Agricultural Economics
Series 15
November 1967
T
\40kJ
DELIVERY 
PRACTICES 
AND COSTS
FOR
WHOLESALE 
MILK 
ROUTES
N ALABAMA
AGRICULTURAL EXPERIMENT 
STATION
OF AUBURN UNIVERSITY
E. V. Smith, Director
Auburn, Alabama
I 
I
i 
I

Preface
This study was initiated in 1961 under Alabama Research Project 592,
Practices and Costs of Wholesale Milk Delivery in Alabama. Information
describing wholesale milk delivery operations was obtained from milk
distributors in late 1961 and early 1962. Thus, the time lapse between
the field work and publication of results was about six years. Changing
conditions may cause economic information such as presented in this
report to become outdated. However, operation and characteristics of
wholesale milk routes in Alabama have not changed so much as to outdate
this report. Wholesale milk delivery information collected in 1966 for
122 routes in the Birmingham and Montgomery market areas show similar
load characteristics as found in 1961. Some marketing changes occurring
since 1961 affecting distribution practices and costs include: increases
in milk product prices, increases in commission rates for some firms,
growth of milk sales through convenience stores, and reduction in
delivery days per week from 6 to 5. The general level of prices has
continued upward during this period.
Market regulation and pricing practices administered by the Alabama
Milk Control Board changed little since 1961.
Cooperation of wholesale milk distributing firms and their route
operators in providing information for the study is gratefuly appreciated.
TABLE OF CONTENTS
INTRODUCTION . . ." .. . .. " . ..0 ." .
.
METHOD OF STUDY . . " . . .. .* . 0 ~ . " *. . * "* ". ,. .
LOAD CHARACTERISTICS .. * *? * .. *'. . ?. . *.. " .*...
Measurement of Load **, . **..* *.*!
Type of Container' Used and Products Delivered 
* . f " .
Load Value . * . . !* . *. * ?* .* .* .* .* ._ * s*.*.*"*f*.* 
f* "
DESCRIPTION OF WHOLESALE ROUTES "
Route Mileage * ***. **" ,.***
Type of Customer * *.** .. .**** ***
Frequency of Deliveries .s ..*..*.
Type of Milk Display and Services 
Performed " . . . ". .
Collection of Bills *... "*. ..f. .. * .
Number of Milk Distributors Per Account ..... """.
Delivery Time . *. * . *?* . .
" *." **"."*
DELIVERY COSTS **" *** f ** 
. . ".* ****?
Labor Costs * .. ** * .
.** * " * .* * *
Truck Costs *. *f f .. f " .
"*"*.* a * "*.*f* * f* "* .* "
Total Delivery Costs *..!.4.* 
*44? 4.. .
COST Reduction Alternatives ..
?* ** . . . : * f* .* .* .
Increase Volume and Value of Route Loads f 
" **..
Consolidation of Deliveries .
".."*.".*"*? .. 4 .4 "
Reduced Services * 4" 44? 44. 44"
1
3
5
5
7
7
13
14
15
15
18
20
21
21
24
25
31
36
37
38
45
46
DELIVERY PRACTICES AND COSTS FOR
WHOLESALE MILK ROUTES IN ALABAMA*
Norman R..McDaniel**
Lowell E. Wilson
Department of Agricultural Economics and Rural Sociology
More than three-fourths of all fluid milk products sold in Alabama is
distributed on wholesale routes, primarily to grocery stores, school, and
eating places. The remaining volume is distributed on retail routes to
homes. In 1966, approximately 40 milk processing plants sold fluid milk
products in the State; four processing plants located in adjoining states
sold milk products in Alabama. The 20 largest plants reported in excess
of 85 per cent of the total sales and had practically all of the whole-
sale milk distribution.
Since World War II the shift from home delivery to wholesale distri-
bution of fluid milk products brought about a large market adjustment in
Alabama's dairy industry. A competitive struggle developed among milk
distributors for wholesale volume. This competition plus loss of home
delivery sales forced most small distributors and producer-distributors
out of business. The rapid growth of wholesale volume resulted from the
rise of mass distribution of food through supermarkets and the shift to
store purchases of milk by consumers. Adoption of the single service
The Experiment Station project on which this report is based was
supported by funds providd.by..theResearch and Marketing Act of 1946
and by State research funds. The study was under Alabama Research Pro-
jects 592 and 602. Project .602 :is.a.contributing study to the Southern
Regional Dairy Marketing Project SM-28, "Impact of Changing Market Struc-
ture Upon the. CompetitivePosition of the Dairy Industry in the South."
? *Former Graduate Assistant and Associate Professor in Agricultural
Economics.
paper container and 
improved refrigeration 
methods contributed 
to the
change :
Cost of milk distribution on wholesale 
routes is less than the cost
incurred by retail delivery 
to homes. In most markets 
throughout the
United States, retail prices 
for milk sold in stores are below home 
deli-
very prices. In Alabama markets, 
however, growth of store sales 
of milk
developed despite no price incentive 
to the consumer. The Alabama 
Milk
Control Board fixed only one retail price 
level for milk products. In a
pricing order dated March 10, 1967, 
the Board permitted an optimal 
price
for home delivered milk of 1 
cent per unit above the fixed store 
prices.
One research project at this Agricultural 
Experiment Station has
dealt with fluid milk distribution. 
Williams made an analysis of 
costs
and returns for Alabama milk distributors 
in 1948 and 1949 (7). Cost data
were obtained from 35 milk distributors 
located throughout the State.
Considerable variation was found among firms 
in delivery costs for both
wholesale and retail routes. 
Major factors contributing to differences
in unit costs of delivery were variations 
in pay rates for delivery workers
and differences in physical factors 
affecting efficiency. For wholesale
routes, differences in size of 
route loads were the main physical 
factor
affecting efficiency. At the time 
of Williams' study, wholesale distri-
bution appeared to be one of the 
least efficient phases of Alabama's 
fluid
milk industry.
Purposes of the study reported 
here were (1) to describe the 
charac-
teristics and practices of 
wholesale milk delivery in Alabama, 
(2) to
determine costs of delivering 
milk products and measureeffects 
of major
variable factors on delivery 
costs, and (3) to suggest potential 
ways of
reducing wholesale delivery 
costs.
METHOD OF STUDY.
Most of the data reported in this study were collected 
from milk
distributors in 1961. Although these data.are several 
years old, it is
believed that physical factors affecting efficiency 
of wholesale milk dis-
tribution in the State have not changed 
materially and results of the
study are still relevant to Alabama's dairy 
industry. Also, market reg-
ulationby the. Alabma Milk...-Control Board., 
which might affect milk distri-
bution practices, has been- relatively unchanged 
since 1961. Labor and
truc'k costs, which account for practically, 
all of the delivery costs have
risen somewhat since the field' work was 
completed.
In June 1961, 17 milk distributors handling over 80 
per cent of all
fluid milk products sold in the State were 
asked to cooperate in the
study. These distributors sold milk on wholesale routes 
in all major mar-
ket areas in Alabama. Wholesale value of products delivered on 234 
routes
were obtained from 14 firms for May 1961. Average sales of 
all products
per route were $7,560, Table 1. Approximately 45 per cent of the 
routes
had sales from $5,000 to $7,500, and 42 per cent sold 
more than $7,500.
Only 13 per cent handled less than $5,000 of products 
in May 1961.
Three firms had no routes with sales less than $5,000, 
while four firms
had no routes with a value of sales exceeding $10,000 for the 
month.
Based on the wholesale value of products for the 234 routes, a 
sam-
ple of 45 routes, which were apparently representative 
of the total
group, was selected for further study. Questionnaires were 
sent to each
firm requesting information about the characteristics of 
the selected
routes. Fourteen distributors cooperated in this phase 
of the study and
information was obtained for 39 wholesale routes.
