Route to market
Direct store delivery: what a producer had to change before wholesalers could take its routes
The shop at the end of the route takes three cases of water. It will take three more next week. A truck drives out to deliver them, and somewhere in that arithmetic the margin on the delivery disappears.
One beverage producer had been running that arithmetic on its own fleet for years. Its own trucks, its own drivers, its own invoice to every shop on the route.
What you actually hand over
Water is close to the worst category to deliver yourself: heavy, cheap per pallet, reordered constantly, and bought in small quantities by the outlets furthest from the depot. So this producer handed part of that work to wholesalers, in one European market. The numbers above were the easy half of the exercise. The work sat in what it had to rebuild in order to earn them.
The truck is the visible part. Underneath it, a producer delivering directly owns a set of things it rarely writes down.
It decides which shop gets stock when supply is short. It knows the shop’s order rhythm, because it has been filling it for years. It sets the terms with that shop, one to one. And it has somebody standing in the store every week, looking at the shelf.
Move to wholesalers and all of that passes to another company. The producer keeps the brand and gives up the mechanics, including the last one on that list, which is the one that quietly matters most.
What Nestlé paid to find out
Nestlé USA put a number on how much that last one is worth. In 2019 it left the direct store delivery network it ran for frozen pizza and ice cream: an operation of 4 000 people, 230 warehouse facilities, 1 400 trucks and around 3 million deliveries a year. Its CEO, Steve Presley, said the historical advantages of own delivery, speed to shelf and the chance to build displays, “no longer exist”, because retailers had tightened their planograms to the point where there was no incremental display space left to win.
Read commercially, that is a statement about what own delivery was ever for. It was a way to buy presence in the store. Nestlé stopped paying for it when the presence stopped being available at that price. A producer handing routes to wholesalers is making the same trade deliberately, which means it needs an answer to the same question: who represents the product in the outlet now, and how does anyone know they are doing it.
A wholesaler is not a retailer’s warehouse
Nestlé moved its volume into retailers’ own warehouses. Those belong to a customer who has already decided to stock the product. They are a logistics link with no commercial agenda of their own toward the brand.
A producer serving small independent outlets is handing volume somewhere else entirely. The wholesaler has his own customers, his own margin, competing brands riding on the same truck, and a customer list he regards as his main asset. He is a company that decides, week by week, how much of your product to push and to whom.
That is why this move is a commercial negotiation repeated with every partner in the territory, and why the logistics plan is the smallest document in the project.
Four things that had to change inside the producer
A definition of coverage both sides recognize
Producer and partners agreed what counts as a served outlet, and fed that definition with data moving between them continuously. Before the change, coverage was whatever the producer’s own delivery list said. After it, coverage is a figure two companies have to accept as the same figure.
An order that stops being the producer’s own
The rep still visits the shop and still takes the order. The order then routes to the wholesaler covering that territory, through a transfer tool built for it. The shop keeps its relationship with the rep, and somebody else’s truck arrives. This is what keeps a field visit from decaying into a courtesy call.
Pay tied to what reached the outlet
Warehouse and sales teams stopped being paid against shipments to wholesalers and started being paid against sell-out at the outlet. This carries the most internal friction, because it moves the goalposts for people who were hitting their numbers under the old rules.
One set of KPIs, identical on both sides
Sell-in against sell-out. Stock held at partners. Order transfer efficiency. Distribution reach. Four measures, one definition each, visible to the producer and to the partner.
Two of the projected lines follow from logistics alone. Full truckloads rise because a wholesaler aggregates demand that used to arrive as ten small drops. Reach widens because wholesalers already serve shops nobody was going to visit at that cost per drop. The volume and profit lines depend on the four changes above, and none of those four is in the model.
The expensive part
When the transition is the thing that goes wrong
Kellogg left direct store delivery for its US snacks business in 2017 and moved to the warehouse model it already used elsewhere in the portfolio. The logic was sound and the savings were real. The transition still cost it a year.
