'Vendors Are Abandoning the School Market'

Anyone who follows school nutrition knows the merits of requiring 100% of grain items to be whole grain rich, the increasingly stringent sodium targets and the implementation of new Smart Snack guidelines are the subject of much debate. Whether you agree with these regulations or not, one thing is becoming increasingly clear: requiring schools to buy items that are not traditionally stocked by most distributors is creating a shock wave in school bidding and purchasing. Schools have been moving to gradually comply with new regulations over the last few years, and for the most part vendors have been keeping up. However the newest guidelines are forcing distributors to evaluate their business model when it comes to servicing schools.

In years past, school business was a stable, predictable, somewhat profitable part of most full line distributor’s business plans. School business was a good way to carry them through the lower volume winter season, and they knew schools would pay their bills. While by no means the most profitable segment of their business, it kept the trucks on the road and people employed. Schools bought many of the same items the distributors sold to their other customers. Many vendors vied for school business and competition helped keep prices in check. It was “all good.”

This is no longer the case and schools and cooperatives are paying the price. What is the incentive for a distributor to have to stock 100 or more specialty items and sell them only to schools at low margins, as opposed to using their limited space and resources to sell mainstream items at a much higher profit margin to restaurants, colleges and other retail establishments? Unless a distributor has a lot of excess warehouse space and delivery capability, there is very little incentive. In many cases, it would be a money‐ losing endeavor. There is no longer much overlap between the items that can be sold to schools and those sold elsewhere. Distributors are finding it less and less attractive to have to keep up with the products they must stock for the school market when they can make more money in the unrestricted realm of retail and restaurants. Vendors are abandoning the school market, especially formal bids, and the result is much less competition for school business, and as a result higher prices to the schools—if they can find a vendor to carry the required items at all.

Bagels and chicken items are great examples. All bagels must be at least 51% whole grain starting next year. While there are some whole grain bagels out there, they must also be under 200 calories if they are to be sold a la carte. (Unless they
are part of the day’s meal or the previous day’ meal—but that is another issue altogether). Finding these items is difficult enough, but then convincing a distributor to bring them in at the low margins schools need, with unknown sales projections, from vendors they might not currently have relationships with creates a significant issue for them. Breaded chicken items that are 51% whole grain and low‐ sodium are not something many operators, other than schools, will buy. In order to stock a variety of whole grain chicken items that schools need, vendors must tie up a lot of money and a lot of freezer space. Why take a chance these items may not sell as expected when that space is more profitably used to distribute more traditional items to the other segments? And what if they do stock these items and then lose a subsequent bid—now they are stuck with thousands of dollars of product they cannot sell elsewhere.

All of this is exacerbated by the fact that many of the newly created or reformulated items are more expensive than the traditional items they replaced. It is a time consuming, risky and expensive proposition for manufacturers to create new, school-compliant items. The result is little to no competition between manufactures for a lot of these items, so there is little incentive for them to drop their prices to the distributors.

Issues such as these are forcing distributors to take a hard look at whether they should continue bidding in the school segment, and as a result, schools, cooperatives, and ultimately children are paying the price.

What is the solution? School specialty distributors? USDA delivering approved items directly to schools? A whole new distribution model may be the answer but that is not today’s reality. The answers may be much simpler, and in fact already espoused by the School Nutrition Association in their 2014 Position Paper: “1. Retain the initial requirement that 50% of grains offered through school lunch and breakfast programs be whole grain rich; 2. Suspend the implementation of sodium Target 2 pending the availability of scientific research that supports the reduction in daily sodium intake for children; and 3. Reopen and extend the comment period on the “Smart Snacks in School” Interim Final Rule until July 2015.”

Approval of these items alone would not only help reverse the trend of declining student participation, but also significantly ease the burden on manufacturers, distributors and operators, allowing access to many more products at more reasonable prices, and hopefully, making the school market once again attractive to distributors.

Timothy Goossens
Bid Coordinator, New Hampshire Buying Group