Table 1. Number of Routes, Total Sales and Average Sales Per Route by
Sales Per Route, 234 Wholesale Routes, Alabama, May 1961
Number Percentage Total Average Percentage
Sales of 
of all sales 
sales per of total
per route 
routes routes 
volume route 
sales
Number Per cent Dollars Dollars Per cent
Under $5,000 30 12.8 122,305 4,077 6.9
$5,000-$7,499 105 44.9 656,915 6,256 37.2
$7,500-$9,999 60 25.6 506,286 8,438 28.6
$10,000 & over 39 16.7 483,521 12,398 27.3
Total 234 100.0 1,769,027 7,560 100.0
Routes studied delivered milk in the following markets, nearby small towns,
and rural areas: Anniston and Gadsden, Birmingham, Huntsville, Mobile,
Montgomery, and Tuscaloosa. .. In 196.1 these 14 distributors sold about two-
thirds of all fluid milk products in the State.
Survey information was taken for the week of November 13 through 18,
1961. Route drivers estimated the route time requirements. No attempt
was made to obtain time requirements for specific stops or delivery prom
cesses. For each route, information was requested relative to labor costs
and practices, route mileage, number of customers, number and type of milk
and other products delivered.. Types of trucks used and costs of operation
were obtained for some routes.
Information about individual customer deliveries was obtained for 15
of the study routes. A total of 683 customers was served by the 15 routes.
Value of products delivered to each account was recorded for each deli-
very during the study week. Type of account, second deliveries per day,
number of distributors serving each account, method of payment, and other
services were obtained for each customer.
. 5
LOAD CHARACTERISTICS
Among the routes loads differed asito number of items carried, kinds
of products, and types and sizes of containers. For example, some milk
products were sold in half-gallon, quart, pint, and half-pint containers
in both paper and glass.
The average daily load was 1,286 quart equivalents of milk prodiuts:
.46 ..pint equivalents, of cream products; and 192 units of other products,
Table 2. Routes handled an average of 14 different types of dairy and
non dairy products. Types of items .handled ranged fro 11to 16 .among..
the routes.
Measurement of Load
For the sake of simplicity in relating cost to size of route load and
in studying the different route loads, all items delivered were converted
into a common or standard unit of measurement. Because of the wide assort-
ment of sizes, products, and containers on the different routes, conver-
sion of the load make-up into a meaningful standard unit was difficult.;
Several different standards of measurementsi.could be used in the analysis,
but in each case some type conversion was required.. These different mea-
surements include: (1) number of container units; (2) number of quart
equivalents; (3) a point system where each containersize'was rated as
a certain number of points; (4) a dollar value basis; and (5) a combina-
tion of any of the above. All milk units were converted into quart equi-
valents. For example, two pints of milk were counted as one quart
equivalent and one half-gallon was counted as two quart equivalents.
Cream products were converted into pint equivalents and all other pro-
ducts were simply counted by the actual number of container units.
Table 2. Average Daily Load Delivered 
By Type
Units, 39 Wholesale Routes, November
of Product in Equivalent
13-18, 1961
Equivalent Percentage of product
Product group.. un its delivered group
Milk, quart equivalent
Creamline sweet milk . .".
Multi. vit. & breed milk
Homogenized milk . ..
Chocolate milk . .".
Buttermilk..... .....
Chocolate drink...........
Skim milk
Fortified skim milk.
Whole milk buttermilk ..
Total.... .. .. .. ..
Cream, pint equivalent
Half and half.. .. ..
Coffee cream... . ......
Whipping cream. . . . . ,
Sour cream . . . ...
Total .
Other products product units
Fruit drinks (Aj pt."-qt .) 
.
Orange juice (qt.) ,. " .
Cottage cheese (carton). .,
Margarine (lb.)., . . .0 . ,
Butter (lb.)," . . . . .
Dairywhip (can) , .
Ice cream & ice milk mix.(gal.)
Egg nog (qt.). " ". . . . .
Eggs (doz.) . ". 
. . . . .
Number
*33.3
8.3
953.8
99.3
147.6
9.3
24,5
4.8
5.4
Per cent
2.6
.7
74.1
7.7
11.5
.7
1.9
.4
.4
1,286.5 100.0
* 31.3 68.5
* 3.6 7.9
* 6.2 13.6
* 4.6 10.0
45.7 100.0
155.1
11.8
18,0
1.5
1.6
.5
2.1
1.6
.2
80.6
6.1l
.9.4
.8
:.8.
.3
1.1
.8
,1
Total 
192.4 
100.0
r r
Total
192,4 100 s0
Type of Container Used and Products Delivered
Approximately 75 per.:-cent .of the::milk:elivered was homogenized milk.,
Table 3,4, and 5. Homogenized milk was"9oldmainly in half-gallon, half-
pint, and pint paper containers. About one per cent of the homogenized
milk sold was in glass containers, and in a few instances milk was sold
in bulk. Slightly over 50 per cent i'f homogenized milk was sold in half-
gallon paper containers. The next largest percentage of sales was in
half-pint containers, followed by quart and pint containers. Because of
a large volume milk sales to schools, more milk was sold in half-pint con-
tainers than in pint and quart containers.
Cultured buttermilk accounted for 11.5 per cent of the total amount
of milk delivered while chocolate'milk made up approximately eight per
cent of the milk delivered. Most of the cultured buttermilk was sold in
quart containers, while the largest portion of the chocolate milk was sold
in half-pint containers, mainly to schools. Pasteurized creamline sweet
milk, multi-vitamin and breed milk, chocolate drink, skim milk,.fortified
milk, and whole buttermilk together accounted for the remaining milk
products.
Approximately 96 per cent of the total amount of milk delivered
during the study period was delivered in paper containers while the remain-
ing four per cent was divided among glass and bulk containers.
Half and half blend of cream and milk accounted for nearly 69 per
cent of the total cream delivered during the study period. Whipping cream
amounted to 14 per cent, sour cream 10 per cent, and coffee cream 7.9 per
cent, respectively, of the total amount of cream prfducts delivezed.
8
Table 3. Average Daily Load Delivered 
by Type of Fluid Milk Product and
Container, 39 Wholesale Routes, Alabama, 
November 13-18, 1961
Container size
Milk One- 
One- I Bulk Total quart
half Pint Quart half in equivalents
pint gal. gal.
N. No. No. No. No. No. Pct..
Paper . . . . .
Glass . . . . . . .
Multi. vit. & breed milk
Paper ....
Glass.. . . . .
Homogenized milk
Paper
Glass i . . .
Chocolate milk
Paper
Glass
Cultured buttermilk
Paper
Glass
Chocolate drink
Paper, .. ....
G 
asSkim milk
Paper
Glass , , . .
Fortified skim milk
Paper. . . . .
Glass 0 . . .
Whole milk buttermilk
Paper . . . . .
Glass .....
8.7
.6
12.0
. - . - - 1.4 3.4
a.. ow O r o 
w2/
843.9 70.1 182.,1 238.8
23.8 6.9 3.3 ,3
309.0
2.3
21.6 8.1
1.3 .
32.7 2.5
.6 1/
8.*2 .6
.1 1/
905.7 .70.4
13.3 1.0
96.2
1.2
8.8 13.2 .89.1 24.9
.2 ---. _,w.
4.4 10.6 2.9
19.0 1.8
___ .1
6.7
.8
.5 1.3
7.5
.1
147.7 11.5
.1 1/
9.3
24.3
.2
4.84.6
4.7 5 .4
2/
.7
1.9
1/
.4
1/
Total. . . 4 . . 1,200.4 125.0 324.5 281.3 9.2J1',286.5
1
/Less than 0.05 
per cent.
'Les s than 0.05 unit-
2/Bulk sales in cans: homogenized 
milk 8.7 gallons and choclate 
milk 5
gallons.
100.0
r r r r r
.. + + ..
R M
"
"
"
9
Table 4. Average
tainer,
Daily Load Delivered by Type of Cream Product and Con-
39 Wholesale Routes, Alabama, November 13-18, 1961
Container size Total pint
Cream
One-half Pint. Quart equivalents
pint
No. No. No. No. Pct.
