodservice distribution.

Augmenting the company’s national reputation are the leadership roles its executives play in major foodservice distribution organizations. President Blair Labatt is current chairman of the ComSource Independent Foodservice Companies, a buying and marketing group to which his company belongs, and he is also a director of the International Foodservice Distributors Association (IFDA). In addition, Labatt Food Service general manager Al Silva serves on ComSource’s marketing committee.

In the United States, Labatt services more than 2,500 operators representing the entire foodservice spectrum: white-tablecloth restaurants, hotels, healthcare, and business and industry, whether independent or chain.

The distributor makes no particular effort to track customers by market segment. “The only yardstick for us,” says Al Silva, “is whether an account is successful. We are not particularly interested in what percentage of our business is with nursing homes. The only question we ask ourselves is whether we have the good nursing homes. We are interested in servicing sophisticated customers who have at least a five year track record and who want to link themselves with the highest-quality, most successful distributors.”

Labatt services many large customers. Among them are the Luby’s cafeteria chain; Omni, Stouffer, and Four Seasons hotels; Morrison’s Custom Management; Motorola’s food-service operations; and Daughters of Charity hospitals. But no single account is dominant.

Labatt customers select from a mix of 7,000 items-all branded-that spans practically every product category, including meats, poultry, seafood, fresh produce, groceries and frozen foods, and complete beverage and chemical programs. These products are purchased from approximately 440 vendors.

AND NOW TABLETOP
Recently, through a unique arrangement with a tabletop dealer, Labatt has also positioned itself to supply customers with a full range of supplies and equipment. Labatt salespeople sell the tabletop and draw from the dealer’s inventory to fulfill orders. This arrangement has enabled the distributor to offer a complete tabletop product assortment without slowing its 14-times-a-year inventory turn.

These products are sold by a sales force that generates figures well above industry norms. There are 55 DSRs, with the average member of the street sales force ringing up sales of $2 million annually. Two are currently doing $6 million in sales, while a third does nearly $7 million a year.

The sales force is backed up by national account executives in San Antonio, Dallas, Houston, and Harlingen, as well as by six product specialists. The latter serve as educators; they know the features and benefits of every item in their lines and transmit this knowledge to the street salespeople.

Departing from the customary pattern, no sales targets are set for sales reps. As general manager Silva explains, “Numerical goals tend to be ceilings. We want our reps to be good, not just to make numbers. We want to help them develop the qualities that will produce the numbers.”
Thirty-two percent of Labatt Food Service sales are rung up with multi-unit accounts. Many of these are serviced by DSRs. Average order size for street customers is $650. For multiunit accounts it is $1,200.
Considered collectively, Labatt’s dramatic growth, wide-ranging product lines, and extremely productive sales force add up to a success story of impressive dimension. But, taken by themselves, they don’t begin to explain why Labatt Food Service is a different type of distributor-one that has earned the coveted title of Great Distributor Organization.

WHY LABATT IS DIFFERENT
In fact, Labatt Food Service stands out from the pack in many ways. Chief among those ways: 100 percent loyalty to brands; the candor with which the company educates not only customers but also suppliers and the community at large on the mechanics and costs of distribution; its never-ending drive for total quality management, aimed at the admittedly unachievable goal of 100 percent service levels; and a management philosophy and style that are unique to foodservice distribution. 

The company’s all-embracing emphasis on brands is accompanied by an ongoing effort to form what it terms as win-win relationships with its suppliers. It’s no coincidence then that members of Labatt’s purchasing organization refer so frequently to “relationship buying.”

Says general manager Al Silva, “W have the infrastructure: a great sales force, a warehouse, and the trucks. The manufacturer has the product. Foodservice distributors don’t win when they compete against their vendors with private-label brands. That’s win-lose, not win-win.”

Or, as president Blair Labatt puts it, “We value the role our vendors play with us. We believe private label is contradictory to the help that we ask them to give us.”

Labatt views its brand philosophy as a key part of its offense. Brands have provided the power that has sent Labatt’s sales curve upward-despite the fact that it competes in its market with five Sysco, four White Swan, and three Kraft houses, among others.

