Wholesale industry keeps growing thanks to local food industry
For decades island distributors and wholesalers have prospered under the protection of local distribution statute Law 75, which limits a U.S. or foreign manufacturer’s ability to modify or terminate its distribution arrangement. In recent years, however, wholesale distributors – especially those in the food business – have seen their advantage chipped away by giant retailers such as Wal-Mart and Costco, distribution behemoths who import products directly, bypassing the middleman.
Notwithstanding, Puerto Rico’s wholesale companies generated gross domestic product of more than $5.5 billion during Fiscal 2006, according to Planning Board figures, still making them one of the most important business sectors on the island. Most recently, industry growth comes from the steady growth of the island’s $6 billion food industry which has propelled local key players to expand existing product lines, acquire new product lines and expand local distribution logistics and operations to better serve the local general retail and food retail industry.
The top 10 locally owned wholesalers alone rang up sales close to $4 billion in 2006, according to the CARIBBEAN BUSINESS List of Top 400 Locally Owned Companies. The largest wholesale companies are principally in the food and liquor business, although drug and pharmacy-related distributors have grown as part of the burgeoning health business. In Puerto Rico, the entire wholesale industry employs more than 30,000 people, according to the Planning Board.
Despite ever-increasing competition, local market leaders V. Suárez and Méndez & Co. continue full speed ahead with ambitious expansion plans to the tune of $120 million combined and both companies will be expanding and relocating their operations to Bayamón. These expansions will improve local distribution systems and merchandising options to further strengthen local food-and-beverage distributors who have seen many small retailers, cafeterias and outdoor vending stands flocking to giant retailers because of lower prices.
Industry observers are also keeping an eye on Puerto Rico Supplies Group, a leading tobacco and consumer products distributor, which is also expanding its local operations and finalizing construction of its $20 million, 200,000-square-foot distribution center, also in Bayamón. Last year, Puerto Rico Supplies Group acquired the F. Pont Flores, fragrances and cosmetics distribution company, Caribbean Snacks, which includes top consumer food lines such as Borden’s and the Ferrero distribution of gourmet chocolates. These acquisitions will help strengthen the company’s direct-to-business sales, which recently increased from 50 to 70 routes.
Still lingering are the effects of excise taxes levied in mid-2002 on wines and alcoholic beverages. Sales of alcoholic beverages have stabilized, but they have not bounced back to import levels prior to the tax hike. Beer distributors have been the most affected, because many formerly brand-conscious consumers have simply switched to less-expensive brews. Local food and beverage wholesalers, under the leadership of the local beer distributors’ association, continue to fight for the elimination of the differential tax that protects locally manufactured Medalla versus all imports.
Meanwhile, the elimination of the excise tax on other food and beverage imports, as a result of the introduction of the new sales and use tax (IVU by its Spanish acronym), gave importers and distributors some relief as they were able to hang on to market share. With the 6.6% excise tax a thing of the past, import prices are expected to go slightly down.
The line between wholesale and retail blurs in cash-and-carry stores, many of which still sell by the case even though they have established supermarket divisions or converted to supermarkets. Ralph’s Food Warehouse, Plaza Loíza and Hatillo Kash n’ Karry are examples of cash and carries that have expanded into the retail market.
Wholesale companies make up 15% of the CARIBBEAN BUSINESS Top 400 Locally Owned Companies list. And the list of Top 10 locally owned wholesalers includes eight food-and-beverage companies and two companies dedicated to distributing hospital and medical supplies.
Among the largest locally owned drug and pharmacy-related distributors are Borschow Hospital & Medical Supplies and César Castillo Inc. Multinationals such as Beckton Dickinson and Baxter also distribute medical devices and supplies in Puerto Rico.
The island’s demographics attract these companies and will most surely translate into higher sales for them in the coming years given the fact that the largest group of consumers of medical products, ranging from medicines to medical equipment, are the elderly. By 2025 more than 20% of Puerto Rico’s population, or 852,244 people, will be 65 years of age or older, according to the U.S. Census Bureau.