Half and half
Paper ..... . --- 19.3 5.8 30.9 67.6
Glass . . . . . .-- - .2 .4 .9
Coffee cream
Paper . . . . . . .4 .4 1.5 3.6 7.9
Glass . . ._.. . - ......
_......... 
.
Whipping cream
Paper . . . . . 7.1 .2 .5 4.8 10.5
Glass . . . . . . --- --- .7 . 1.4 3.1
Sour cream
Paper . . . . . . 7.1 -..... --- 3.6 7.9
Glass . . . . . . ... 
..... _......
Total. . . . . 14.6 19.9 8.7 45.71/ 100.0
I/Includes an
bulk quantity.
average of one pint of sour cream distributed in
Cream products were packaged in different container sizes. For instance,
the greatest portion of the half and half blend was sold in pint containers,
while most of the whipping and sour cream was sold in half-pint containers.
Coffee cream was mainly in quart containers. Approximately 94 per cent
of the cream was deliyered in paper containers and 4 per cent was in glass
containers. The remaining amount of cream was sold in bulk.
A number of other dairy and non-dairy products were handled by the
routes studied. About 80 per cent of these products were fruit drinks,
mainly orange. Cottage cheese and orange juice made up most of the
remainder of this product group.
10
Table 5. Average Daily Load Delivered 
by Type of Other Products and 
Con-
tainer, 39 Wholesale Routes, 
Alabama, November 13-18, 
1961
Other products Container 
Units
size
Orangeade and orange drink
Grapeade and grape drink
o " " .s
S ! .t
. . . .
o- . . .
Pure orange juice
Cottage cheese .
Margarine .
Butter . ?
Dairy whip
Ice cream &
Egg nog. .
Eggs . . .
. s . . . .
ice milk mix
.i " "
Total ..... . .........
No.
pint 104.3
pint 39.9
quart 
9.4
pint 
1.2
pint .3
quart 1/
quart 11.8
12 oz. carton 14.5
1 pound carton 0.0
2 pound carton .2
bulk (pound) 
3.3
1 pound package 
1.5
1 pound package 1.6
can .5
gallon 2.1
quart 1.6
dozen 
.2
. . . . . . . . . . . . . 192.4
1/Less than 0.05 units
Load Value
Wholesale value of milk and other 
products delivered on the 39 whole-
sale routes averaged $2,149.90 for 
the week and $358,31 daily. Seven:routes
had sales values of less than $1,500 
per week, 22 routes from $1,500 
to
$2,500, 7 from $2,500 to $3,500, 
and 3 routes had more than $3,500 
of sales
s " " "
! i !
11
per week for the study period. Value of products delivered on the 39
routes ranged from $1,195.65 to $4,551.83.
Average value of load for the routes varied by day of week, Table 6.
Largest deliveries were made on Friday and Saturday, whereas the smallest
deliveries were on Wednesday.
Table 6. Average Value of Load Delivered by Day 
of Week, 39 Wholesale
Routes, Alabama, November 13-18, 1961
Average value Index
Day of week of load (Percentage 
of weekly average)
Dollars Per cent
Monday ..... . .. . 372.89 104
Tuesday . . . . . . ... 329.56 92
Wednesday ........ 295.15 82
Thursday . . . . . . . 347.77 97
Friday ... . .. . 408.0 114
Saturday . . . . . . 396.41 111
Average .... . . . .. 358.31 100
Table 7 lists the average value of sales per delivery by type of account
and day of week 'for 683 wholesale accounts. Customer data show that
schools and supermarkets were the largest accounts, averaging $32.35 and
and $28.39 daily, respectively. Vending machine accounts were next
largest with an average of $19.99 per service. Following vending machines,
in order were. eating places, small grocery stores, country stores and
service stations, and drug stores. Average value of deliveries ranged
from $5.79 to $3.08 daily.
Although supermarkets made up less than 10 per cent of the total
accounts, they were responsible for nearly one-third of the total sales,
Table 8. Volume of sales to school accounts made up 22 per cent of total
Table 7, Average Value of Sales Per Delivery 
by Type of Account and Day of Week, 
683 Who
Alabama, November 13-18, 1961
Type of Account
Country
Day of week Super- Small 
stores & Eating 
Drug Vendi
markets grocery service places 
Schools stores machin
stores stations
.O Dollars---------------
Monday . . . 28,39 5.27 4.81 5.31 
31.86 3.95 l7579
Tuesday.........18.66 4.71 4.48 
6.84 30.20 2.40 21.
Wednesday . 21.90 4.17 4.22 3.90 
33.56 2.25 30.64 7
Thursday.. . 23.94 4.65 4.84 5.75 3r,.9o0.2.93; 
13.708.3 .6
Friday . . . . . 39.18 5.24 4.41 5.60 
31.36 2.10 25.309314
Saturday . . . 43.13 6.87 4.61 
6..90 1/ 4.61 4.081.8(l7
Average.,*" , 28.39 5.20 4.57 5..79 
32.35- 3.08 190.9996 02
!'Excludes Saturday deliveries made to three schools..
)
a
9
7
9
N-
13
Table 8. Number and Percentage of Wholesale Customers and Value of Sales
by Type of Account, 683 Wholesale Accounts, Alabama, November
13-18, 1961
Type of account
Supermarkets 
, , . .
Small grocery stores
Country stores &
service stations,
Eating places, ...
Schools . .. ..
Drug stores. . . ..
Vending machines . .
Others . . . .. .
Total.... . . .
Accounts
Number
. 61
203
118
157
" 48.
. 22
,. 13 
.
. 61
. 683
Per cent
8.9
29.7
17.3
23.0
7.0.
3.2
1.9
9.0
Dt
9,
5,
1,
4,
6,
2,
100.0
.Value of products
delivered.
ollars Per cent
339.98 30.3
057.98 16.4
919.94 6.2
264.35 13.8
923.58 22.4
276.80 .9
879.52 2.8
219.45 7.2
30,881.60 100.0
sales but were only seven per cent of the total accounts. In contrast,
small grocery stores, country stores and service stations made up approx-
imately 50 per cent of the total accounts but were responsible for less
than 25 per cent of total sales.
DESCRIPTION OF WHOLESALE ROUTES
The 39 wholesale routes consisted of 18 city and 21 country and
small town routes. In addition to data collected from the 39 routes,
individual customer data were obtained from 15 of these routes. Custo-
mer data consisted of information in regard to value of milk products
delivered to each stop daily and certain characteristics of each customer.
There was an average of 53 stops per route for the 39 routes. 
Many
routes had customers who were not served daily. Usually these customers
made small purchases and could be adequately served 
by two or three
deliveries per week. City customers were served more frequently 
than
~r\rl
14
were rural customers. The 
average country and small town 
route had 64
accounts and an average daily 
sales of $5.62 per account, 
while the ave-
rage city route had 40 accounts and 
average daily sales of $9.16 per
account.
Route Mileage
Average daily round-trip mileage on the 39 
routes was about 80 miles,
Table 9. Average daily distance from the plant 
to the first stop was 10.4
Table 9. Average Number of Miles Traveled Per Delivery Day for City 
and
Country Routes, 39 wholesale 
Routes, Alabama, November 
13-18,
1961
Mileage from:
Loading. First 
stop Last stop
Type & segment Routes point to to to loading Total
of routes first stop last 
stop point distance
Number. Miles Miles Miles Miles
City routes 18
Average
distance . . . . . 6.0 33.7 
6.3 46.0
Range in
distance . . . . . 0.1- 
2.5- 0.2- 5.0-
25.0 69.0 15.0 105.0
Country and small
town routes 21
Average
distance . . . .. 14.7 
87.4 11.9 114.0
Range in
distance . . . . 0.2- 36.0- 
0.5- 38.0-
60.0 138.0 50.0 175.0
All routes 39
Average
distance .1.. . 0.4 60.6 
9.1 80.1
Range in
distance . . . . . 0.1- 2.5- 
0.2- 5.0-
60.0 138.0 50.0 175.0
miles, from the first stop to the last stop 
60.6 miles, and from the last
stop to the plant 9.1 miles per day. Miles 
traveled on country and small
15
town routes were much greater. than:the miles traveled on city routes.
