Leader of the pack Featured

5:44am EDT June 30, 2006
Earl Ishbia watches 15 million pounds of meat leave his warehouses each week.

With volume like that, you’d think Sherwood Food Distributors had it made. But margins are thin in the meat business — superstores capture business from small grocery chains, and independents must buy inventory for just as low as the big guys to compete. Simply put, price matters.

Filling the grocery cases are companies like Sherwood. Ishbia, the company’s CEO, knows he can’t afford any fat in his wholesale or distribution processes if he wants to make a profit.

“We work on lower margins than other industries, and the only way to become successful is to automate and really take advantage of technology and other labor-saving issues,” says Ishbia, who founded the Detroit-based company in 1969 with partner Alex Karp. Today, SFD’s annual sales are more than $1 billion, and it ships all types of meat to primarily the Great Lakes region.

“We are one of the largest buyers in the country as far as meat products go,” Ishbia says.

Volume counts, but how well SFD knows the meat market and the way it controls and expedites inventory is even more important. Efficiency is the key to claiming profit in food distribution, and assisting customers with sales helps everyone.

“There is not a lot of room for error,” Ishbia says. “We handle large inventories, and managing these is no small task.”

Better selection, expert service
Supply chain consolidation has squeezed out smaller distributors over the years. Left are large operations like SFD — companies that ship large volumes.

“There are fewer players in the market today than there were in the past,” Ishbia says. “This means we have a bigger responsibility to service customers and compete with large distributors in our market.”

Many of SFD’s industry peers have dissolved through consolidation, but it continues to compete with large distributors by focusing on what it does best — sell meat, and lots of it. SFD has acquired other distributors to broaden its product offerings, and most recently, it bought out its active partner, Orleans Poultry. Today, it sells up to 50 perishable items, from beef and poultry to deli meats and frozen seafood.

“Customers can purchase all of their perishables from us except for produce and dairy,” Ishbia says.

The trick is that SFD must take away meat business from wholesale distributors that sell grocers meat, but also sell them all other groceries.

“Large wholesale distributors all have meat programs available to customers, and because we don’t sell groceries [such as canned foods], we have to share that business with them,” Ishbia says.

To compete with these have-it-all suppliers, SFD has to offer not only competitive prices but also value-added expertise that differentiates it from other distributors.

SFD’s strength is in numbers. It staffs a team of specialists dedicated to each meat product it sells, providing expertise to its customer base of independent grocers.

“We have specialists who purchase various commodities for our company, whereas wholesale grocers might have only one meat buyer,” Ishbia says. “We have a specialist for pork, beef, poultry and all of our other lines.”

These specialists aggressively seek the best market prices for each product. And because there are so many eyes watching the meat market, SFD can react quickly and jump on the best deals. That knowledge wins trust — and business — from grocers, Ishbia says.

For example, a decrease in poultry exports to European countries as a result of fear of avian flu presents buying opportunity for SFD and price cuts for its U.S. customers.

“Poultry prices have been so cheap that we have sold a lot of it,” Ishbia says.

Such deep market knowledge allows SFD to take advantage of low market prices but still maintain stable sales when certain meats are less popular.

For instance, it sells less beef these days compared to last year, and Ishbia speculates that a decrease in the popularity of the Atkins diet and other protein diets could be the cause. However, it hasn’t affected SFD’s bottom line because the variety of meat it sells protects the business.

“We may sell more pork one week and more poultry the next, but it always works out to be the same amount in pounds,” he says.

Technology equals efficiency
Sherwood distributes meat and poultry to 90 percent of independent grocery stores and small chains in Detroit and also sells to chain stores such as Kmart that don’t have their own meat warehouses.

To get perishable products to a 150-mile radius of the company’s six warehouses requires an investment in technology and a commitment to efficiency, and SFD adopted its routing program from a shipping pro, UPS. The software records the day’s orders and processes them at 5 p.m. If Kmart places a rush order for pork at 4:55 p.m., SFD will deliver it the next day. It will also dispatch a van for emergency deliveries or to access stores in crowded urban areas.

