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Eighth Edition Purchasing Selection and Procurement for the Hospitality Industry ANDREW HALE FEINSTEIN AND JOHN M. STEFANELLI © 2011 John Wiley and Sons, Inc. All Rights Reserved CHAPTER Forces Affecting the Distribution Systems © 2011 John Wiley and Sons, Inc. All Rights Reserved 4 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. © 2011 John Wiley and Sons, Inc. All Rights Reserved FORCES AFFECTING THE DISTRIBUTION CHANNEL Economic Force Political Force Sources (growers, manufatuures, and processors) Intermediaries (middlemen) Ethical Force Retailers (hospitality operators) Legal Force Consumers Technological Force Other Forces 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved POLITICAL FORCE (CONT.) • 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 • Ethical Behavior 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE • Sherman Antitrust Act (1890) 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved 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) © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 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) 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) • State and Local Legislation 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? © 2011 John Wiley and Sons, Inc. All Rights Reserved LEGAL FORCE (CONT.) • Consignment sales 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved TECHNOLOGICAL FORCE • Genetically engineered foods 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” © 2011 John Wiley and Sons, Inc. All Rights Reserved 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 © 2011 John Wiley and Sons, Inc. All Rights Reserved OTHER FORCES • Intangible Forces Items you can’t see, touch, or feel Advertising, Credit Terms, Relationship © 2011 John Wiley and Sons, Inc. All Rights Reserved