Distance traveled per day for' city .routes ranged from 5 to 105 miles
with a daily average of 46 miles, whereas-thetotaldistance traveled
daily for country and small town routes ranged from-38 to 175 miles 
with
a daily average of 114 miles.
Type of Customer
The 15 routes for which ;customer data were 
obtained had a total of
683 customers or about 46 customers per route. Different 
types of busi-s
nesses served are shown in Table 10. Small grocery stores, country 
stores
and service stations, and eating places were 
the most frequent types of
stops, making up 70 per cent of the total stops.
Table 10. Number and Percentage of Wholesale 
Customers by Type of
Account, 683 Wholesale Accounts, Alabama, NQvember 13 
'48,
1961
Type of account 
Number Per cent
Supermarkets . . . . . . .
61 8.9
Small grocery stores. . . . . . . .
203 29.7
Country store & service stations . ' .
118. 17'.3
Eating places, . . ........ .
.157 23.0
Schools 
. . ........ 
. . 48 
7.0
Drug stores......... .. 
22 3.2
Vending machines . . . ... .
13 1.09
Othersl1/ . . . . * . . . . . . .
61 9-.0
Total... * .
683 100.0
!"Includes taverns, theaters, bakeries, 
laundries, fruit stands,
fishing camps, motel, hospitals, 
convents,' feed stores' and recreation'
centers,
Freqiuency of Deliveries
Deliveries to each of the 
683 accounts were not made 
daily. Data
indicated that larger accounts such 
as supermarkets and schools were
Table 11. Percentage of Accounts with Daily Deliveries by Type of Account and Day of 
Week, 683 Wholesl
Accounts, Alabama, November 13-18, 1961
Country
Super- Grocery stores & Eating Drug Vending
Day of week markets store service places Schools stores machines Oth
stations
------------------------------------- Per cent---------- ------
Monday....... .. 89 84 74 80 96 59 85
Tuesday .... 97 81 52 81 88 82 77
Wednesday . . , 70 67 52 66 83 45 33446
Thursday.. . 93 83 49 77 887 77 7 377
Friday. .... 93 78 70 77 85 68 54647
Saturday. . ., 97 87 .59 88. 1/ 77- 8648
Average . . . , 90 80 59 78 881 68 66657
!/Excludes Saturday deliveries to three schools.
f-j
17
served most frequently. Ninety ,per cent of the supermarkets and 88 per
cent of. the schools received milk-daily, while 59 per 
cent .ofthe smaller
accounts such .as ,country stores and service-stations were serviced on a
daily basis, ,,Table 11. A larger percentage of customers were served on
Monday and Saturday than, on other days .. Saturday deliveries were neces-
sary to meet the.large weekend demand for milk products. Deliveries to
most accounts were required on Monday so that routemt;i could pick up
empty cases and rearrange and fill display cases after; large weekend
sales. The lowest percentage of customers was served on Wednesday. In
fact, two firms did not deliver milk products on Wednesday.
While some of the accounts were not served daily, others required a
second delivery of milk products the same day. Table 12 shows the percen-
tage of accounts requiring second delivery. Such large accounts as
Table 12. Number and Percentage of-Accounts Requiring Second. Delivery
of Milk Products by Type of Account, 683 Wholesale'Accounts,
Alabama, November. 13-18, 1961.
of accon A' Number Percentsa with
Type ith scond second delivery
delivery
Number Number ... Per 'cent.
Supermarkets. . , 61 21 34v4
Small grocery stores. . . .* 205 4 2.0',
Country stores and
service stations .. . .118 rt2: 1. 7
18
supermarkets had the highest percentage of second deliveries. 
The 13 ven-
ding machine accounts were the second largest group that 
required second
deliveries. Generally, drug stores, schools, and eating places had ade-
quate space for milk storage and did not require many second deliveries.
Route drivers often returned in the afternoon to large supermarket custo-
mers to service the display case even though additional milk was not
delivered to the store.
Type of Milk Display and Services Performed
The type
- 
and amount of service performed bya driver on a wholesale.
milk route varied among customers. .:-Most. customers preferred that the
routeman service idisplay cases. Approximately 92 per cent of the display
cases on the premises of 683 stops was .serviced",y the routeman.
All wholesale customers had refrigeration facilities. Approximately
54 per cent of the accounts had some type of milk product display case.
The remaining 46 per cent used other facilities for milk storage. In a
few
- 
instances household type refrigerators were used in place of display..
cases. The display cases consisted of two types- open and closed. About
35 per cent of the display cases was the open type. Number and type of
display case used by customers on the 15 individual routes are shown by
type of account in Table 13. All supermarket accounts and all but one of
the small grocery store accounts had some type of display case. Usually
display cases found in supermarkets were the open type, whereas most of
those in small grocery stores were the closed type. Many closed cases had
glass doors for visibility of customers. Seventy-five per cent of the
country store and service station accounts had display cases - mostly
Number of Accounts and Type of Display Case by Type of
Account, 677 Wholesale Accounts, Alabama, November 13-18,
1961-
Type of account
Supermarkets.
Small grocery
stores . . .
County -stores
and service
stations . .
Eating places"
Schools;. . .
Drug stores ...
Vending machines.
Others. . . .
Total .. ..
Accounts Accounts
-- - - - -- --- -.--- ----- - -Number----------
-wt- ain 
o,, 
.. 
Opent~t
6 
.,05 
, 
9...'b.0
199 198 , 1 , 57
116
* 157
* 48
* 22
* 13
* 61
677
87
3
'0
2
0
16
367
. 29
154
48
20
13
45
310
7
1
0
130
1/
Based on 683 customers served by 15 routes. No information was
received for six accounts.
closed type. The accounts not usually having display cases consisted
mainly of eating paces,,schoos, anddrug stores,.
A routeman usualy.yperformed several 
duties at each stop. These
duties differed among. ,the drivers; however, at a typical 
wholesale stop,
a routeman first walked into the customer's establishment 
where he deter
mined the amount of products to be delivered. The 
order may have been
determined by the driver observing the amount of products on 
hand or by,
obtaining an order from the manager. While in the store, the. driver
checked and removed all damaged and outdated products., If any of the
products were outdated or damaged, they .were removed ancd returned ~to ..
the
plant.,
After quantity was determined, the driver returned to the truck 
to
Table 13.
19
Closed
display
-case
2
141
80
2
0 
"..
1
0
11',
237
;Uar~~e 13, ruUIRI)~~ OS; nCCC)~RI~S ana ;L-ype or uS
M-W
M--"O...... ...
20
assemble and make delivery of the order. In most cases the driver stamped
the price on the different products and arranged them in the display case.
Each distributor was often allowed a certain amount of a space in a dis.
play case; the routeman made certain that the allotted space was filled;
otherwise competitors might place their products in his space. If there
was no display case, the driver placed the, products in the storage faci-
lity provided. After delivery, financial settlement was made by cash or
signing the sales slip of the delivered order by an authorized person.
Collection of Bills
Wholesale customers pay cash on delivery or charge the products and
pay at a later date. The greatest percentage of cash customers were smaller
accounts such as country stores, eating places and small grocery stores,
Table 14. Charge account customers consisted mainly of larger 
accounts
Table 14. Number of Customers and Method of Payment by Type 
of Account,
674 Wholesale Accounts, Alabama, November 13-18, 19611
/
Type of account Account 
Method of payment Total
Cash Charge
No. Pct. Pet. Pct.
