Small trade area benefits growing foodservice wholesaler

The business model at Shetakis Wholesalers in Las Vegas, Nevada, calls for the growing foodservice company to sell at high volume at a lower delivered cost than its competitors. “We handle a tightly controlled line of product delivered efficiently within a limited trade area,” says Michael Winburn, vice-president of operations at Shetakis.

The goal is to be the low cost producer in the Las Vegas foodservice market. Big, broad line distributors handle thousands of line items but generate more than 80% of their revenue from only 20% of total items. The goal at Shetakis is to focus on only that desirable 20% and to deliver it at a lower cost than any competitor.

The contrast is clear. Many broad line distributors operate distribution centers with as much as 400,000 sq ft of storage and order selection space. In some cases, warehouses are several hours driving time to the most distant customers. Shetakis operates a much smaller facility — 102,000 sq ft with half the space devoted to dry groceries and supplies and about 20,000 sq ft used for frozen and chilled storage and a shipping dock. “The big broad line houses stock so many items in such large warehouses that an order selector may travel one-half to three-quarters of a mile up and down the aisles to pick a single customer order,” Winburn says. “We handle about 2,400 items, and our selection takes a fraction of the distance and time required by the larger houses. Obviously, reducing travel inside the warehouse cuts the cost and the time required to select each order. Our labor cost per delivered order averages only 50 cents per case.”

High volume products

Shetakis concentrates on high-volume sales. The product mix is about half perishable and half dry. Within that mix, about half the perishable product is fresh meat and poultry, and the other half is frozen foods and chilled product.

A small percentage of the perishable category is fresh produce. Rather than stock a produce inventory, Shetakis partners with a local produce house. Most of the produce is sold to small accounts that otherwise would have to pay relatively high prices for service from another distributor. Shetakis consolidates produce orders and faxes them to its supplier at 6:30 each evening. A truck picks up orders from the produce supplier at 11:30, and the produce is cross-docked into Shetakis trucks for delivery. Of the 300 orders Shetakis ships nightly, about 30 contain produce.

Shetakis uses much the same procedure for fresh, custom-cut poultry, although on a much larger scale. The company's poultry supplier is in Los Angeles. Orders are sent to the vendor by noon each day and cut during the afternoon. A truck leaves the poultry plant by 6 pm with orders delivered to the Shetakis dock by 3 am, just in time for cross docking into the route trucks. These custom-cut orders are sold with a guarantee of 10 days shelf life.

Fast-selling poultry items are stocked in Shetakis inventory and are sold with a five-day shelf life guarantee. The same procedure can be used for fresh beef and pork. “We can stock meat in inventory, because the shelf life is not as critical as poultry,” Winburn says.

Controlling the trade area is just as important as controlling inventory turns, Winburn says. The warehouse is located behind the Fashion Show Mall at the heart of the Las Vegas Strip. “I can stand on the roof of our building and actually see most of our major customers,” Winburn says.

The big hotels and casinos along the Strip make up about half of Shetakis' sales. Four of the company's 13 vehicles are required to serve customers on the strip every day. The other half of the 300-customer account list includes the local school system and small, off-the-Strip hotels, restaurants, and casinos.

Delivery outside the city — Henderson is considered a metro delivery — covers only four communities. The largest out-of-town destination is Laughlin, 90 miles south on the Colorado River. The other three rural destinations are Primm, southwest of the city, and Pahrump, due west, both on the California border, and Mesquite to the northeast on the Arizona border. All combined, the rural routes account for only 10% of total volume.

As might be expected, orders for the big hotels and casinos are relatively large, usually averaging from two to five pallets of product. Shetakis operates mostly trailers — eight 36 ft long and three 28-footers. The 36-ft trailers handle 16 pallets, and the 28-ft vans have 12 pallet positions. Once off the Strip, orders become smaller, sometimes ranging from as little as five cases up to 30 cases per stop.

Two routes daily

Averaged across the whole fleet, routes require an average of 10 stops, but that is just half a day's work. The first truck leaves the warehouse by 4:30 am, and the last to leave is on the street by 6 am. Delivery, particularly in the city takes four to five hours, a situation that returns the fleet to the warehouse before noon. At that point, trucks are reloaded for an afternoon of delivery that takes two to three hours. Every truck in the fleet is back at the warehouse by 3 pm, Winburn says.

Morning routes all carry orders received the previous day. Afternoon routes are built around customers with later delivery windows. About 90% of afternoon delivery is orders received the previous day with the remainder coming in while trucks are making morning stops. The company delivers six days a week with order selection beginning at 8 pm on Sunday evenings and the warehouse running constantly with shipping or receiving until the following Saturday at 4 pm. Schools take delivery twice a week, and many of the smaller customers receive three orders weekly. Because they order a high volume of custom-cut poultry, the big casinos get delivery six days a week.

Already fairly efficient, Shetakis soon will have an optimum delivery system. The company is in the process of installing Roadnet routing software from UPS Logistics Technologies for load optimization. Roadnet provides for load planning on repetitive routes or fully dynamic route design. Shetakis will use both capabilities. Repetitive route planning will be used for rural delivery. The system will route vehicles to the most distant stop and commence delivery of orders loaded for maximum cube. In the city, Shetakis plans to utilize the fully dynamic capability.

