Forces Affecting the Distribution Systems 4 Forces Affecting the Distribution Systems New

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

Perceived Quality + Perceived Supplier Services Economic Force Supply and Demand Basic commodities have no differentiation Established market prices Price to Sell Perceived Value What the buyer sees as important Perceived Value = Perceived Quality + Perceived Supplier Services Perceived EP Cost

Economic Force (cont.) AP Cost – price charged by vendor EP Cost – cost of the edible portion EP Cost = AP Price per Portion / Edible Yield % Monopolistic competition Manipulation of products in order for them to be unique and create a need for it

Political Force Political influence to ensure industry interested are served and protected Lobbyists or Political Action Committee (PAC) National Restaurant Association American Hotel & Lodging Association Global Business Travel Association

Political Force (cont.) Primary sources have the most influence Typically used to influence produce availability, prices, and channel member behavior

Ethical Force Ethical Behavior Codes of ethical behavior Examples Fair and Honest Business Practices What is “ethical” to you? Codes of ethical behavior International Society of Hospitality Purchasers Examples Gift of a Case of Wine Buying from a Relative Treated to a suite at a Texans game

Legal Force Sherman Antitrust Act (1890) Meat Safety Legislation Forbids any action that eliminates/reduces competition Meat Safety Legislation Sinclair Lewis’ The Jungle Pure Food Act (1906) Meat Inspection Act (1906) USDA established in 1862 Authority to inspect any channel member (except seafood) Primarily focuses on red meat, poultry, and eggs

Legal Force (cont.) Meat Safety Legislation (cont.) Poultry Products Inspection Act (1957) Wholesome Meat Act (1967) Wholesome Poultry Products Act (1968) Hazard Analysis Critical Control Points Rule HACCP was added in 1996 HACCP 7 Principles Safe Handling Procedures Food Safety Inspection Service (FSIS)

Legal Force (cont.) The Federal Food, Drug, & Cosmetic Act (1906) Food & Drug Administration (FDA) administers this law rather than USDA (primarily meat) Inspects over 50,000 food processing plants Evaluates contaminate levels in food Uses the HACCP system as well Law has evolved and become more powerful 1938 – remove foods below standard 1996 – regulates pesticides use

Legal Force (cont.) Seafood Safety Legislation Seafood does not undergo inspections Follows HACCP requirements since 1997 US Department of Commerce Voluntary Inspections for a fee National Oceanic & Atmospheric Administration Packed Under Federal Inspection (PUFI) Label FDA has authority to examine seafood in interstate commerce and imported seafood

Legal Force (cont.) Federal Trade Commission (1914) Amended by the Wheeler-Lea Act (1938) Deals with advertising, deceptive promotions, monopolies, and unprofessional conduct in the marketplace Created to clarify the Sherman Act and enhance power

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 Added PAC (1930), EGM

Legal Force (cont.) Agricultural Adjustment Act (1933) & Agricultural Marketing Agreement Act (1937) Allows primary sources and distributors to work together to ensure steady flow of perishable products (anti-antitrust) Robinson-Patman Act (1936) “Small Business Protection Act” Eliminates discount discrimination Forbids predatory pricing to eliminate competition Added AAA (1933) and AMAA (1937) EGM

LEGAL FORCE (CONT.) Fair Packaging and Labeling Act (1966) Also known as The Hart Act Package label regulations Legal Name Processor Information Net Contents Ingredients Serving Size Nutritional Information Safe Handling Instructions

LEGAL FORCE (CONT.) Franchise Law Required standards and quality The Internal Revenue Service (IRS) and The Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATF) Enforce the orderly and legal sale, distribution and purchase of alcoholic beverages

LEGAL FORCE (CONT.) State and Local Legislation Contract law May have more strict laws Contract law Legal agreement between two parties Agency law Buyer has the authority Title to goods Who owns the goods and at what point?

LEGAL FORCE (CONT.) Consignment sales Warranties and guarantees No payment until item is sold Warranties and guarantees Assurances that food or service is provided Patents and copyrights Exclusive rights held by inventor Rebates Gifts of cash or product

TECHNOLOGICAL FORCE Genetically engineered foods Product preservation Improves flavor or shelf life Product preservation Preserve food through distribution channel Irradiation Technique – treated with radiation Productivity Use of hormones to improve quantity “Hormone Free”

TECHNOLOGICAL FORCE (cont.) Value-Added Foods Convenience Foods – expensive but saves time and money Transportation Movement of the goods Packaging 8% of the cost is contributed to packaging Affects quality, shelf life and convenience

Other Forces Intangible Forces Items you can’t see, touch, or feel Advertising, Credit Terms, Relationship