Supermarkets . . . . . . . 61 26 74 100
Small grocery stores. . . . 202 93 7 100
Country stores and
service stations . . . .. 116 95 5 100
Eating places. . . . . . . 155 81 19 100
Schools ........... 47 4 96 100
Drug stores . . . . . . * 21 81 19 100
Vending machines, . . . . ? 13 0 100 100
Others . ? ? . ... ....... 59 61 39 100
Total . . . . . .. ... 674 -- -- 100
IBased on 683 customers
received for nine accounts.
served by 15 routes. No information was
21
such as supermarkets and schools. Collection of bills on a cash 
basis
involved a settlement each time a delivery is made.- Although 
each cash
settlement ensures 100 per cent collection of receivables, it may cause
the driver to spend additional time at the stop during busy store hours
when an authorized person or cashier is busy waiting on store customers.
Normally when a charge account was used, the routeman was relieved of
having to make a daily collection. Collection of the bill in this case
was usually done by the plant.
Number of Milk Distributors Per Account
Fifty-nine per cent of the customers on which individual stop data
were gathered bought milk products from only one distributor. From 2 to
5 dairies served each of the remaining 41 per cent of the accounts.
Sixty per cent of the supermarkets handled two or three brands of milk
products; 75 per cent of the small groceries handled 1 or 2 brands. Almost
a third of the supermarkets were served by four and five milk distributors,
and a fourth of the small grocery stores carried three or four brands
of milk. Supermarkets and small grocery stores had the largest average
number of dairies per account, while schools and vending machine accounts
had the smallest number of milk distributors, Table 15. Schools and
supermarkets had the largest total dollar sales.
Delivery Time
Length of the work day was divided into two time components. One
component was the amount of time spent at the plant, that included loading
and unloading the trucks and checking at the plant on the amount of sales
for the day. The second component was the time spent on the route that
22
Table 15. Number of Dairy Firms Serving Each Account by Type of Account,
664 Wholesale Accounts, Alabama, November 13-18, 196111
Number Number of dairies Average
Type of account of serving account Number of
accounts 1 2 3 4 5 dairies
.... -......--- --.....-Number- - ------ --.... ....-- -
Supermarkets. . . . 61 5 18 19 13 6 3.0
Small grocery
stores ... . . . .196 67 79 40 10 0 2.0
Country stores &
service stations . 112 66 34 10 2 0 1.5
Eating places . . . 155 140 14 1 0 0 1.1
Schools . . . ... 48 46 2 0 0 0 1.0
Drug stores . . . . 20 14 6 0 0 0 1.3
Vending machines. . 13 13 0 0 0 0 1.0
Others. . . . . . 59 44 11 4 0 0 1.3
Total. . . . . . 664 395 164 74 25 6 1.6
I/Based on 683 customers served by
received on 19 accounts.
15 routes. No information was
included the total time spent driving and servicing each account. Total
time was the sum of the time spent at the plant and time spent on the route.
Time spent in each of the above time components by day of the week is
given in Table 16. Approximately 87 per cent of the total time was spent
in driving and servicing accounts, and 13 per cent was at the plant loading
and unloading trucks and performing bookkeeping responsibilities.
Normally the first thing the driver did upon returning to the plant
after completion of the route was to unload the truck. Unloading empty
cases (and glass containers in some instances) and outdated and damaged
products usually required from 10 to 30 minutes. Undelivered products
were usually left on the delivery truck. After completing unloading, the
truck was loaded for the next day's delivery. The load-out process
23
Table 16. Average Delivery Time by Day of Week, 39 Wholesale 
Routes,
Alabama, November 13-18, 1961
Day of week Time at plant Time on route 
Total time
_......- ... Minutes ---- Maa
Monday. ........ .. 89 
574663
Tuesday .,. . . . . .. . . . 84 555 639
Wednesday .. ...... . 79 522 
601
Thursday.. .. .... 90 534 
624
Friday. .......... . 86 619 
705
Saturday.. .. ....... 87 594 
681
Average . . . . . . . . 87 566 
652
normally required from 20 to 45 minutes, depending on size of load and
loading facilities. Once the truck had been loaded, it was parked at a
specific location and was refrigerated until time for the next day's
delivery. The driver then completed bookkeeping for that particular day.
Amount of products sold was totaled and checked against load-out, products
left on the truck, and returned items. At that time a settlement was also
made with the plant for the amount of sales on route for that day. Book-
keeping time required from 30 minutes to 2 hours depending upon the
individual route driver, bookkeeping requirements of the different firms,
and volume of sales.
Fridays and Saturdays required the most time to complete the delivery
process. This was the result of a larger volume of 
milk and milk. products
required to meet weekend sales by grocery 
stores. Also a larger percen-
tage of all accounts was serviced on these days. Because of larger
volume required, second deliveries were more frequent on Fridays 
and
Saturdays.
The least amount of delivery time was required on Wednesday 
when
milk product sales were lowest. Milk sales on Wednesday were 
18 per cent
24
lower than the average daily milk sales and 29 per cent below those made
on Saturday. Because Wednesday's milk sales were lower than the rest of
the week, it was possible for two particular firms, not to make deliveries
on Wednesday.-
Small town and rural routes required considerably more route time than
did the city routes. An average of approximately 6 hours 
was required for
the rural routes as compared with that of about 5 hours for 
city routes.
Since customers on rural routes were spread out over a much greater area
than were those on city routes, small town and rural routes were longer
and route men spent more time driving between stops than did city route
drivers. Average miles for the small town and rural routes was about 114
miles as compared with 46 for the city routes. Small town and rural routes
had almost 24 more accounts per route than did: the city routes, but accounts
on the rural routes were smaller than those on city routes.
DELIVERY COSTS
Distribution is the most costly phase of the milk marketing process.
The two basic components of wholesale milk distribution costs are labor
and truck costs. Size of these costs depend on: (1) levels of inputs of
truck and labor resources, and (2) cost rates appropriate for each input
for the time period studied. Of the two costs, labor costs are the most
important. In this study average labor costs constituted 76.5 per cent
of the total wholesale milk delivery costs; truck costs accounted for the
S/Since this study was made, a number of additional distributors have
discontinued milk delivery on Wednesdays.
25
remaining 23.5 per cent.
Labor Costs
The basis on which the 39 wholesale delivery route men were paid
varied,among firms and in some cases within firms. In this analysis,
total labor costs were divided into direct and indirect labor costs.
Direct labor costs were defined to include wages and commissions
paid to deliverymen and wages and commissions paid route supervisors and
route relief drivers. In some cases, wages paid route helpers were con-
sidered to a direct labor cost of the firm; however, in a majority of the
cases, the helper's wage was paid by the route driver.
Indirect labor costs incurred on the wholesale milk routes included
the fringe benefits received by the route deliverymen. These nonwage
benefits were additional costs for the dairy firms. Indirect labor costs
included such things as allowances for clothing, insurance plans, bonuses,
vacations, and various other benefits for the route driver.
Direct Labor Costs. Wage payments to route deliverymen consisted of
two different methods. The first method consisted of a certain percentage
commission paid the deliveryman on part of the sales or in some cases on
total sales. The second method consisted of a base wage per week or per
month plus a percentage commission of sales.
Various methods of determining deliverymen's earnings used by some
of the 14 distributors cooperating in this study included the following:
I. Commission:
(1) Commission of 9.25% on all sales.
(2) Commission of 8.25% on all sales.
(3) Commission of 7.15% on all sales.
26
II. Commission plus base salary:
(1) Commission of 7.00% on all sales, plus base salary of $75.00
per week.
(2) Commission of 5.25% on all sales, plus base salary of $20.00
per week.
(3) Commission of 5.00 % on all daily sales above $85.00, plus base
salary of $85.00 per week
(4) Commission of 4.00 % on all sales, plus base salary of $54.00
per week.
(5) Commission of 4.00% on all daily sales above $189.00, plus base
salary of $40.00 per week.
(6) Commission of 3.00% on all sales, plus base salary of $68.75
per week.
(7) Commission of 2.00% on all collections, plus base salary of
$73.08 per week.
Some of the preceding methods of determining deliverymen's earnings
were used by more than 1 of the 14 distributors. In addition, other
methods, not listed, were used in some instances.
