How is DSD Distribution Better Than Warehouse Distribution?
For brands and retailers looking to streamline their distribution and reduce costs, direct store delivery—DSD distribution—is one of the best models out there. While not without its drawbacks, DSD distribution provides a number of advantages over warehouse distribution.
What is DSD distribution?
DSD stands for Direct Store Delivery. A DSD distributor’s job is to collect merchandise from the manufacturer and deliver it directly to the store to put on shelves. This type of distribution is particularly popular for fast-moving goods like dairy, bakery, snacks, and beverages.
What are some of the advantages of DSD distribution?
- Saves on labor hours in the midst of a labor shortage
- Helps with inventory management and accuracy
- Reduces food waste
- Helps to prevent out-of-stocks
- Gives small brands access to big retailers
As we struggle to find an offramp to the Covid-19 pandemic, many parts of the world, including the United States, find themselves in the midst of a persistent labor shortage. From restaurants to retail, businesses are having a difficult time finding workers.
One benefit of DSD distribution is that the DSD company shoulders the cost of delivery and stock workers—some companies (like Buffalo Market!) will even go so far as to handle the merchandising—so retailers don’t have to use precious labor hours stocking and merchandising DSD distributed brands.
That saved labor can be put towards reducing checkout wait times and generally improving the customer experience.
Inventory management and accuracy
The retail industry has an accuracy problem. A 2020 survey of seven European retailers found that, of the SKUs analyzed, 60% of them suffered from inventory inaccuracies.
It doesn’t take an MBA in Business to understand that having your inventory count wrong for more than half of your SKUs isn’t good for business. Not knowing what you have on shelves leads to improper order-placing and fulfillment, which leads to out-of-stocks (more on that in a bit), unhappy customers, and flawed reporting.
DSD distribution companies keep count of on-hand inventory each time they deliver product. With some DSD distributors (like Buffalo Market!) visiting as often as every day, the inventory count of those SKUs can be relied upon much more consistently.
There are few things in the world of retail worse than out-of-stocks. When a high-intent customer enters your store in search of a product only to find you’ve run out, you’re losing a sale and may well be losing that customer forever.
During the pandemic, the consumer packaged goods (CPG) industry lost nearly $3 billion in sales due to inventory shortages. A study found that when customers find the item they want to purchase is out-of-stock, 30% will go to another store, and 70% will switch to another brand. Those numbers are bad regardless if you’re a CPG brand or a retailer. If a potential customer decides to shop amongst your competitors, who’s to say whether they’ll ever come back?
DSD reduces the chance of items running out of stock because the DSD distributor can visit more frequently and replenish any low-inventory items. More advanced DSD distribution companies (like Buffalo Market!) will even interpret sales data with AI to forecast inventory levels and automatically place orders to prevent stock-outs.
Reduces food waste
Brace yourself for some troubling news. Did you know that in 2010, up to 40% of the United States’ food supply went to waste? That’s the equivalent of 133 billion pounds of food that could have fed hungry families.
All of the wasted resources that go into producing and transporting food are also wasted. To make matters worse, food waste ends up in landfills where it generates methane—a greenhouse gas with 80 times the climate warming capacity of CO2.
DSD reduces food waste by lessening the amount of time perishable goods spend in transit and storage. Rather than food being transported from producer to warehouse, then warehouse to store, it’s taken directly to stores. This way, less food reaches its “sell-by” date before being purchased. Learn more about the problem with food waste and how different stakeholders along the supply chain can help prevent it on our blog here.
Accessibility for smaller brands
Aside from the practical and logistical benefits of DSD distribution is one that may surprise you. When starting out as an unknown or up-and-coming brand, it can be difficult to get your product on the shelves of super-retailers like Kroger, Costco, Walmart, etc. You have to fight tooth and nail to get the attention of a regional buyer, and even if you get that far, you might have to offer profit-eating sweetheart deals to get your foot in the door.
A DSD distributor can do that work for you. By representing a portfolio of high-quality brands and delivering their SKUs directly to retail partners, a DSD company (like Buffalo Market!) can help put your brand on the map.
Retailers are less risk-averse to taking on a new product from a DSD distributor because they A) already trust that company to choose good brands, B) aren’t required to purchase and stock a full truckload of product, and C) the DSD company will often help bear the burden of unsold units (called credits).
What are some of the drawbacks of DSD distribution?
- Less control of inventory and merchandising
- Slightly lower margins
Less control over stock management
Working with a DSD distributor places your trust in their hands. You may come to rely on them for keeping certain areas of your store stocked and well-organized. Additionally, you might have less backstock for DSD SKUs, meaning that if you do run out of stock on the floor, you don’t have additional reserves to pull from. That’s why it’s important to work with a company you trust to make timely deliveries!
It’s not exactly easy (or cheap) to make daily runs between manufacturers and retailers, merchandising as you go. For that reason, DSD companies need to charge a higher percentage of margin to stay viable. As a retailer, you’ll ideally make up the difference with the reduced stock-outs, waste, and storage costs that come with DSD service.
That said, if you find your DSD distributor is costing you more money than you’re saving, it’s time to look for a new one!
What is warehouse distribution?
Warehouse distribution is a centralized distribution model where goods are transported from the manufacturer to a retailer’s warehouse, from which trucks will collect SKUs and distribute them among various locations. As with DSD distribution, this model has pros and cons.
The biggest advantage of warehouse distribution is a greater sense of control. Since you own the warehouse and delivery trucks, you’re in charge of when SKUs come and in what quantities.
And, since it's your own labor force that’s responsible for making the deliveries, you don’t pay a higher margin on those products.
The drawbacks of centralized distribution, unsurprisingly, are the inverse of DSD. Warehouse distribution can be slow, which shrinks the sellability window for perishable goods. You’re also responsible for all of your own merchandising labor and storage costs, plus you have to eat the cost of unsold products, which you pay for upfront.
Additionally, warehouse distribution tends to prioritize bigger brands. For startups, it’s very difficult to get a retailer to buy and store large quantities of your product while assuming all of the risks associated with something brand new to the market.
Work with DSD distributors you can rely on
Buffalo Market is the leading DSD distributor of fast-moving brands We specialize in organic, natural, and sustainable products that are growing in popularity by the day. Products like these fly off the shelves and benefit from the white glove care that only a good DSD distributor can provide.
Our tech-driven approach to distribution uses machine learning to inform predictive ordering and ensures that shelves are always fully stocked with products customers want most.
To learn more about how Buffalo Market uses technology to be the fastest, most transparent, and most brand-friendly DSD distributor on the market, contact one of our distribution experts today!