6.3 – Assignment: Case Study – Distribution Strategy and Strategic Alliances (PLG1)
The case explains the importance of distribution partnerships and the complexity of marketing channel decisions. After reading the case study, address the following topics:
Answer the following topics
- What are the potential pros and cons of Perry Ice Cream’s direct sales distribution channel?
- What are the potential pros and cons of collaborating/partnering with this national brand?
- Evaluate the marketing channel options and describe the value channel members provide.
- Assuming that Perry’s leadership decides to carry the competitors’ products, evaluate the two proposals. Would you recommend they use on margin or drayage, and why?
Cover page, double space, Times New Roman, 12
Perry’s Ice Cream Distribution Strategy and Strategic
Alliances: The
800-Pound Gorilla
Case
Author: Kristen S. Ryan & Paul G. Barretta
Online Pub Date: January 02, 2018 | Original Pub. Date: 2018
Subject: Marketing Channels, Marketing Decision Making, Marketing Strategy
Level: Complex | Type: Direct case | Length: 3109 words
Copyright:
© Kristen S. Ryan and Paul G. Barretta 2018
Organization: Perry’s Ice Cream | Organization size: Large
Region: Northern America | State: Indiana, Kentucky, New York, Ohio, Pennsylvania, West Virginia
Industry: Manufacture of food products| Land transport and transport via pipelines
Originally Published in:
Publisher: SAGE Publications: SAGE Business Cases Originals
DOI: http://dx.doi.org/10.4135/9781526445506 | Online ISBN: 9781526445506
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© Kristen S. Ryan and Paul G. Barretta 2018
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Abstract
Perry’s Ice Cream is a manufacturer and distributor of ice cream. They also offer distribution
services to other frozen food products (such as pizza), including national brands. They offer the
benefit of direct store delivery (DSD), a valuable perk for frozen consumer goods. They are ap-
proached by a national brand of ice cream that is a direct competitor. They must decide whether
or not to distribute a competitor’s product, and if so, what method of strategic alliance is optimal.
Case
Learning Outcomes
The purpose of this case is to enable students to do the following:
1. Understand the strategic importance of distribution in the marketing mix;
2. Understand the importance of strategic alliances in distribution systems;
3. Appreciate the strength of using distribution channels as a value chain;
4. Analyze pros and cons of competitive strategic alliances;
5. Examine specific distribution channel types, functions and decisions;
6. Assess the profitability of alternative distribution strategies.
Introduction
Perry’s Ice Cream is a privately held, fourth generation family business headquartered outside of Buffalo,
NY. Perry’s was founded in 1918 when H. Morton Perry, a broom maker, purchased a small dairy in Akron,
NY, which is a small village between Rochester and Buffalo, NY. The dairy operated as a home delivery and
wholesale business until 1932, when Morton began supplying small batches of ice cream to the local school.
Morton Perry knew that to grow his company, he would need to expand distribution. In 1936, he acquired the
Frontier Ice Cream Company and established a Buffalo office which was staffed by a clerk and three driver
salesmen. This acquisition allowed him to supply Buffalo customers, greatly expanding his customer base.
Today, Perry’s is one of the two largest ice cream manufacturing plants in New York State, producing 500
different items totaling over 12 million gallons per year. The company sells to over 35 countries around the
world primarily within the United States and Latin America, generating sales in excess of $100 million. The
Perry’s brand (Figure 1) includes several product lines including premium ice cream, custard, reduced fat and
sugar ice cream, yogurt, sherbet, and sorbet in package and serving sizes ranging from novelties, pints, 48
fluid ounce family size packages, 1 gallon containers, and 3 gallon ice cream tubs.
Figure 1: Perry’s Ice Cream
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Source: Perry’s Ice Cream. Used with permission.
The diverse range of products serves an equally diverse business-to-business customer base. Customers
served include ice cream stands, independent grocery and convenience stores, hospitals, K-12 schools, col-
leges and universities, and distributors and wholesalers throughout Northeast United States school districts.
The brand’s success can be seen in their core market. At the year ending 2016, according to A.C. Nielsen,
Perry’s had an overall 26% market share in its grocery class of trade in its core market, which was 2.6 times
greater than the next branded competitor.
The Three Legged Stool Strategy for Growth
Perry’s president and CEO, Robert Denning, describes the company’s business model as a “three legged
stool,” with company growth and profitability resting on three factors: the Perry’s brand, ice cream produced
for other brands (referred to in this case as custom pack) and revenues generated from strategic distribution
partnerships and alliances. Two of the legs of this stool are relatively new ventures for the company. Perry’s
produced their first custom pack ice cream for regional grocery chains in 1986. Perry’s entered into their first
major ice cream distribution partnership in 1994 with Nestlé, and over the past decades has formed strategic
alliances with other frozen food products, ranging from frozen pizza, pretzels, and peas. “Companies often
form strategic channel alliances that enable them to use another manufacturer’s already-established channel.