All deliverymen were paid on a commission 
basis. Commission percen-
tages ranged from 2 to 9.5 per cent of wholesale sales. In addition,
approximately half of the 39 deliverymen received a base wage, ranging
from $20 to $85 per week.
In cases where variations in pay rates existed among routes operated
within a particular firm, route drivers were not unionized. Usually deli-
verymen receiving a high commission percentage had a smaller base wage
and likewise deliverymen receiving a high base wage had a smaller commission.
27
percentage. Thus, differences in total wages were less than indicated
by different wage and commission: rates.
Most deliverymen had someone who assisted with the route work. 
The
helper assisted in loading, delivery and unloading chores, and was usually
paid by the route driver. Many helpers were employed under conditions 
of
day labor under which they were paid only by the hour or by the day.
Usually the' indirect or fringe benefits received 
by route drivers did not
apply to helpers. Apparently, a large turnover existed among helpers.
In cases of sickness, death in the immediate 
family, jury duty and
vacations, route supervisors or relief drivers 
operated the routes for
regular deliverymen.
Indirect Labor Costs. Some indirect labor costs 
such as social
security and unemployment and workmen's compensation 
were required of all
firms. Other indirect labor costs varied from firm 
to firm. Such costs
included allowances for clothing, insurance plans, 
retirement plans,
bonuses, vacations, and profit-sharing plans. 
Some firms paid the entire
cost of drivers' delivery uniform and laundry 
bill, while others paid
only a portion of it.
Most of the 14 distributors operating the study 
routes had some type
of hospital and life insurance policies for 
their employees. Usually
firms would pay part of the cost of the policy 
and employees would pay
the remaining amount. Twelve firms had 
hospital insurande programs and
11 firms had various life insurance benefits for route 
deliverymen. All
firms were required to pay state unemployment and social 
security tax on
each route driver. Two firms had retirement 
plans and two other firms
had profit sharing plans. One firm gave deliverymen 
Christmas bonuses.
28
Vacation time with pay varied among firms and among deliverymen by
length of service. Normally, drivers earned one 
week vacation during the
first year of employment, and then after 2 or 3 years, 
vacation was increased
to 2 weeks. The amount of sick leave varied from 
4 to 7 days after 1 year
of continuous work and unused sick leave was accumulative. The number 
of
holidays ranged from none to 6 days per year. In most 
cases, route drivers
received regular wages during vacations, sick leaves, and holidays. Vaca-
tion pay was usually based on an average percentage of earnings on the
route.
Every state has enacted workmen's compensation laws for benefit and
protection of employees. Workmen's compensation relieves an employer of
the danger of large judgments resulting from on-the-job injuries to em-
ployees. Under workmen's compensation, an employee does not have to prove
negligence on the part of the employer or lack of contributory negligence
on his part. He is paid for accidental injuries arising out of and in the
course of his employment. Workmen's compensation insurance policies can
be purchased from private casualty insurance companies qualified to write
such insurance and the premiums must be paid by the employer. It is ille-
gal to make the employees pay the premiums (5).
The unemployment insurance program required of all employers in com-
merce and industry, who employ four or more workers during 20 or more work
weeks of the year, provides partial income replacement for a limited period
of time to persons who become unemployed. It is a state administered pro-
gram with federal participation (6).
29
Labor Costs Per Week. Average weekly labor costs per route, including
direct and indirect labor costs, were $184.83. Total labor costs ranged
from $97.67 to $278.17 weekly, Table 17.. For six routes, labor costs
Table 17. Labor Costs Related to Physical Factors and Values, 39 Whole-
sale Routes,. Alabama, November 13-18, 1961
Average Labor Labor cost Labor cost Labor
and cost per quart pp cost per
range per week equivalent customerl" dollar sales
---------------------- pollars------- --- -
Average. . . . 184.83 0.022 .94 0.086
Range. . . . . 97.67- 0.011 0.56- 0.047-
278.17 0.032 1.58 ., 0.127
-/Labor costs per customer were determined for 15 routes.
were less than $150.00 per week, 24 routes had labor costs ranging from
$150.00 to $220.00, and nine routes had labor costs more than $220.00
per week.
Since all route men were :paid commiss ons, variations in total -labor
..costs were closely related to value of sales. Twenty-four routes shad
,labor costs in a range of approximately $30..00 above or below the average
weekly labor costs. In the six cases, where the routes had relatively
low labor costs hen compared with the average, total sales were below
the average.. Eight of the nine routes reporting relatively high labor
costs had total sales considerably greater than average.
Labor Costs Per Dollar of Sales. Labor costs per dollar of sales'of
all products were determined by dividing total labor cost by the whole-
sale value of the route load. Average labor costs per dollar of sales
were 8.6 cents ranging from 4.7 to 12.7 cents among the routes. Labor
30
costs per dollar of sales were below 7 cents for 7 routes; 20 routes had
labor costs within a range of 1.6 cents (7.0-10.2 cents) above or below
the average, and 12 routes had labor costs above 10.2 cents.
Variation in labor costs per dollar sales resulted mainly from dif-
ferences in commission rates and base salaries among routes. Labor cost
per dollar of sales can be decreased by increasing the value of 
the load
if a portion of the labor cost were fixed such as base salaries. If only
a commission on sales were paid, direct labor cost per dollar sales 
for
a route does not vary by changes in load value.
Labor Costs Per Customer. Average labor costs 
per customer were $0.94,
and ranged from $0.56 to $1.64 among routes, Table 
18. Routes with a high
Average Daily Value of Sales Per Customer 
and Daily Labor Costs
Per Customer by Routes, 15 
Wholesale Accounts, Alabama, 
November
13-18, 1961
Average
daily
sales
Dollars
569.21
503.11
478.68
434.27
403.50
358.04
339.71
307.84
305.53
300.49
282.26
275.77
267.78
237.44
210.95
351.64
Average number
of customers
served daily
Number
42.0
41.0
26.0
29.0
29.0
31.0
30.0
31.0
35.0
45.0
44.0
37.0
40.0
25.0
36.0
35.0
Average
sales per
customer
Dollars
13.55
12.27
18.41
14.97
13.91
11.55
11.32
9.93
8.73
6.68
6.42
7.45
6.69
9.50
5.86
10.48$
Average
labor
cost
Dollars
40.62
25.49
41.10
47.63
43.82
18.11
36.83
30.84
33.85
25.30
28.51
28.00
25.92
32.95
29.54
32.57
Labor
cost per
customer
Dollars
.97
.62
1.58
1.64
1.51
.58
1.23
1.00
.97
.56
.65
.76
.65
1.32
.82
.94
Table 18.
Route
Number
1 . . . s
2...
3 . . .
4 ? . .
5. . .
6. . .
7. . .
8 . . .
9 . . .
10 .
11 ...
12 ...
13 . ,. .
14. .
15 . .
Average.
8 . 1 .
9...?
10 . .
11 . ..
12 ...
13 . ..
14 ..
15 ...
Average.
1--~ - ,
,.*-.,
U V I i.~L L ~i IY U~IIV ~% U v 'L L~LY
31
labor cost per customer were usually characterized by 
having large deli-
veries and/or a relatively small number of customers. 
Value of the
customer's order was the main factor 
affecting labor costs per customer.
Value of products delivered per customer was 
determined by dividing
total sales by number of customers served 
daily. Wholesale value of
average delivery per customer was 
$10.48, ranging from $5.86 to $18.44
among the routes.
Labor Costs Per Quart Equivalent. 
Labor costs per quart equivalent
of milk products averaged 2.3 cents, ranging 
from 1.1 to 3.2 cents among
the routes. Labor costs per quart 
equivalent was determined by dividing
labor cost per route by the quart equivalent 
of milk products, pint equi-
valents of cream, and units of other products. 