Increased load factors

“With dynamic routing, we should be able to increase load factors to the point that we dispatch the morning routes with two to three more orders on board and be able to meet customer delivery windows more effectively,” Winburn says. “That's right in line with an equipment change we have already instituted. Most of our trailers are 36 ft long. We buy used 48/102 refrigerated vans and have them cut down and equipped with newly remanufactured refrigeration units for about half the price of a new 36-ft trailer. The benefit comes from increased trailer capacity. The 36-ft trailers can handle 16 pallets per load compared to 12 pallets in a 28-ft trailer. That gives us 32 more pallets for the first dispatch of the eight 36-ft trailers than we could deliver if we only used 28s.”

The Shetakis fleet is relatively small, comprised of 11 tractors and two straight trucks. Tractors are Peterbilt Model 330s powered by Cummins ISC engines rated at 315 horsepower. The two straight trucks are 330s with Caterpillar 3126E engines running at 250 hp. All the trucks have single drive axles. That's one of the good things about using a maximum trailer length of 36 ft, Winburn says. The length and weight is compatible with a single drive tractor.

Five of the 13 power units have Allison automatic transmissions and are used on the routes with the most starts and stops — generally for downtown casinos, schools, and other customers off the Las Vegas Strip. “We like the automatic transmissions, but for economy reasons, we try to source them only at times when Allison has an incentive purchase program running,” Winburn says.

All the large power units and the two 24-ft straight truck bodies are leased. Shetakis owns 10 of the trailers and leases the other three. In addition, the company owns two small, refrigerated vans for hotshot delivery to customers who need a small order in a hurry.

Long-term lease

Leased vehicles come from Preferred Truck Leasing, the PacLease franchise in Las Vegas. They are held on a full-service lease with a term of eight years. “We settled on eight years for the lease, because vehicles run such low mileage,” Winburn says. “City trucks run only 12,000 to 14,000 miles a year. Trucks on the out-of-town routes put on more miles, but still only 30,000 or less. We rotate trucks from route to route to balance mileage.”

Ease of service and fleet administration provide two big reasons for leasing the fleet, Winburn says. The leasing company takes care of all federal and state fuel tax reporting as well as other regulatory compliance. In addition, Preferred sends a mobile service truck to the Shetakis site at least twice a week for inspections and scheduled maintenance. “Over the life of the fleet, every repair except two have been performed in our yard,” Winburn says. “If we have a problem that takes a truck out of service, Preferred brings us a substitute truck. That's a big help, because we don't have to pay a driver overtime to shuttle a truck to the shop.”

In addition to simplifying operations, leasing adds stability to the Shetakis cost structure. “It holds down our head count as well as providing a fixed cost for the fleet with minimal variable cost,” Winburn says.

Specifications for the fleet are a compromise between needs at Shetakis and components installed to enhance resale value at the end of the lease. “We started our discussions on the lease by talking about the business,” Winburn says. “Based on those discussions, vehicles were designed to match a specific job. For instance, all the trucks have air suspension and Horton fan clutches. Those fan clutches are important to keep the truck engines cool in our summer weather. We also asked for polished aluminum fuel tanks and polished stainless steel sun visors. At the end of the negotiations, Preferred asked us to include some items to improve their residual value. They also wanted air suspension, and for some reason, they wanted the trucks pre-wired and equipped with antennas for CB radios.”

Trailers and refrigeration units actually fall into two categories. All the 36-ft trailers were purchased used. The cutdown 36-ft trailers are cooled by remanufactured SB Classic units and are projected to stay in the fleet for 10 years. The 28-ft trailers are equipped with Thermo King Sentry units. Maintenance for the company-owned trailers and refrigeration units is performed by an in-house maintenance technician who also handles the warehouse equipment. He performs basic preventive maintenance inspections as well as changing oil and belts when needed. When repairs are needed, units are sent to dealers. One straight truck has a Carrier Transicold Supra 744 unit; the other straight uses a Thermo King TS-300 with a scroll compressor; and all the trailer units are from Thermo King.

Shetakis Wholesalers has a long history in Nevada. The company was founded by the Shetakis family in 1950 and operated by the family until 1999. During those 49 years, distribution expanded to include satellite operations in Reno, Nevada, and Denver, Colorado. The present management took over and reorganized the company late in 2000.

The takeover was the outgrowth of a business plan that contemplated the formation of a web-based purchasing program for smaller casinos and restaurant operators in Las Vegas. The original plan would have provided numerous small customers with the enhanced buying power of an Internet group. However, the web-based plan still needed the infrastructure of a brick-and-mortar distributor, and Shetakis was the distributor available for that role.

In the reorganization that followed, the web-based purchasing program was put on the back burner, where it remains to this day. Handling such a program would require a much larger organization, specifically a larger delivery fleet, Winburn says.

The company has responded well to its reorganization. Sales at the time of the takeover were only $8 million a year. By the end of 2003, sales volume grew to $45 million, and projections for 2004 call for sales of $60 million.

TAGS: Foodservice
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