It was early morning on Monday, June 9th, when I approached my boss and handed him my resignation letter. I no longer wanted to be a part of a Forbes Global 2000 corporation. My personal values no longer aligned with that of my employer and I left work every day feeling unfulfilled.
I worked with "non-perishable" vendors for a grocery store chain, and was part of a larger department that was known as the DSD (Direct Store Delivery) team. Some of the major companies we worked with were PepsiCo, Bimbo Bakeries USA, Coca-Cola Co., Kraft Foods Group Inc., Flowers Food Inc., Nestle and Dr. Pepper Snapple Group. All of these companies rank within the top 50 on the Food Processing’s Top 100 list. In my time working with these behemoths, I saw many small businesses absorbed, such as Flowers Foods Inc. buying out the much beloved Philadelphia-based snack treat, Tastykake, and the Coca-Cola Co. finishing what it started when it bought the remaining shares of Honest Tea in 2011. It’s no surprise that the year recorded a total of 381 food and beverage mergers, the highest since 2008.
The concept behind DSD is simple; pile it high and sell it low. It works like this: the vendor (Coca-Cola, PepsiCo, etc.) rents the shelf space from us (the Store) and brings the product into the retail environment themselves, placing it directly on the shelf (hence the name Direct Store Delivery). In this method of distribution, the Store doesn’t buy the product, so it’s the vendors’ responsibility to keep the shelf fully stocked. Failing to do so will result in a fine. This is juxtaposed to the other method of distribution where the store purchases and orders the product themselves. In this method of distribution, the store bears the responsibility of owning the product and keeping the shelf fully stocked.
To move this piled-high inventory, the Store negotiates a standard promotion to sell it at a lower retail. In doing so, the vendors will drop the cost of their product, or reimburse the Store a negotiated amount in exchange for a tag with a reduced price for the consumer. They are typically a BOGO (Buy One, Get One) or a Price Point to encourage multiple purchases, such as 10/$10. Insiders know that 66% of customers believe that they need to purchase all 10 of that product to receive the $10 price point. Only very rarely will they run a promotion that specially states the customer Must Buy the full amount listed to receive the reduced retail. If not specified, you can choose to purchase only 3 items and the price will be $3 (10/$10). This marketing gimmick and lack of customer awareness is the reason why this model works.
Almost weekly, the Store met with representatives from these vendors to discuss product placement, marketing strategies and promotional incentives. This is when and where the majority of the money usually trades hands. A hefty sum is paid to rent premium spots, the shelves at eye level. Vendors also pay handsomely for advertisement placement in the Store's weekly circular, usually competing for placement on the front page. Lastly, vendors have to pay a one-time lump sum to introduce a new product to the market, such as the Root Beer Float Flavored Oreo.
Not all companies can handle this type of environment; most notably, Interstate Bakeries/Hostess. The makers of Twinkies, Snow Balls and Wonder Bread cut costs to continue playing in the field. After filing for Chapter 11, they broke their unionized contracts by seizing all payments into their employee’s pensions. We now know that the reversed had happened. They were actually taking from those pensions to cover bonuses and an increase in pay for the top executives. The unions then tried to start up a new contract by accepting cuts to pay and benefits; however, Interstate countered and introduced the threat of mass layoffs. When this became clear, the employees went on strike. A week later, the company was liquidated and all 18,500 employees lost their jobs. Within a week, the top 19 executives walked away with $1.75 million in bonuses, which was completely legal in courts.
I remember talking to my Hostess brands representative that last week of operations. He informed me that he had to walk past the picket line that morning and was on the factory floor himself packing up one of the last boxes to be shipped out. He later found out that he was getting screwed over like all the other employees, and felt powerless to do anything. It made me think about what drove me to get a business degree in the first place. Integrity, honesty, transparency and responsibility seem unattainable to me in the corporate culture. I could no longer push mass consumerism in a competitive cut-throat environment. I could no longer set up another flavor of Oreo or the same Coca-Cola product that’s packaged a little differently.
I knew that it was time for serious a change in my life. My family, who lives in Southern Appalachia, has discussed some of the challenges the region faces with me in the past. Working to address some of these issues would not only be rewarding, but would have a great positive impact in the area if successful. I luckily found this opportunity in my fellowship at Appalachian Sustainable Development, a non-profit. The challenge I will be working on with them addresses the logistics between food hubs, farmers and buyers, and finding ways to improve the efficiencies between them to support Central Appalachian food systems, a challenge I eagerly accepted.
- Derrick Von Kundra