Alliances are used most often when the creation of marketing channel relationships may be too expensive
and time consuming” (Lamb, Hair, & McDaniel, 2017, p. 237) These strategic alliance partnerships allowed
Perry’s to further leverage their distribution assets, while the partnering companies are able to get their prod-
ucts to market without having to invest in, manage, or allocate resources to this part of their marketing mix.
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Even though custom pack and distribution alliances are a relatively recent chapter in the company’s 100 year
history, the company projects revenues over the next three to five years and beyond based on each of these
legs of the stool accounting for one third of overall company revenues.
The DSD Distribution Model
Perry’s success and growth has come not only from producing high quality ice cream products, but from
strategic decisions it has made along the way involving the use of their distribution assets. Perry’s delivers
products to market using its highly developed distribution system and assets. These include:
• 45 trucks (Figure 2) maintained at −18 degrees Fahrenheit and an Over the Road fleet of 20 tractors
and 40 trailers, a portion of which are used to supply the company’s central distribution hubs in out-
lying markets.
• 50 drivers covering routes throughout Upstate New York State, Pennsylvania, Ohio, as well as por-
tions of West Virginia, Indiana, and Kentucky
• 40,000 square feet of frozen warehouse space at their manufacturing facility
• 40,000 square feet of additional leased frozen warehouse space located outside of Buffalo, New
York.
• A frozen warehouse which holds over 1 million gallons of ice cream.
Figure 2: Perry’s Ice Cream Distribution Truck
Source: Perry’s Ice Cream. Used with permission.
These assets are required to support the direct store delivery (DSD) model of distribution the brand uses in
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its core markets of New York and Pennsylvania.
The Grocery Manufacturing Association defines DSD as follows: “In DSD, products are delivered directly to
the store and merchandised by consumer products manufacturers” (GMA, 2008).
DSD also plays a major role in store execution. It is an opportunity to standardize and improve execution at
the shelf. Knowledgeable representatives of suppliers of DSD products are in stores multiple times a week
merchandising products. The labor contribution from DSD suppliers represents 25% of total store labor in the
North American market.
For stores, DSD is a commitment by suppliers to deliver to shoppers what is needed, when it is needed on
an individual store basis. For retailers, DSD unleashes an unparalleled opportunity to drive growth, power in-
novation, and improve cash flow. Together, as a trading partner network, DSD is the path to deliver a unique
shopper experience. In the face of changing lifestyles and rising demands of today’s shopper, it is the most
effective supply chain design to deliver what customers want at the shelf where it counts most. It also forms
the basis of a true collaborative relationship between the retailer and the supplier.
When you think growth, think DSD. In today’s retail environment, with an increasing number of product choic-
es (Figure 3) and the inherent difficulty in managing store-specific assortments, DSD offers a unique oppor-
tunity for a retailer to power growth. This growth takes five forms:
• Increase in volume at the store which translates to more sales
• Improvement in margin on products sold
• Acceleration in working capital
• Improved trade effectiveness of promotional activities
• Capabilities to better shape shopper experience to build shopper loyalty
In short, DSD drives an improved balance sheet for the retailer; and a better shopper experience for the cus-
tomer (GMA, 2008).
Figure 3: Grocery Fridge Stocked with Perry’s Ice Cream
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Source: Author.
While this model is expensive to operate from Perry’s standpoint, the company has stood by this delivery
strategy for many reasons. First, it ensures the quality of the product that consumers pick up off of the shelf.
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When ice cream thaws and refreezes, the quality of the product deteriorates. By delivering the product using
a DSD model, the product is handled almost exclusively by Perry’s employees. Second, the model fosters
relationships between the brand and retailers, enhancing the customer service levels the brand can provide
to retailers. Third, having an infrastructure of frozen food trucks, established routes and drivers that deliver to
the majority of retail and food service outlets in a region gives the brand an incredibly valuable, hard to dupli-
cate asset—a path to market for frozen food brands. By partnering with other frozen food companies (ranging
from frozen pizza to frozen peas) to deliver their products to the same retail outlets where Perry’s already
stops, Perry’s is able to leverage these assets and offset the cost of this model.
In addition to Perry’s own fleet of trucks and drivers, Perry’s has agreements with several major distributors,
who bring the Perry’s brand to market in areas in which Perry’s does not support DSD routes (see maps in
Appendix 1 and 2).