A GPS grid system does the math so trucks are packed to their fullest.

“The system knows the density of boxes, the number of boxes that will be on each truck, and it also knows parameters like delivery times for customers,” Ishbia says. “It generates a report that tells us the most efficient way of routing and loading our trucks, making sure we adhere to our delivery times.”

And because efficiency and profits are at stake, Ishbia keeps a close eye on operations and struggles with the concept of delegation.

“I like to personally know everything that is going on in all aspects of the business,” he says.

The same philosophy applies to warehouse operations, which add up to 750,000 square feet of refrigerated space. Inside each facility is room for millions of pounds of meat — but there is no room for mistakes. Ishbia constantly tweaks in-house software so that when “selectors” pull meat from the inventory to fill orders, inventory records are always up-to-date.

“We manage a large dollar amount of accounts receivables, and we are constantly working on managing those, along with our inventory,” Ishbia says.

Now, he is considering a voice direction program that will allow warehouse selectors to report weights and product orders by speaking the information into a handset.

“Right now, the selectors are directed by picking documents,” he says. “They handwrite the products they select, the weight and so on.”

A voice system would speed up the process and eliminate a paper trail.

Accurately documenting inventory details is critical because meat distribution is a time-sensitive business.

“Not only is our inventory large and expensive, but meat only lasts for so long,” Ishbia says. “We have to have a system that will tell us where everything is in the warehouse, and we track inventory by date so we know when the merchandise was purchased and what the expiration codes are. We can stay on top of moving the proper inventory at the right time.”

In SFD’s case, this means the first merchandise in is the first out.

“You really only have a five to 20-day lifespan, depending on how meat is packaged,” Ishbia says.

Value-added programs
Swift operations help make the delivery process profitable, but SFD’s volume ultimately comes from sales. The more customers SFD services, the more volume it buys, the better value it can offer to its partners.

But it has to offer more than price to compete and grow.

Independent grocers and small chains are SFD’s business, and they depend on SFD to beat their own competition, superstores. SFD works with its customers to keep costs down and devise creative displays so neither loses business.

“Independents are the core of our business,” Ishbia says. “In some cases, independents, and the supermarket trade in general, is being hurt by the superstores. In that vein, the weaker independents are falling by the wayside.”

A failing independent grocer represents a weak customer. So SFD can’t afford to just bring it meat, it has to deliver knowledge, as well. Sherwood’s 100 sales associates contact customers weekly, paying personal visits or calling them to discuss new products and take orders.

“We have field specialists who set up counters and offer suggestions for merchandising and managing their meat departments,” Ishbia says.

He knows independents appreciate this advice because when merchandisers skip a visit, grocers call to complain.

“It makes me feel good that they do want our people in their stores,” Ishbia says.

And while sales and merchandising specialists are in the field, they ask questions.

“Our salespeople are critical to our success because they hear our customers’ concerns,” Ishbia says.

Each year, SFD shows off what’s new in the food industry at a tradeshow it produces for customers. Vendors offer special show pricing and unveil new products to a couple thousand of SFD’s customers.

Through these efforts, SFD helps to strengthen independent grocery stores.

“Stronger, innovative independent retailers are holding their own and growing in their markets,” Ishbia says.

As for SFD, its sales continue to grow, and Ishbia expects to expand the business in regions that make sense, particularly near the Great Lakes, where the company already has a strong foothold.

And after surpassing $1 billion in annual sales, Ishbia recognizes that SFD is in a whole new category. After all, sales tend to snowball when you are one of the biggest meat distributors in the country.

“Our profitability really comes from the fact that we are such a competitive force in the market and that we generally buy better than many of our competitors,” Ishbia says.

And despite industry consolidation and stiff grocery store competition, the food industry will always have one thing going for it: “People have to eat,” Ishbia says.

How to reach: Sherwood Food Distributors, (313) 366-3100 or www.sherwoodfoods.com