Wholesale distributors getting the goods on Net

Doomsayers once counted wholesale distributors among the middlemen that the Internet would wipe out. Now wholesale distributors are wiping out those predictions by turning the Internet into another distribution channel.

Authors and consultants have insisted that manufacturers will use the Internet to reach customers directly and bypass traditional distribution channels. To be sure, some manufacturers have heeded the call. Dell Computer, for example, claims to sell $US5 million to $7 million worth of goods to consumers each week through its World Wide Web site.

But rather than taking the threat lying down, distributors are using Internet technology to provide new services to customers and suppliers and thereby ensure their place in the emerging Internet-based supply chain.

For instance, Handleman, a music distributor in Michigan, introduced in February an Internet service that lets consumers listen to samples from a database of 50,000 CDs and purchase titles online. The company entered a joint venture with multimedia designer Intouch Group, which spent $US30 million and six years developing the system.

Handleman plans to give retailers in-store kiosks that will let customers access the system over the Web.

"All of a sudden, [the retailers] become catalogue killers with 50,000 titles available in the store," said Dan Whitt, vice-president of marketing at Handleman.

Music retailers normally carry 5000 to 6000 titles in a store, a small selection compared with most catalogues. The kiosk can increase retailers' selection without increasing their inventory, and music suppliers get to sell a broad selection of titles that don't usually sell in stores. Consumers benefit by being able to listen to music before they buy it.

In the food industry, distributor Nash Finch is considering rolling out a service next year that would let customers buy groceries over the Internet from home or work. "If consumers can deal with handling their groceries at their convenience in their home [then] we extend the distribution process to the home," said Alex Stegman, director of data processing at Nash Finch.

The service wouldn't bypass the grocery stores that Nash Finch supplies with food. Rather, the grocers would receive orders placed over the Internet by customers and deliver the food that customers order online. In addition, grocers and food suppliers would use aggregated point-of-sale information gathered over the Internet by Nash Finch to target their marketing pitch at specific consumers.

Providing sales information is one of the chief services that will keep distributors in business in the age of the Internet, according to Beth Enslow, an analyst at Gartner Group.

"Most distributors have become really good at operating their warehouses," Enslow said. "Now, they have to get better at operating their data warehouses."

To survive, Enslow said, distributors will have to become outsourcers, collecting information about demographics, inventory and sales that suppliers and customers don't have the resources to collect. In such a business model, the role of the information technology department changes.

"Suddenly the IT department that was very low on the list of priorities for distributors becomes very high on the list," Enslow said.