In summary, having a system of highly efficient distribution assets and a diverse base of customers is a key
strength of the company. This combination also makes the company a highly attractive potential partner to
other frozen product brands trying to get their products to market.
As Perry’s distribution assets and expertise grew, the brand became the “go-to” place if you wanted to effi-
ciently & effectively get your frozen food products to market in the Perry’s Market region (see maps). Some
in the industry referred to this privately held business as The 800 Pound Gorilla of distribution in their market
area. Over the years, numerous brands have approached Denning about forming strategic alliances. Forming
partnerships and bringing non-competing products to market was an extremely effective business model to
leverage the company’s asset base and enhance overall profitability.
Distribution Alliances: A Historical Industry Perspective
Strategic alliances in the ice cream industry for competing products did not have a smooth history.
In the 1980s, Perry’s (and the entire ice cream industry) watched the David and Goliath lawsuit story of Ben &
Jerry’s versus Häagen-Dazs unfold. At the time, Ben & Jerry’s was a small ice cream start-up company. Ben
& Jerry’s alleged that Pillsbury, owner of the Häagen-Dazs brand, was trying to force their (independent) dis-
tributors to remove Ben & Jerry’s from their trucks, or lose their rights to distribute Häagen-Dazs (UPI, 1987).
Ben & Jerry’s launched their now famous “What’s the Doughboy Afraid Of?” campaign through a grassroots
effort which gained them national media attention and a settlement agreement with Pillsbury. As part of the
campaign, Ben & Jerry’s printed the slogan “What’s the Doughboy Afraid Of?” on their ice cream packaging
(Figure 4), instructed customers to call an 800 number for the “Doughboy Hotline,” and provided a Dough-
boy Kit to everyone who called including a bumper sticker and protest letters addressed to the Federal Trade
Commission and the chairman of the Pillsbury board.
Figure 4: “What’s the Doughboy Afraid Of?” Sign
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Source: Ben & Jerry’s (2016).
Pillsbury eventually settled the lawsuit in 1985 with an agreement to “refrain from policies and actions that
coerced distributors not to carry Ben & Jerry’s products.”
Decision Time: Keep Your Friends Close and Strategic Partners Even Closer!
In the relationships Perry’s formed, the benefits of partnering for both brands seemed clear, making partner-
ship a proverbial “win–win” situation. All of the distribution agreements to this point in the company’s history
involved products that complemented the Perry’s brand, and enhanced the company’s assets and bottom
line.
Recently, Perry’s was approached by a national ice cream brand, asking Perry’s to distribute ice cream prod-
ucts that compete directly with their own line of products in their own distribution network. Specifically, the
proposal was to deliver and place their products to supermarkets and convenient stores right alongside the
Perry’s branded products. This national brand did not have distribution in the core markets where Perry’s is
sold, but had struck agreements with several major retailers in the region where Perry’s enjoyed dominant
market share. The brand is a national brand, with deep pockets to spend on advertising their products and
aggressively promoting them with deep price discounting. In addition, the national brand has proposed two
alternative methods of compensating Perry’s for bringing their products to market.
Denning sent an email to his executive team summarizing the alternatives presented to them. He asked them
to consider them carefully. A meeting was planned to discuss the best course of action for Perry’s. The sum-
mary he shared with the team included the following proposed alternatives:
Proposal 1: Working On Margin
Perry’s, as distributor, will purchase the product from the national brand for $3.00 per family size (48-56 ounce
package). Perry’s would mark up the product by $1 (approximately 33%) on their cost and sell it to local re-
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tailers for $4.00. The retailer will set a retail price of $5.99 giving them a retail markup of roughly 33% when
the product is not on promotion.
In this arrangement, however, the national brand and Perry’s would both be asked to adjust their prices when
the retailer wants to put the product on sale. The national brand is proposing that, when the retailer puts the
product on sale, the national brand and Perry’s both lower their price.
For example, throughout the year, the retailer plans to put the product on sale at $3.99, lowering their retail
price by $2.00. When the product is on sale, they will demand a price from Perry’s as their distributor of $2.80,
or $1.20 reduction in price per unit. The national brand will lower their price to Perry’s by $.84 per unit and
Perry’s will lower their price to the retailer by $.36.
Specifically, when the product is on sale for $3.99:
• National brand will sell to Perry’s for $2.16 per unit
• Perry’s will sell to the Retailer for $2.80 per unit
• The retailer will sell to consumers for $3.99
• When the product is on sale, Perry’s will be making $.64 per unit.
Proposal 2: Working On Drayage
Perry’s as distributor is paid a guaranteed fee to handle warehousing and distribution. The national brand is
offering Perry’s .80 cents for every unit delivered, every day. In this arrangement, the national brand would
work directly with the retailers in setting selling price to retailers, and negotiating adjusted prices and reduced
margins when the retailer puts the product on promotion and would not ask Perry’s to adjust their prices or
margins. Perry’s would make $.80 on every unit they deliver, every day.
