Case 4: Alternative Distribution for SSI
Judith M. Whipple
Sugar Sweets, Inc. (SSI), was considering ways to increase market coverage and sales volume on its candy and snack products. Historically, the majority of SSI products were sold to consumers through various grocery and convenience stores. Vending machines and institutional sales, such as airports, represent the remaining consumer market segments. The selling environment for candy and snack foods was becoming increasingly competitive and traditional channels of distribution were being distorted, especially in the grocery and convenience trade. Grocery and convenience stores were traditionally serviced through distributors known as candy and tobacco jobbers. These distributors purchased SSI products in large quantities and then sold them to retail stores for sale to consumers. The number of candy and tobacco jobbers was decreasing, which was distorting the traditional distribution channel. Two factors were causing this distortion. First, the wholesaler and distributor industry in general was going through consolidation as large distributors continued to get larger and more profitable, while smaller and less profitable distributors either were bought up or closed. Second, the popularity of warehouse club stores threatened candy and tobacco jobbers. Small mom-and-pop grocery or convenience stores were able to purchase many products they needed at these warehouse clubs at the same price or less than what the distributors offered. Furthermore, the warehouse clubs provided a one-stop shopping experience so that the grocery stores could purchase a wider range of products at the club store than was sold by any one candy and tobacco distributor. For example, a club store may offer a narrow selection of the most popular SSI products as well as its competitor’s products, while an individual distributor may handle SSI products exclusively. While SSI encouraged grocery and convenience stores to carry its products, regardless of whether these stores purchase products from distributors or club stores, there was a concern about how the products were serviced. Distributors provide a significant benefit in that they carry a broader line of SSI products than most club stores. Also, some candy and tobacco jobbers visit their retail customers regularly to ensure the stores remain stocked with a large variety of fresh product. In this sense, candy and tobacco jobbers provided a marketing service for SSI that is not achieved with club stores. As such, SSI began looking for an alternative channel system that would not only increase market coverage in light of the new competitive environment but also provide the important marketing service to ensure a large variety of fresh product available for consumers. To accomplish this, SSI questioned the reliance on its traditional marketing channel, as well as the typical outlets through which its products were sold. Andy Joslin, the vice president of integrated logistics, had an idea. Andy began to focus on new retail outlets where SSI products could be sold and how these sales could be uniquely managed via a new channel arrangement. It was determined that direct store delivery of SSI products could be handled by using telemarketing for order processing and small package delivery. The notion was that any retail outlet that had sufficient counter space and high customer traffic was likely to sell high-impulse snack items such as SSI products. Examples of potential retail outlets that traditionally did not carry snack items included dry cleaners, barbers and beauty shops, hardware stores, and drinking establishments. The concept is summarized in Table 1. The alternative distribution plan offers various benefits. First, it is a unique selling concept in that it provides retailers a way to increase their business through incremental sales of snack products with little risk of cannibalization by other retail outlets due to the impulse nature of the...
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