© 2011 John Wiley and Sons, Inc. All Rights Reserved Selection and Procurement for the Hospitality Industry Purchasing ANDREW HALE FEINSTEIN AND JOHN M. STEFANELLI E i g h t h E d i t i o n

© 2011 John Wiley and Sons, Inc. All Rights Reserved CHAPTER Forces Affecting the Distribution Systems 4

© 2011 John Wiley and Sons, Inc. All Rights Reserved YOU SHOULD BE ABLE TO: Identify and differentiate the economic and political forces that affect the channel of distribution. Describe the role of ethics in the channel of distribution. Explain the legal restrictions that affect the channel of distribution. Provide examples of technological advances that are impacting the ways in which products are distributed.

FORCES AFFECTING THE DISTRIBUTION CHANNEL

© 2011 John Wiley and Sons, Inc. All Rights Reserved ECONOMIC FORCE Supply and demand Basic commodities – a product in demand where many suppliers sell it without qualitative differentiation Demand up, price goes up and vice versa Perceived value Depends on the buyer Perceived quality + perceived services / EP cost

© 2011 John Wiley and Sons, Inc. All Rights Reserved ECONOMIC FORCE (CONT.) As-Purchased (AP) Cost Price charged by the supplier Edible-Portion (EP) Cost AP Price divided by the edible yield percentage Monopolistic competition Each supplier can set their own prices by differentiating their products and services

© 2011 John Wiley and Sons, Inc. All Rights Reserved POLITICAL FORCE Lobbyists The NRA (Nat’l Restaurant Association) AHLA (Amer Hotel and Lodging Assoc) Primary sources have the most influence Typically used to influence produce availability, prices, and channel member behavior

© 2011 John Wiley and Sons, Inc. All Rights Reserved ETHICAL FORCE What is ethical? Fair and Honest business practices Codes of ethical behavior Written codes that a company may adopt to regulate the ethical and honesty Examples Illegal Rebate Kickback

© 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE Sherman Antitrust Act (1890) Forbids any action to reduce or eliminate competition Meat Safety Legislation Sinclair Lewis’ The Jungle (meat packing industry) USDA established in 1862 Pure Food Act (1906) Meat Inspection Act (1906) Poultry Products Inspection Act (1957) Primarily focuses on meat, poultry, and eggs

© 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) Meat safety legislation (cont.) Wholesome Meat Act (1967) Wholesome Poultry Products Act (1968) Safe-Handling Procedures The Federal Food, Drug, and Cosmetic Act (1906) FDA administers this law Evaluates contaminate levels (EPA)

© 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) Seafood safety legislation Only a voluntary program at this time Packed under Federal inspection (PUFI) for a fee FDA has authority to examine seafood in interstate commerce. Federal Trade Commission (1914) Amended by the Wheeler-Lea Act (1938) Deals with advertising, deceptive promotions, monopolies, and conduct in the marketplace

© 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) Clayton Act (1914) Used to control antitrust violations Tying agreements Exclusive dealings Perishable Agricultural Commodities Act (1930) Control interstate commerce Prohibits unfair practices in sale of produce

© 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) Agricultural Adjustment Act (1933) & Agricultural Marketing Agreement Act (1937) Ensure steady flow of perishable products Robinson-Patman Act (1936) Known as the “small business protection act” Promotional discounts favoritism through a quantity limits provision Predatory pricing

© 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) Hart Act ( ) Fair Packaging and Labeling Act Packaging pictorial aspects Misleading descriptions and illustrations Package label regulations The Internal Revenue Service (IRS) The Bureau of Alcohol, Tobacco, and Firearms (BATF)

© 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) Franchise law – franchisor can enforce Contract law – binding agreement Agency law – authority Title to goods – when buyer owns product Consignment sales – not common Warranties and guarantees Patents and copyrights Rebates – gifts of cash or product

© 2011 John Wiley and Sons, Inc. All Rights Reserved TECHNOLOGY FORCE Genetically engineered foods Product preservation irradiation Value-added foods Convenience Food Transportation Packaging Packaging accounts for 8% of purchase price

© 2011 John Wiley and Sons, Inc. All Rights Reserved OTHER FORCES Intangible Forces Not easily determined by the buyer Advertising and promotions Credit terms Differentiation of supplier and sales person