“When we first entered the foodservice distribution business,” Blair Labatt recalls, “we invited vendors not yet in the market to use us as a conduit. This has proved to be good business for them. One of our prime vendors, for example, has seen volume with us climb from zero to $6 million annually in 10 years.

“These suppliers want to stay in business with us, since it’s their brand and they know it’s where our money is invested,” he continues. “We provide the infrastructure that generates growth for them. We place responsibility on manufacturers to teach us how to buy. We want to know, for example, whether we should be taking advantage of consolidated shipping centers or of electronic data interchange. “But we recognize that vendor alliances can’t be good just for Labatt. For example, whenever a core vendor brings a new product into the market, we will commit to taking it on.”

What also helps cement vendor relations is the effort Labatt exerts to educate its manufacturer reps. Many of the reps go through the Labatt training school for new employees so they will become familiar with the way the company does business. It’s an approach that produces dividends for both parties. General manager Al Silva boasts that almost every rep working for a Labatt core vendor has become that supplier’s salesperson of the year.

But this is only one facet of Labatt’s all-embracing drive to educate the whole world on the subject of distribution. Speaking at ID’s Update ’93 conference in Chicago earlier this year, Blair Labatt contended that “our industry has apparently been unable to explain its value and its costs. We need to start taking the mystery and deception out of distribution…. We need to explain distribution to our customers and we have to explain it much closer to home, to our own employees. We need to teach our profit structure.”

MARGIN MYSTERY UNVEILED
One of Labatt Food Service’s major thrusts in its operator educational program is explaining the components of distributor margin. Pointing out that every industry study indicates that foodservice distributors have an expense structure of 14 percent of sales and so require a margin of at least 17 percent to stay in business, Labatt spokesmen contend that distributors who claim they are doing it for less are playing games. 

Labatt includes a detailed income statement in the presentation kit it leaves with prospective customers. On the left-hand side, the distributor details every component of its own gross margin as a percentage of sales. Some of the items included are routine, such as the cost of the goods sold as a sales percentage. Others, however, are more unusual-amounting, in fact, to an open book.
Shown, for example, are such margin components as deviated pricing allowances for bids, promotional allowance income, price change income, backhaul income, vendor rebate income, and earned cash discounts. All of these components are expressed as a percentage of sales.

In a similar manner, the right-hand side of the income statement lists all of Labatt’s expenses for the year, again as a percentage of sales. Ranging from operational expenses through purchasing and sales to costs for MIS, these add up to 13.5 percent before interest and taxes, leaving total pretax operating income of 3.5 percent, and pretax profit of 2.5 percent.

Just as Labatt Food Service works to explain components of distributor margins to the operator community, it also works to shed light on the issue of purchasing costs. The objective in this case is to convince operators of the wisdom and the benefit of concentrating their buying with a single source preferably Labatt.

This is done with impressive zeal. For example, Labatt salespeople and managers are equipped with palm cards, one side of which lists the “11 elements of Total Procurement Costs,” drawn up by industry consultant Bruce Merrifield. The left-hand side of the palm card lists costs of acquisition, which extends well beyond cost of the product. Included are ordering time, paperwork for cutting purchasing orders, expediting, checking in trucks, inspecting product, and so on. The right-hand side summarizes costs of possession: Interest cost, storage costs, inventory management costs, and shrinkage, among others.

The moral is obvious: Buy from a single source of supply.
But Labatt’s tutorial efforts reach beyond customers and suppliers. Not surprisingly, they extend to the company’s own employees. And they also extend to the community at large.

Blair Labatt, Al Silva, and other members of the company’s management team lecture regularly on economics to junior high and high school classes under the auspices of Junior Achievement. This project was stimulated several years ago when Blair Labatt asked a group of high school seniors how much money they thought the average American business made. The answers ranged from 50 percent profit upward. The conclusion: Enlightenment was needed.

Blair Labatt has also taken advantage of every available public forum, including television, to push for congressional passage of the North American Free Trade Agreement. The opening of Labatt Mexico, in fact, was an act or faith that free trade will become a reality.