2. Forces Affecting the Distribution Systems4
Forces Affecting the Distribution Systems
New

3. 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.

4. Forces Affecting the Distribution Channel

5. 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

6. 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

7. 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

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

9. 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

10. 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

11. 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)

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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?

20. 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

21. 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”

22. 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

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