Case Study – Direct Food Supply (DFS)
DFS is a rapidly growing food distribution and wholesaling company located in the North East of England. It was founded by Mr Abbas, who started the business from a small storage room with only 3 employees back in 1985.
From the mid 80s to the late 90s, DFS experienced tremendous growth in business volume (sales). In order to meet the increasing demand for its services, Mr Abbas began an ambitious expansion plan in 1999. In order to fund this expansion, Mr Abbas decided to join forces with three other major investors - Mr Jones, Mr Mehdi and Mr Dimitry. As part of the plan, the company’s operations were relocated to a bigger, dedicated site in an industrial estate near Gateshead.
DFS subsequently employed more staff, extended its existing production capacity to include facilities such as industrial chill rooms (30 pallet* space), freezers (200 pallet space with racking system) and a massive dry good storage area (480 pallet space with racking system). Expansion work was completed towards the end of 2000, and the “new” DFS became by far the largest food supply and distribution company in the North East of England.
*pallet - a small, low, portable platform on which goods are placed for storage or moving
Since 1999, the four significant owners have all remained as major shareholders. Each holds the same proportion of ownership at 25%. Of the four of them, two (Mr Abbas and Mr Jones) are involved in the day-to-day running of the company in their official capacities as co-Managing Directors. Annual turnover was £5m in 2004.
Till today, DFS remains primarily involved in supplying raw materials and packaging to an extensive range of fast food outlets mostly within the North East region.
The North East Fast Food Outlets Supply and Distribution Market Traditionally, the fast food supply and distribution market within the region has been dominated by DFS. Competitive pressure was relatively low as there were a limited number of competitors (mostly general distributors) who supply raw materials and packaging specifically to fast food outlets (i.e. local fish & chip shops, burger bars, pizza outlets, Indian & Chinese takeaways). This was despite the steadily growing number of fast food outlets in the North East of England. The few notable competitors in the area were “QUICK Supply” and “Express Food Distribution”, both rather well-established but with relatively smaller market share in the region compared to DFS. All three organisations (DFS, QUICK and Express) operated quite independently, each with their own “list” of fast food outlet customers (partly due to the fact that the growing fast food industry being able to absorb their combined expanding capacities).
Since the mid 2000s, however, DFS’ two competitors are becoming more aggressive in their expansion, especially in trying to capture market share from DFS. Even so, in order to keep margins high, all three organisations are unwilling to become engaged in an all out price war.
Another significant development that is of particular concern to DFS is the fact that many new competitors have entered the market in recent years. This is hardly surprising as supplying raw materials to numerous fast food outlets around the North East is a highly lucrative business. This increasing market pressure on DFS both from current and new competitors have persuaded the company’s four major shareholders to respond by undertaking a bold restructuring of the business. This mainly involved the creation of a sister trading company named Sopco.
Essentially, Sopco imports branded goods that are in high demand from suppliers outside of the UK. By negotiating sole distribution rights to those goods/brands of products within the UK, Mr Abbas and the other three major shareholders hope that they will be able to limit the expansion of its competitors, especially in preventing them from taking...
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