Twenty-six of the 39 routes
had labor costs per quart within a range 
of 0.5 cents above or below the
average (1.8-2.8 cents), Eight routes 
had labor costs per quart greater
than 2.8 cents and labor costs 
per quart were less than 1.8 cents 
for
five routes. Seven of the eight 
routes with high laborcosts per quart
delivered smaller than average 
loads; only one of the five routes 
with
low labor cost delivered less than 
an average load.
Truck Costs
The type of trucks 
used by firms participating 
in the wholesale milk
study were cab and refrigerated 
van-type, which are widely 
used in Alabama
to deliver milk. Most of 
the trucks had a 1 -ton capacity 
although in a
few cases 2-ton capacity trucks 
were used.
Estimates of truck costs 
were based on truck 
operating data obtained
from some participating 
firms that kept cost records 
for each vehicle used.
For purposes of analysis, truck costs 
were divided into two major
32
components--fixed and variable 
costs. Fixed costs were those costs 
that
did not vary with mileage. 
Fixed costs included depreciation, 
interest
on investment, taxes, licenses, and insurance. 
Variable costs were those
that varied according to mileage. Such costs included 
gasoline, oil,
tires, repairs, and maintenance.
Fixed Costs. The fixed costs for trucks were estimated 
on the basis
of current replacement cost. Depreciation 
was allocated on a straight
line basis for an estimated 8-year life. It was 
assumed that both the
truck and van depreciated in an 8-year period. 
Interest costs on capital
investment were estimated on the basis of 3 per 
cent of the initial pur-
chase price of the truck. Tax, license, and insurance 
costs on capital
investment were estimated on the basis of 3 per 
cent of the initial pur-
chase price of the truck. Tax, license, and insurance 
costs were obtained
from actual data furnished by one of the firms participating 
in the study.
The annual and daily fixed costs for the operation 
of one wholesale deli-
very truck, based on a purchase price of $5,500 
with a salvage value of
$100, are given in Table 
19.
Variable Costs. In most cases, gasoline consumption per mile was
inversely related to length of route. This probably can 
be accounted for
by the fact that routes with lower annual mileages were 
usually city
routes, which have shorter distances between stops and 
more congested dri-
ving conditions than do the country and small town routes. Estimation 
of
gasoline costs per mile was determined in 
such a way as to allow for this
variation in driving conditions. Gasoline consumption 
was estimated by
the mathematical relationship: C = 0.179 -
0.00000061 R, Where C =
consumption of gasoline in gallons per mile, 
and R = mileage driven per
year.
33
Table 19. Estimated Fixed'Costs for Trucks 
Operated onWholesale Milk
Delivery Routes, Alabama, 19611
Annual ficed costs 
Dollars
21
Depreciation -(8.ear life).-. 
675-.
Interest (37 on purchase price)/ 
. 165.00
License & taxes.- . 9. g . . . .
f . . 51.42
Ins urance .a..100.
Annual total, * .~ * **,* 
$9.
ADaily total (312 delivery days) . .
. . . . . . . 3.18
Cost per mile . . . . . . ... . . . . . . . . . 0.0398
UGenerally, methods. used in obtaining 
fixed costs in this.table
were obtained from a study by Richard 
L..Simmons entitled Wholesale
Milk Distribution. Practices, Costs. 
and Pricing in North Carolina,
North Carolina Agricultural Economics "Information 
Series No. 88,.1962.
Based on an estimated initial 
truck cost.of.$5,5O..and.depr.ec.at
over an 8-year period with a trade in -or, salvage value of 
$100.
/.This rate is equivalent to approximately 
5 aper cent on the unamor-
t ized .. value .
Obtained from data furnished by 
one firm participating in the
study.
Included fire,, theft, and liability.,
Costs for 'the 'rem~aining variable items, 
oil, tires, parts, and
repairs, -were determined from data 
furnished' by one firm that kept yearly
truczk-maintenance records. These .costs 
per. mile -are given "in Table 20.
Total Truck Costs. Since it would 
have been extremely difficult 
if
34
Table 20. Estimated Variable Truck Costs Per Mile for Wholesale Milk
Delivery, Alabama, 1961
Variable costs 
Dollars
Gasoline/ . . . . . . . . . . . . . . . . . .
.0410
Oi . . .. ..... . ... . . .. .. .0011
Tires, parts, & repairs . . . .
. . . .. . .. .. 0364
Total cost per mile, , ..... .. .. . .
.0785
/Estimated from the equation C = 0.179 - 0.00000061 
R where C = gas
consumption in gallons per mile, and R = annual 
mileage.
Obtained from data furnished by one fizm 
participating iin the, study.
Table i. Fixed, Variable, and Total Truck Costs 
Per Mile, Stop and
Route, 39 Wholesale Routes, 
Alabama, 19611/
Unit Fixed costs 
Variable costs Total costs
0.. _MN.O.-_-- -Dollars-- - - - -
- - -
Per mile . ...... 0.040 
0.078 0.118
Per stop .. . . . . 0.060 
0.119 0.179
Per route ... . . . 3.178 
6.280 9.458
1/This table was based on the following 
assumptions: (i) The average
length of the 39 wholesale 
routes was 80 miles. It was 
assumed that the
rovute was served 312 times during 
the period of a year (milk delivered
six days a week for 52 weeks). 
Thus, annual mileage was determined 
to be
24,960 miles. (2) The average 
gasoline consumption per mile 
for a route
of this length was computed 
from the equation C = .179 - 0.00000061 
R to
be 0.164 gallons per mile. A price 
of $0.25 per gallon of gasoline 
was
assumed. This gave a cost of $0.0410 
(0.164 x 0,25) per mile. (3) 
Total
variable costs were found by 
adding other variable costs 
to the gasoline
cost. This gave a total variable 
truck cost of $0.0785 per mile or 
$6.28
($0.0785 x 80 miles) per}route 
day. (4) Next, by adding 
the daily fixed
costs to the daily variable 
costs, total truck costs 
were found to be
$9.46 per route day. This gave a 
total truck cost of $0.1183 ($9,4576 
80) per mile. (5) 
With an average of 53 
stops for each route, 
total
truck costs per stop was $0.1785.
35
Truck costs for wholesale milk delivery routes have been reported 
in
studies made in other states (2,3). Table 22 shows a comparison of fixed
and variable truck costs .on wholesale milk delivery routes in Alabama,
North Carolina and Virginia.
Table 22. A Comparison o6f Fixed and Variable Truck Costs on Wholeslae
Delivery Routes in Alabama, North Carolina, and Virginia,
1958-1961
Alabama
1
n North CarolinaY Virg
Cost items (1-year (2-year (12-year
study period) . study period) study period)
------------------------- Dollars---s-----------------_wo
Fixed costs,.
Depreciation . R . . . , 6 75.00 625.00 
581.00
Inter est .
Taxes & license. . . .
Insurance. . .
Storage . ..
Garage labor ...
Antifreeze. . . . . .
Annual total. . .
Daily total
3
/.. .
Variable costs
Gasoline . .*..
Tires, parts &
Total cost per
165.00
51-.42:.-.,_
100. 00
150.0
195.00
100.00
50.00,
460.00
13 2.60
51.17
40,35
3.00
991.42 1,585.' 00- 81.12 .
3.18 5.05 2.60
0.0410 0.0455 0.0420
0.0011 0.0023 0.0040
0.0364 0.0239 0.0370-
0.0785 0.0717
-0.0830
11t from one firm were used in determining 
certain truck costs.
- Certain truck costs were determined from data 
made available by
two different firms for a 2-year period; costs were, 
in part, estimated.
3/Total delivery days assumed were 312 for 
Alabama and Virginia
while 313 delivery days 
were assumed in the North 
Carolina. study.
- The North Carolina study considered 
labor to be a fixed cost.
5/'Annual total cost and daily total 
cost depend upon the number of
miles driven annually.
36
Total fixed costs per day for wholesale delivery 
routes in Alabama
were $3.18 as compared with a daily total 
of $4.05 in North Carolina and
a daily total of $2.60 in Virginia. Variable 
costs per mile for whole-
sale delivery routes in Alabama were 7.85 cents as 
compared with 7.17
cents in North Carolina and to 8.3 cents in 
Virginia.
