The same case costs three times more to the small drop.
In food and beverage, the cost of serving a customer is almost never on the invoice. The route, the chilled bay, the part-load, the second weekly visit, the returns pickup: all of it is cost-to-serve, and a flat per-visit average hands the same number to a full truck and a half-pallet. The drop that looks cheapest on the spreadsheet is often the one quietly losing money.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
Cost-to-serve in food and beverage is driven by drop size, drop frequency, the cold chain and returns, not by the product on the truck. The same case can cost roughly two to three times more to a small convenience-store drop than to a full-truck account once travel, chilled loading and return handling are loaded onto each stop. A flat cost-per-visit averages this away; TDABC time equations restore the true cost per drop, channel and customer.
Low-value, high-frequency, often perishable.
Cost-to-serve matters more in food and beverage than in almost any other distribution business because the product is low-value, high-frequency and often perishable. A single case is worth little, so the cost of moving it has nowhere to hide: there is no fat margin on the product to absorb an inefficient drop. Deliver that case daily, in small quantities, under refrigeration, to an account that returns what does not sell, and the cost of serving can quietly exceed the margin on the goods. The margin in this sector is made or lost on the last mile and the deduction line, and a flat rate is blind to both.
Small, frequent drops are the silent loss
A convenience-store account taking a half-pallet twice a week absorbs route time and handling far beyond its volume. Spread evenly, it looks as cheap as the supermarket DC.
Channel changes cost more than the product
A retail DC, a HORECA kitchen and a convenience store are three cost structures for the same case: dock-to-stock, hand-balled up a stair, or multi-stop micro-drops.
The cold chain is unallocated
Chilled and frozen drops need temperature-controlled vehicles, chilled loading and tighter windows. A flat per-case rate charges the ambient and frozen drop the same.
Returns are a delivery cost
Picking up out-of-code product, crediting it and writing it off is cost-to-serve. It rides on the route and never reaches the gross-margin line.
The same stop-driven economics play out one level up the network in logistics, where a minority of routes carries the operation while a long tail runs below breakeven, and one level further in distribution, where the site that fulfils an order, not just the drop, decides its cost. Returns are their own driver too: retail sees the same erosion, where a returned item carries reverse logistics and inspection that a flat rate never counts.
THE SAME CASE, TWO DROPS
Illustrative. The same product, priced by what each drop actually consumes. The full truck and the half-pallet are not the same business.
Cost follows the drop, stop by stop.
The drop's cost is built from the minutes it consumes: travel to the stop, a fixed park-and-unload, the chilled stacks, the loose units, and the handling of anything that comes back out of code. Multiply by the capacity cost rate of the resource each term uses, and the cost lands on the drop that caused it.
Cost to serve a drop = travel time to the stop x driver capacity cost rate + 90 sec fixed park-and-unload + 20 sec per chilled stack + 5 sec per loose unit + return handling time x out-of-code units + (chilled vehicle surcharge if temperature-controlled)
Illustrative. The fixed park-and-unload is where a half-pallet's per-case cost balloons; the return term is where high-waste accounts pull away.
Reprice the service, do not fire the customer.
As an illustrative sector pattern, a regional dairy found that a cluster of small self-managed convenience-store drops looked profitable on a flat per-visit cost but lost money once route time, chilled handling and out-of-code returns were assigned to them. The fix was not to walk away but to change the deal: a small inventory discount in exchange for the account managing its own shelf cut returns to almost nothing and turned the relationship positive. The cost analysis did not kill the customer. It repriced the service. Once a drop carries its true cost, a business can change frequency, consolidate two small drops into one, move an account to a different vehicle or window, add a minimum order, charge for the second weekly visit, or trade a service concession for a price concession, none of which is visible while every drop shows the same flat number.
Frequently asked questions
- What is cost-to-serve in food and beverage?
- The full cost of getting product to a customer: route time, loading, the cold chain and return handling, before the product cost. It varies roughly two to three times between drops.
- Why do small drops cost so much more?
- Fixed time per stop, parking, unloading, paperwork, is spread over very few cases, so the per-case cost balloons on a half-pallet.
- Does the cold chain change cost-to-serve?
- Yes. Chilled and frozen drops carry refrigerated transport, chilled loading and tighter windows that a flat per-case rate ignores.
Find the drop cost your flat rate is hiding.
The Profit Check needs no data upload. It points to where your cost-to-serve and your pricing are most likely out of line by drop, channel and account, and what closing the gap is worth.
- Duration
- 12 to 15 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, no email needed
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops20-21 Oct · Online, ZoomReserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
Done. Advertising and measurement is now declined on this browser, so the LinkedIn Insight Tag does not load and nothing about your visit is shared with LinkedIn. You can turn it back on here at any time.
We are asking again. Your last answer is more than 12 months old, so it has been cleared. Nothing is switched on until you answer.
This notice has changed. Your previous answer was given to different wording, so it has been cleared and we are asking again. Nothing is switched on until you answer.
Session recording. Microsoft Clarity records how this page is used - mouse movement, clicks and scrolling - so we can improve it. Form fields are always hidden from the recording.
Advertising and measurement. The LinkedIn Insight Tag tells LinkedIn that you visited this site, so we can measure our advertising and reach people like you. This shares data with LinkedIn, a third party outside this site.
GPC. Your browser sends a Global Privacy Control signal, so the advertising purpose is declined automatically and we do not ask you about it.
- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Cost-to-Serve Analysis
- 3The Whale Curve
- 4TDABC vs ABC
- 5Make-or-Buy and Relevant Costs
- 6Cost-Volume-Profit (CVP) and Break-Even Analysis
- 7Customer Profitability Analysis
- 8Methods & Frameworks: how we cost, defensibly
- 9TDABC for Financial Services
- 10How to calculate cost to serve, step by step