Denning simplified the comparison using the chart in Figure 5, which he shared with his Board of Directors.
Figure 5: Profit Comparison of “On Margin” and “Drayage” Methods
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When Denning brought these opportunities to his executive staff, there was considerable debate and dis-
agreement over whether or not they should enter into an agreement with a competing national brand. The
eventual decision to recommend these partnerships to the Perry’s Board of Directors came down to Denning’s
analysis of the pros and cons of the partnership. Even though Perry’s has been entrenched in their market
areas since 1918, and has the leading market share (Appendix 3), the decision to put this product on the back
of their delivery trucks must be weighed carefully.
Denning had made some notes to himself on each member’s perspective during their meeting. He reviewed
them as he sat in his office, weighing the input of three of his trusted executive staff. In the back of his mind
he wondered what other benefits and risks might come from carrying his competitor’s product on his trucks.
Bill, Chief Financial Officer of Perry’s, was most concerned about mitigating risk. He was quick to point out
that by going with drayage they not only create revenue from currently unused capacity on their trucks, they
gain certainty. Bill’s logic is based on the fact that in this case what Perry’s is selling is their expertise in lo-
gistics and distribution, so why not take the alternative that is directly linked to this expertise and avoid any
revenue risk.
Linda, Chief Operating Officer, sees the alternatives a different way. She understood Bill’s point about reduc-
ing uncertainty, but she simply didn’t think it was a big enough risk to sacrifice the potential for a greater prof-
it margin. Working on margin made the most sense to her because the company will earn healthy margins
at regular pricing, which is the least they can do if they are distributing the competitor’s product! Besides, it
seemed like good strategy to share in a competitor’s product because some consumers may be purchasing
the national brand instead of Perry’s.
This is when Mitch, who is in charge of business development, stepped in during the meeting. Mitch said that
Bill and Linda are both crazy. Why in the world should Perry’s help their competitors get products on their
shelves? Mitch points out that the strategy that Perry’s uses is the best way to get the freshest product on the
shelves for their customers. This may be a point of differentiation in the eyes of consumers. Sure, they don’t
know how each brand gets to the shelf, but if they see that Perry’s always seems to have a great selection
and assortment of flavors that are always fresh whereas the national brands are sometimes frosty, freezer
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burned and damaged or battered, that might make a difference. Besides, there are plenty of non-competing
products that want to use our distribution system.
Denning knew it was his decision to make. He considered a few questions as he contemplated the alterna-
tives.
Discussion Questions
1. What do you see as the potential pros of collaborating/partnering with this national brand?
2. What are the potential cons?
3. What does Perry’s have to gain? Lose?
4. What additional information do you think could help make your decision?
5. Would you recommend that Perry’s carry the competitors’ products? Why or why not?
6. What method would you recommend they use, on margin or drayage, and why?
Authors’ Note
Information contained in this case was provided by Robert Denning, President and CEO of Perry’s Ice Cream
Company, the company website and reports, and former employees of Perry’s Ice Cream. Perry’s is a pri-
vately held family business. The numbers related to margin throughout the case have been fictionalized for
the privacy of the company. However, the decision process faced by the company remains the same. The
authors would also like to acknowledge the efforts and contributions of Donald J. Mitchell, MBA Student at St.
Bonaventure University.
References
Ben & Jerry’s . (2016). It’s almost scandalous. Retrieved from http://www.benjerry.com/whats-new/2016/6-al-
most-scandals
GMA. (2008). Powering growth through direct store delivery. Washington, DC: Grocery Manufacturing Asso-
ciation.
Lamb, C. W. , Hair, J. F. , & McDaniel, C. (2017). MKTG 10: Principles of marketing.
UPI. (1987). Ben & Jerry’s sues Häagen-Dazs again. Retrieved from http://www.upi.com/Archives/1987/11/
17/Ben-Jerrys-sues-Haagen-Dazs-again/9739564123600/
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http://www.benjerry.com/whats-new/2016/6-almost-scandals
http://www.benjerry.com/whats-new/2016/6-almost-scandals
http://www.upi.com/Archives/1987/11/17/Ben-Jerrys-sues-Haagen-Dazs-again/9739564123600/
http://www.upi.com/Archives/1987/11/17/Ben-Jerrys-sues-Haagen-Dazs-again/9739564123600/
http://dx.doi.org/10.4135/9781526445506
- Perry’s Ice Cream Distribution Strategy and Strategic Alliances: The 800-Pound Gorilla
Case
Abstract