The Benefits of Direct Store Delivery

In this article, learn about: 

• What direct store delivery (DSD) is and how it works 

• Which types of products benefit most from DSD 

• How to determine if it’s right for your business 

For retailers and suppliers who rely on freshness and speed for their products, there’s no worse scenario than wilted flowers, curdled milk, or crushed potato chips. When traditional retail stores rely on warehouses and centralized distribution models, product quality can start to feel out of control for suppliers who want their products handled delicately and without delay. Luckily, there is an important fulfillment model to consider: direct store delivery (DSD). 

DSD is effective for products where speed and freshness matter most. Categories such as beer, bakery items, fresh flowers, dairy, snack foods, and beverages often use DSD because these products move fast and have a shorter shelf life. Delivering directly to stores helps avoid delays caused by distribution centers. 

What is DSD?  

DSD is a product distribution method where manufacturers or suppliers deliver their items directly to individual retail stores, bypassing the retailer's warehouse or distribution centers. Suppliers often choose this delivery method if they provide items with short shelf lives, items with high-velocity turnover, or fragile items.  

The food and beverage industry is the largest and most established user of DSD. Within this category, it’s most commonly used for: 

• Beverages: soft drinks, bottled water, ready-to-drink cocktails, beer, and wine 

• Snack foods: chips, crackers, or packaged snacks 

• Bakery items: fresh bread, tortillas, cakes, and cookies 

• Dairy items: milk, eggs, cheese, ice cream, and yogurt 

• Fresh flowers and produce: flowers, fruits, and vegetables that require cold storage and rapid distribution to maintain quality 

DSD is also utilized for pharmaceuticals, greeting cards, fishing lures, and specialized equipment like first aid supplies. Essentially, it’s a common choice for suppliers who want to ensure their items are handled less and go straight to store shelves, rather than sitting in warehouses.  

Differences Between Traditional and Direct Store Fulfillment 

Before determining which model best fits your business, let’s look at the differences between traditional fulfillment models and DSD. The differences are highlighted primarily in where the inventory is managed and who delivers it. 

Traditional Model: Centralized Distribution 

In traditional distribution models, suppliers ship large orders to a retailer’s central warehouse or distribution center. There, the retailer assumes responsibility for sorting through products and sending them to individual stores on scheduled routes. 

This is best for non-perishable items, canned goods, and household items as demand for these items is slower and more predictable. The main advantage of the traditional distribution model is that it’s structured and more efficient in cost per unit shipped, as items are shipped in bulk. 

DSD Model 

In the DSD model, suppliers don’t need to use the retailer’s warehouse or distribution center at all. Suppliers use immediate transportation  to deliver products directly to each store. This is best for products needing speed, like fresh bakery items, fresh flowers, dairy, or high-demand items like chips and beverages.  

The primary advantage of this method is the reduction in handling, ensuring freshness and quality. In the DSD model, suppliers can also manage the shelves directly to ensure products look how they want. For example, a beer supplier may prefer DSD to better control how their six-packs are displayed on the shelf, turning them a certain way for proper brand representation.  

A Hybrid Approach 

Retailers and suppliers utilize both traditional and DSD models, relying on the latter for products requiring speed and careful handling and on the former for those that don’t.  

What are the Benefits of DSD? 

Highly practical benefits like speed, quality, visibility, and control make DSD an obvious choice for high-demand, fragile, and perishable products.  

1. Enhanced Quality and Freshness 

Since DSD eliminates intermediate storage steps (such as traveling to a warehouse or distribution center and then waiting for fulfillment to a retail store), it ensures products reach the customer quickly. You can imagine how a fresh-baked loaf of bread would become stale or inedible after traveling through the traditional distribution model. For example, small organic farmers maintain immediate product integrity by picking vegetables or flowers in the field, and pack them immediately into refrigerated trucks for same-day delivery to their retailer.  

2. Reduced Stockouts Lead to More Sales 

Traditional models rely on retailer warehouses to stock items, which can result in delays and out-of-stock situations. When retailers use DSD, supplier representatives can quickly identify stockouts due to increased store presence and provide higher inventory turns compared to traditional fulfillment models.  

