"New Tacks for Tough Times" Business Week October 16, 2002
< < Back to Press Room
Cyber-Sourcing and Charge Card Usage Gain Popularity With Food Industry Executives According to Annual FoodTRENDS®Survey
(New York-September 14, 2000)As e-commerce continues to intensify in the business-to-business sector, the food industry has taken a giant leap forward in adopting electronic methods for locating products, according to FoodTRENDS ® 2000, a comprehensive annual study on purchasing trends among food industry buyers and specifiers. The survey found that areas seeing significant growth include sourcing/purchasing on the Internet or with proprietary software, e-mail communication, and credit card acceptance and use for wholesale purchases.
The survey sponsored by Thomas Food Industry Register and American Express examined three key market segments: restaurants with fewer than six units, wholesalers/distributors, and food processors.
"The survey shows the number of distributors and restaurant owners using the Internet to source and purchase supplies doubled in 2000 - a clear indication that business owners are integrating e-commerce into their businesses," states Lisa Wyler, Vice President, Business-to-Business, American Express.
With last year's study serving as a benchmark, the FoodTRENDS ® 2000 study was able to gauge the current growth of electronic sourcing/purchasing, along with the development of credit/charge card usage.
"The majority of food industry executives are sourcing via the Internet," says Linda Rigano, Publisher of Thomas Food Industry Register . "With wider product selection online, the ability to buy direct, and the convenience of shopping during non-business hours, more than 80% of respondents expect their online purchases to increase over the next two years. This represents a major leap forward."
Executives participating in the FoodTRENDS®2000 survey clearly indicate that the food industry is evolving and keeping pace with the surging world of e-commerce. The major findings of the study are as follows.
The Impact of Electronic Communication
The majority of food industry executives still rely on sales reps and the telephone to source and purchase products. At the same time, however, there is a significant shift among all three markets towards communicating with suppliers/buyers via electronic means.
Since 1999, food processors and restaurants have more than doubled their use of e-mail to communicate with their suppliers (from 30% to 61% and from 9% to 20%, respectively). There has been a 50% increase of e-mail usage among wholesalers/distributors, growing from 38% in 1999 to 58% this year.
Electronic Sourcing on the Rise
FoodTRENDS ® 2000 indicates that, in just one year, the food industry has dramatically increased its usage of electronic means for finding products and manufacturers. The acceptance of the Internet and the use of proprietary software for sourcing have both seen exceptional growth.
Restaurants show the most significant increase, with online sourcing via the Internet and proprietary software more than doubling from 23% to 51%. Food processors have also experienced a major leap, with 65% now sourcing electronically compared with 42% in 1999. Usage of the Internet and proprietary software among wholesalers/distributors has also increased, though not as much, since this was the fastest segment to jump online with 54% usage in 1999 compared with 66% this year.
Of significant importance is the fact that resistance to locating products online has decreased dramatically, dropping from 33% to 5% among food processors and from 57% to 13% for restaurants.
Motivations for Electronic Sourcing
"All three market segments recognize that there are key advantages electronic sourcing and purchasing can offer," states Rigano. "Among restaurants and wholesaler/distributors, more than three-quarters cite the ability to source outside of normal business hours as most important, while locating hard-to-find products is paramount to 82% of food processors."
Wholesalers/distributors (82%) and food processors (79%) find electronic catalogs more helpful than restaurateurs do (68%). While online ads are popular with all segments, 70% of restaurant buyers find them especially appealing.
Electronic Ordering Picks Up Speed
Although wholesalers/distributors were not polled about their companies' online ordering, the number of restaurants and food processors electronically ordering online has doubled in the past year. Up from 22% in 1999, 49% of restaurants now order electronically. Food processors have also made the leap to electronic methods, from 21% last year to 40% in 2000.
Electronic ordering among restaurants is dominated by the use of proprietary software, rising to 39% from 18% in 1999. While restaurant buyers utilize the Internet to a lesser extent, growth in this area has also doubled, from 7% in 1999 to 18% this year.
Food processors show a marked preference for ordering via the Internet, rising to 33% from 14% a year ago. Nearly one-quarter of food processors (24%) use proprietary software to order from suppliers, up from 13% in 1999.
Both restaurant buyers (70%) and food processors (67%) cite a larger product selection as a main reason for purchasing online. They also agree that it takes less time to order online and deliveries are faster.
Amount Purchased Electronically
Restaurants are the most enthusiastic online purchasers, according to FoodTRENDS ® 2000, reporting an average of 33% of their food products, equipment and supplies being purchased electronically. Wholesalers/distributors buy about half that amount (18%), while food processors are the least active (14%).
However, the future for electronic purchasing is optimistic, with over 80% of respondents in each market segment anticipating electronic purchases to increase over the next two years.
B-to-B Purchasing With "Plastic"
Among restaurants in the FoodTRENDS ® 2000 study, about one-third (31%) are currently using credit/charge cards to purchase food, equipment or supplies for their organizations. About one in three (32%) project that card usage for these types of b-to-b purchases will increase over the next two years.
Wholesalers/distributors and food processors who accept "plastic" say their customers who use charge or credit cards see additional benefits. Nearly nine out of ten (89%) of wholesalers/distributors and 84% of food processors who accept "plastic" say it enables their customers to more quickly establish credit.