The company told the market to expect a drop of around 2% in organic sales that year because of the change. Its quarterly reporting was more specific: the sales benefit it had anticipated was offset by softness in the category and by a reduction in merchandising activity introduced to make the transition easier. It had already warned that some secondary displays and merchandising materials would be lost along the way.
That is the risk in one sentence. To make the handover manageable, the company turned down the very activity holding its position in store, and competitors still running their own delivery had an open window for several quarters.
There is a second risk, less discussed and harder to undo. In parts of the US beer trade, state franchise laws override the distribution contract itself. Termination clauses stop being valid where they conflict with the statute, and in many states a producer can only end the relationship for good cause, which frequently does not include a distributor missing sales targets. Handing over a territory can be a one-way decision, and the terms accepted at the start are the terms you keep.
Worth noting that traffic runs both ways. Red Bull has been moving in the opposite direction in parts of the US, ending agreements with wholesalers and taking off-premise distribution back in-house through its own distribution company, now covering 22 states with 82 warehouses. Where a brand’s advantage rests on controlling price and execution in store, owning the route stays rational. The question is never which model wins. It is who is executing in the outlet after the change, and how anyone knows.
Five questions worth answering before the first route moves
- What does each partner get that makes sharing his customer data worth the risk to him?
- Who is negotiating that, and is it happening before the handover or after the first quarter of missing data?
- What replaces your own people in store, and is it resourced from day one or scheduled for later?
- What are your sales and warehouse teams paid on the day after the switch, and who tells them?
- When your figures and a partner’s figures disagree, which number settles the invoice?
Question three is the one Kellogg answered late. Question five decides whether the arrangement survives its first bad quarter.
What we do in these projects
Asseco has spent thirty years on the data layer between FMCG producers and the partners they sell through. Today that runs to 1 600+ distributors integrated, 85+ manufacturers, and sell-out visibility across 900 000+ outlets.
In a move like the one described here, the work is concrete. Connecting partner systems so their sales arrive continuously, at outlet level, mapped to the producer’s own product and customer codes. Building the order path from the rep’s visit to the wholesaler serving that shop. Agreeing the coverage definition both sides will accept, then holding both sides to one set of KPIs. Settling rebates and joint targets on figures the partner can verify himself, because settlement disputes are what quietly kill data sharing.
The integration is the straightforward half of that sentence. Getting 1 600 partners to want to send the data is the half that took thirty years.
Frequently asked questions
What changes for a producer moving from direct store delivery to wholesalers?
Deliveries, allocation decisions and daily outlet contact move to the partner. The producer keeps the brand, the field force and the commercial strategy. The internal changes are usually larger than the logistical ones: how coverage is defined, how orders are routed, what sales teams are paid on, and who represents the product on the shelf.
What is the difference between handing volume to a retailer’s warehouse and to a wholesaler?
A retailer’s warehouse is a logistics link belonging to a customer who already stocks the product. A wholesaler is an independent business with its own customers, its own margin and competing brands on the same truck. The second case needs a commercial arrangement on top of the delivery schedule.
What usually goes wrong in the transition?
Losing execution in store while the change is under way. Kellogg reduced merchandising activity to make its own transition easier and reported afterwards that this offset the benefit it expected. Competitors gain ground during that window.
Why would a wholesaler share his sales data?
Because the arrangement pays him: routed volume, qualified orders from the producer’s reps, joint targets he can influence, and settlement on figures he can check himself. Requested as a control measure, the same data usually stops arriving.
What do you pay sales teams on after the switch?
On sell-out at the outlet. Paying on shipments to wholesalers rewards stock moving into a warehouse, which in an indirect model stops being a reliable proxy for sales.
Andrzej Masłowski
Deputy Director of Sales and Implementations
Asseco Business Solutions
Andrzej runs sales and delivery for Trade Data Hub and Trade Terms & Settlement. His work sits in the layer this article is about: the data and the commercial terms between a producer and the distributors, wholesalers and chains it sells through.
If you are weighing a move like the one described here, that is the conversation to have.
See how partner data works in practice
Trade Data Hub connects the systems of the distributors, wholesalers, chains and online partners you sell through, and returns their sell-out as one view of the market, down to the store, in your own product and customer codes.
