Mastering Dynamic Pricing in Foodservice Distribution

The ability to adapt to changing market conditions is more crucial than ever in today’s foodservice distribution industry. As distributors face growing challenges—ranging from inflationary pressures and labor shortages to supply chain disruptions—traditional, spreadsheet-based pricing methods are no longer sufficient to maintain profitability. This is why many leading foodservice distributors are leveraging dynamic pricing solutions that are powered by artificial intelligence (AI), enabling distributors to adjust prices in real-time based on fluctuating costs, demand, and competition.

What is Dynamic Pricing?

Dynamic pricing involves the ongoing adjustment of prices in response to real-time market conditions. To fully grasp the impact of a dynamic pricing engine, consider how swiftly you can currently react to pricing triggers like cost changes or competitor price shifts. Are you able to update prices across all channels in real-time without extensive manual labor?

For most foodservice distributors, District Sales Representatives (DSRs) play a critical role in determining pricing for their customers. Decisions are typically made quickly, with DSRs relying on experience and rule-of-thumb strategies to set prices. However, this approach can lead to significant profit loss due to inconsistent and suboptimal pricing across different customers and product categories. Dynamic pricing technology addresses these challenges by automating and optimizing pricing decisions in real-time, based on up-to-date market data, cost changes, and customer expectations.

Challenges in the Foodservice Distribution Industry

The foodservice industry is inherently sensitive to external factors such as economic shifts, regulatory changes, and environmental concerns. These challenges have been exacerbated by rising food costs and supply chain disruptions.

Distributors are under immense pressure to maintain profitability while managing these external pressures. For instance, ongoing inflation has led to a significant increase in the cost of raw materials, which directly impacts the prices that distributors can offer to their customers. Additionally, supply chain disruptions caused by global events have made it difficult to secure consistent supplies, further straining profit margins.

Benefits of Dynamic Pricing

Dynamic pricing plays a crucial role in helping food service distributors mitigate the challenges they face in today’s volatile market.

Empowered DSRs

Dynamic pricing technology helps to align prices with market conditions more accurately and in real-time. By equipping DSRs with the most relevant prices, they aren't wasting time producing “gut feel” pricing updates or combing through cumbersome price reports, and instead, they have more time to provide strategic value to the operators they serve. Additionally, price consistency across both in-person and digital sales channels is assured. So even as costs fluctuate, DSRs will be provided with the necessary guardrails to make better pricing decisions faster, all while protecting margins and ensuring profitability.

Strategic Inventory Management

During inflationary times, food distributors need to be able to quickly adjust prices based on inventory demand and availability. Dynamic pricing solutions help companies better manage inventory levels by adjusting prices based on product availability. This allows distributors to reduce overstocking and avoid stockouts, minimizing lost sales and customer frustration. With more strategic inventory management, foodservice distributors can remain competitive, retain market share, and maintain profitability despite volatile market conditions.

Enhanced Customer Experience

Dynamic pricing allows foodservice distributors to offer competitive prices that respond to market fluctuations, providing a significant advantage when economic uncertainty causes customers to be extremely price-sensitive.

Foodservice distributors can strengthen customer loyalty, encourage repeat purchases, and stay ahead of competitors by adopting dynamic pricing strategies that are responsive to the market. In addition, managing customer price agreements in this sector can be complex, but dynamic pricing solutions streamline the process. They can ensure market-aligned product pricing, as well as automatically alert customers about agreement renewals, necessary price updates, and low stock levels. This helps distributors provide a seamless and efficient customer experience.

Case Study: A Global Food Service Distributors Secret to Winning in Foodservice Sales

A global food distributor, with annual revenues of $7 billion, operates in the highly competitive foodservice distribution industry, where profit margins are notoriously thin.

Pain Points

In the wake of COVID-19, the distributor found their DSRs struggled to accurately price products and protect margins, even after extensive experience in the field. This inability to confidently determine competitive pricing created significant concerns, as their DSRs controlled 70% of their business, and the thin margins in the foodservice industry meant that pricing errors would lead to substantial financial losses. They also needed to accelerate the training process for new DSR hires and streamline overall sales operations.

Solution

To address these needs, the company’s senior sales leadership decided to introduce AI and dynamic pricing automation into their sales processes by partnering with Zilliant. They positioned Zilliant’s solutions as a “personal sales analyst” that could help DSRs by highlighting accounts with the highest revenue potential, targeting the best opportunities for promotions, sending alerts when customers began ordering less, prioritizing operator visits, and suggesting new items.

With the implementation of Zilliant Price Optimization, the distributor was able to optimize pricing, apply scientific methods to capture fresh opportunities, and equip DSRs with the tools to conduct more effective negotiations, ultimately leading to higher margins and improved sales performance.

Results: $20 Millions Revenue Increase

The implementation of Zilliant Price Optimization allowed the sales team to save time, negotiate more effectively, and secure higher margins. Additionally, Zilliant Revenue Intelligence was pivotal in driving two major growth campaigns. One campaign focused on pizza led to a $1.15 million increase in sales, while a promotions-based campaign, involving over 700 DSRs, resulted in a 20.1% year-over-year sales increase. Since integrating Zilliant’s solutions, the distributor has seen remarkable improvements in pricing and sales operations, including significant revenue growth despite rising costs, high adoption rates, and an impressive 88% response rate, generating $20.2 million in revenue from wins in 2022. Their Director of Business Solutions has since said “AI has been a huge advantage for us. We like to look at it as, while you’re sleeping, we’re still working for you."

Conclusion

Dynamic pricing offers foodservice distributors a powerful tool to navigate the challenges of today’s volatile market. By enabling real-time price adjustments based on fluctuating costs, demand, and competition, dynamic pricing helps distributors protect profit margins, optimize operational efficiency, enhance the customer buying experience, and stay competitive in an industry where every decision counts.

As the foodservice industry continues to face economic pressures, labor shortages, and supply chain disruptions, leveraging a dynamic pricing solution is no longer just an option—it’s a necessity. Zilliant’s AI-driven pricing optimization, price management, and revenue intelligence solutions have already proven their value in helping distributors optimize pricing, drive revenue growth, and enhance sales performance. Reach out to book a demo with us today and explore how our solutions can help you overcome your pricing challenges.