Accepting "Plastic" for B-to-B Transactions
Approximately half the wholesalers/distributors (47%) and about one-third (31%) of food processors accept credit/charge cards as payment for orders of food, equipment or supplies. Food processors report that, on average, 28% of their sales are paid with "plastic," while wholesalers/distributors report that credit/charge card purchases account for 20% of transactions.
Overall, 84% of wholesalers/distributors and 79% of food processors said that accepting "plastic" can help them attract new customers and expand their businesses, and nearly three in four of these business executives said accepting "plastic" enables them to provide better customer service.
"More and more companies of all sizes want to purchase their supplies, inventory and even raw materials with credit and charge cards. It simplifies their administrative work and allows them to better manage their expenses," said Wyler. "Most wholesalers, distributors and food processors also understand that accepting plastic can help them build their businesses, and many believe that plastic will account for a growing portion of their overall business. In fact, 92% of wholesalers/distributors and 82% of food processors expect charge card transactions to increase or at least remain steady over the next two years."
Among those accepting "plastic," 59% of wholesalers/distributors and 68% of food processors say that credit/charge cards enable them to increase their per/order sales. According to the survey, wholesalers/distributors (88%) and food processors (82%) also acknowledge that credit/charge cards make it easier for their customers to pay their bills. The majority of wholesalers/distributors report that the availability of increased credit from "plastic" is an important benefit to their customers (from 55% in 1999 to 73% this year).
Accepting Orders Via Electronic Means
"Accepting orders electronically is fast becoming a standard way to do business," states Rigano. "Both wholesalers/distributors and food processors agree that convenience, product selection and faster delivery are the principal reasons for acceptance."
Consistent with last year's FoodTRENDS ® findings, slightly ore than half (54%) of the wholesalers/distributors interviewed allowed their customers to source or order from them online. Among those who accept orders electronically, 73% agree that this method is more convenient than ordering by phone.
Wholesalers/distributors were split on the challenges e-commerce presents. While 54% said they were concerned that online ordering might lead customers to order directly from manufacturers, 41% of wholesalers/distributors said they were not concerned. Despite concerns, however, 81% of wholesalers/distributors said they believed their online sales of food products, equipment or supplies will increase over the next two years.
The majority of food processors interviewed (67%) concurred that accepting orders online is more convenient than by phone, with more than one-third (36%) of food processors permitting customers to order via their web sites.
Company Web Sites on the Rise
All three market segments utilize web sites, but they are most prevalent among food processors. Sixty-nine percent of processors have web sites, which is a one-third increase from a year ago (51%). Restaurants have seen the greatest growth, with web sites nearly doubling from 30% in 1999 to 56% this year. The number of wholesalers/distributors that maintain web sites remains steady (52% versus 51% in 1999).
According to FoodTRENDS® 2000 wholesalers/distributors and food processors use their web sites for interaction with b-to-b customers. Customers can view the product lines, communicate with sales reps, make online purchases and learn about credit and charge card acceptance. In addition, wholesalers/distributors (21%) and food processors (24%) allow their customers to make credit or charge card purchases via their web sites.
Restaurants, on the other hand, primarily design their web sites to attract consumers. Many web sites offer directions to the establishment and a view of the menu, often including prices. More than two-thirds (69%) designate which credit and charge cards are accepted.
Among all three market segments, there is wide range in the amount spent on maintaining an online presence (including web site development, online ads, and e-commerce). Annual spending for these types of activities ranges from under $5,000 to more than $1 million among all market segments.
The Future of E-Business
Data from FoodTRENDS® 2000 clearly indicates that the future of electronic business is rising. As more and more food industry executives recognize the advantages of doing business electronically, e-commerce has become more readily acceptable. Access to wider product selections with virtually no time constraints for sourcing and purchasing is important to busy executives. In many ways, e-business is changing the traditional channels of distribution. Convenience has overshadowed the perceived "less personalized" approach of electronic business transactions. Understanding and accepting the shift towards electronic methods will enable the food industry to continue its growth in the business-to-business sector of e-commerce.
Data for the FoodTRENDS® 2000 study was obtained via nationwide interviews with 800 food executives responsible for purchasing or overall management decisions. Participants, who responded to questions during the course of a 15-minute telephone interview, were interviewed at:
- 300 restaurants (with fewer than 6 units)
- 250 wholesalers/distributors
- 250 food processors
The New York-based firm of Magnet Communications (formerly Creamer Dickson Basford), led by Vice President of Research Ann D. Middleman, conducted the research, tabulated and analyzed the findings on behalf of Thomas Food Industry Register and American Express.
About The Survey Sponsors
Thomas Food Industry Register is a product of Thomas Publishing Company, one of the oldest and most respected publishers of trade and industrial directories. Since 1898, buyers and specifiers have relied on Thomas Food Industry Register , the single, most comprehensive buying guide for the food industry. Buyers rely on TFIR in print, on CD-ROM and via the Internet to locate food product, ingredients, equipment or supplies in the Unites States and Canada.
American Express Company is a diversified worldwide travel, network, and financial services provider founded in 1850. It is a leader in charge and credit cards, Travelers Cheques, travel, financial planning, investment products, insurance and international banking.
NOTE: Thomas Food Industry Register was sold in February 2001 to Greyhouse Publishing, and is now known as Thomas Food and Beverage Marketplace.)
< < Back to Press Room