Supplier representatives visit stores multiple times a week, identifying fast sellers, slow movers, and out-of-stocks in real time. This visibility enables suppliers to adjust quickly and restock stores within a day or two. 

3. Enhanced Merchandising and Marketing Control 

DSD gives suppliers control over the last mile of merchandising, putting their representatives in charge of shelf stocking, display execution, and in-store promotions. With firsthand visibility into customer behavior, net sales, and local trends, suppliers can tailor assortments and merchandising to the unique needs of each store while ensuring top-performing products are placed front and center. This direct involvement allows suppliers to actively influence sales and brand performance rather than relying solely on retailer marketing efforts. 

4. Quicker Speed to Market 

In the traditional distribution model, new and replenished items often sit in the retailer’s distribution center waiting for the next scheduled delivery, sometimes for days. That delay slows product launches, creates out-of-stocks, and leads to lost sales and frustrated customers for both the retailer and the manufacturer. 

DSD removes this bottleneck by bypassing the distribution center, allowing suppliers to introduce new products up to two weeks faster and respond quickly to seasonal demand or promotions. 

The Challenges of Direct Store Delivery 

While there are many benefits to DSD, it’s not always the best fit. There are a few practical challenges that should be considered:  

• Higher Transportation Costs: Since DSD involves delivering smaller amounts of product to individual stores, transportation costs are generally higher per unit than the traditional centralized model. 

• Operational Complexity and Staffing: DSD requires significant coordination. Some businesses hire specialized delivery teams that manage multiple unique delivery routes, with real-time impacts on delivery when things go awry. 

• Technology Investments: Depending on the size of the business and the complexity of delivery routes, some companies must invest heavily in technology. This can include advanced systems like route optimization software, GPS tracking, and mobile apps for drivers to handle ordering, invoicing, and proof of delivery. 

Breaking It Down: Practical Examples of Direct Store Delivery 

Suppliers Leveraging DSD 

Goya Foods relies heavily on DSD, aiming to provide next-day service for over 2,000 Latin American food stock keeping units (SKUs), primarily to small retail shops.  

Anheuser-Busch operates a massive DSD network to ensure its high-velocity products get on store shelves quickly. With most beers averaging a 90–120-day freshness window, timing is crucial. 

PepsiCo also uses DSD extensively, as it enables a rapid response to seasonal demand (like bottled water in hot weather) and gives control over shelf placement and arrangement.  

Retailers Limiting or Rejecting DSD 

Some retailers prefer to limit or reject DSD, requiring most suppliers to use traditional distribution models so retailers can cut costs and increase efficiency.  

Walmart is known for moving a very high percentage (up to 85%) of goods through its own network of distribution centers. They encourage suppliers to switch from DSD to warehouse delivery to gain control and reduce friction. 

Home Depot has invested heavily in distribution options in recent years. In the late 2000s, nearly 60% of inventory was delivered directly to stores. Now, with expanded distribution options across the country, Home Depot fills 75% of its orders through traditional methods. 

7-Eleven transitioned away from DSD in the late 2000s, with its CEO calling it a fragmented and inefficient system that clogs stores with many deliveries a week.  

A Hybrid Approach 

Many companies utilize both traditional and DSD models. 

Lowes accepts DSD for heavy building materials like drywall, plywood, and cement. This allows them to bypass their own warehouses, thereby reducing freight costs.  

Keurig Dr Pepper combines its own DSD options with third-party distribution where needed. This allows them to serve regional markets with flexibility. 

Determining Fit for DSD 

As with so many aspects of the retail industry and supply chain, DSD is a strategic choice. To determine if it’s the right fit, companies should ask the following questions:  

• Is my product perishable or fragile? If so, DSD is the ideal choice for items that require rapid delivery or careful handling, like fresh bread, dairy products, snack foods, or beverages. 

• Do I want more direct control over my inventory? Rather than relying on others or retailers, DSD offers increased in-store visibility for better shelf placement and promotional display control.