Total Delivery Costs
Total delivery costs consisting of both labor costs and truck costs
are shown in Table 23. Labor costs were slightly more than 
three times
Table 23. Truck Costs, Labor Costs, and Total Costs by 
Mile, Stop, Dollar
Sales, and Route, 39 Wholesale Routes, Alabama, November 13-18,
19611/
Unit of 
Truck costs 
Labor costs 
Total costs
measurement
.--------------- Dollars--------- -----
Mile ... .......... 0.118 0.385 0.503
Stop-39 routes .... . 0.178 0.581 0.759
Stop-15 routes?/ . . . . 0.248 0.990 1.238
Dollar sales . . . . . . 0.026 0.086 
0.112
Route per day . . . ... 9.458 30.80 40.26
In figuring cost it was assumed that daily labor cost 
was $30.80,
average daily total mileage was 80 miles, average number daily stops 
were
53, and average daily sales were $358.31.
2
Based on 15 wholesale routes on which individial stop data were
obtained. Actual number of daily stops was used in figuring costs, whereas
the number of accounts on the route was used in figuring costs for the
39 routes.
truck costs. By using total costs per route it was E6und that labor costs
made up 76.5 per cent of total costs, while truck costs accounted 
for 23.5
per cent of costs.
Total delivery costs averaged approximately 11.2 per cent 
of total
dollar sales.
37
COST REDUCTION ALTERNATIVES
The State Milk Control Board determines to a large degree the compe-
titive structure of Alabama's flt id milk industry. In addition to
establishing producer prices for milk, the Board fixes wholesale and retail
prices for fluid milk products, defines fair trade practices, and other-
wise stabilizes.the State's milk industry. Minimum and maximum wholesale
and retail prices for specific milk products are fixed by the Board and
no other prices are legal. Trade practices are defined and certain
practices, such as rebates and discounts, are prohibited. Other business
practices are permitted, but are supervised by the Board, The Board must
regulate transactions among milk handlers to prevent circumvention of
pricing orders. Thus, price competition among milk distributors is illegal
in Alabama. The Milk Control Board has made no provisions for discounts
or other allowances for differential costs involved in sales of different
volumes of products. Neither are price provisions made to reflect cost
differences for various methods of distribution.
Large volume customers were required to pay the same unit price for
milk products as small volume customers. Since price rebates and volume
discounts were prohibited by the Milk Control Board, individual wholesale
customers had no legal monetary incentive to place their total order with
only one or two distributors. Instead, wholesale customers, particularly
supermarkets and small grocery stores, would tend to divide their trade
In pricing orders issued in March 1967, the Board provided for a
permissive differential between home-delivered and store-purchased milk
products.
38
among several distributors and provided a 
variety of brand choices from
which consumers would choose. Sixty-two per cent of the 
supermarkets
carried three or more brands of milk products. As long as wholesale cus-
tomers are not permitted to receive monetary incentives in the form of
volume discounts resulting from trading with fewer distributors, whole-
sale customers probably will continue to divide their business among
several distributors. Duplication in wholesale milk delivery reduced the
average value and volume of delivery per route and per wholesale customer
in the market. As a result of the uniform pricing system, distribution
costs for both the firm and the industry were not as low as they could
otherwise be.3
Increase Volume and Value of Route Load
Low labor costs per dollar of sales were usually associated with lar-
ger total sales per route, while high labor costs per dollar sales were
associated with low total' sales. The relationship between value of sales
and labor cost per dollar of sales for the 39 routes is shown in Figure 1.
3
!Where flat or uniform prices are fixed, there is great incentive
for milk distributors to by-pass the pricing system. Assume prices were
established based on costs of delivery to average-sized customers. The
average is made up of some customers smaller than average and others lar-
ger than average. Unit cost of delivery per customer can be expected to
be higher for the small customer and the flat price would be inadequate
to cover delivery costs. To cover distribution costs to small customers,
wholesale and retail prices would have to be increased. For large volume
customers, the flat price would be more than adequate and could be
decreased. To gain business with large volume customers, discriminatory
pricing practices, such as secret rebates, discounts, and price advanta-
ges on nonpriced items may be granted by distributors. Benefits from
these price concessions are not passed on by the pricing system to the
segments of the dairy industry and the consumer.
a = 13. 3 9
b = -.00199
Coefficient of correlation- -0.6987
Standard error of estimate = 1.551
0
0
13
12
11
10
9
8
7
CO
(1)
t-!
0
C
'4
0
to
0)
p
4
14
p
0~i I- _ --_ _ - I
1 0  
15 20 25 30 35 40 45
Total Sales Per Route Per Week - Hundred Dollars
Figure 1. Relationship of labor costs per hundred dollars of sales to total sales per route,
wholesale routes, Alabama, November 13-18, 1961.
9
. .
6
?C~lt
39
p 1IL - .p a ------ - - u
- - - -. J-----
40
Each dot represents an observation for 
a route. A linear cost equation,
YC = 13.39 - .00199 X, describing the relationship between sales value
and labor cost , was derived from the 
observations. By substituting 
total
sales for X, labor costs per 
$100 of sales, (Yc) can be estimated 
for the
amount of sales represented by X. 
The regression line shows that an
increase in sales of $500 within the range 
observed resulted in a labor
cost reduction of $2 per $100 of sales. 
For a particular milk distribu-
ting firm, however, the relationship 
shown in Figure 1 is not valid. The
coefficients were calculated from a sample 
of routes operated by 14 firms
using different wage rates. Another sample 
of routes would likely yield
different coefficients. Also, since elements of labor 
costs are both fixed
and variable, the appropriate functional relationship 
between value of
deliveries and labor cost is curvilinear rather than linear.4/
For an individual milk distributing firm, the effect on labor cost
of increases in sales of product depends largely on the method used in
calculating wage rates. Tables 24, 25, and Figure 2 illustrate 
the rela-
tionship between value of sales and labor cost (base wages 
and commissions)
per $100 of sales for four firms participating in the study. Cost of su-
pervisory personnel and fringe benefits, as a part of labor 
costs, were
The level of unit costs for a firm is 
determined by base wages,
commissions, other delivery costs, and number and value of units 
delivered.
For the 39 routes, 79 per cent of the variation in labor cost 
per $100 of
sales was explained by variation in wholesale 
value of sales and labor
cost per week. A multiple regression relationship 
between labor cost per
$100 of sales (Yc), wholesale value of sales 
(Xs) and labor cost per route
per week (X
1
) was calculated. Labor cost per route per 
week included only
base wages and commissions paid route deliverymen. 
The equation, Yc 
= 
10.67 -
.00309Xs + .03385X1, shows the relationship. 
The multiple correlation co-
efficient was .889. While these figures give 
some indication of cost
relationships and reliability of these relationships, 
they should not be
interpreted to apply to a particular firm,
13
t1
tCu
Co
u
0- 
10
O
o 3
t 8$409
p0)
0"+ 
7
$4 0
00
Cu 
6
'4
0
' 10 15 20 25. 30. 35 40 5
Total Sales Per Route Per Week - Hundred-Dollars
Figure 2. Relationship of labor costs per hundred dollars of sales 
to total sales per rouefrfu
firms paying different wage rates, Alabama, 1961.
Source: Table 23
-P
42
Table 24. Weekly Labor Costs for Four Firms Paying Different Wage Rates
1
/
for Wholesale Milk Delivery by Volume of Sales, Alabama, 1961
Sales per 
irm2/
week A B C D
- -------.___ soO -,- _Dollars- -_ - - - - - - - - -- -
1000 . . 92.50 145.00 135.00 98.75
1500 . . 138.75 180.00 160.00 113.75
2000 . . 185.00 215.00 185.00 128.75
2500 ? * ? 231.25 250.00 210.00 143.75
3000 " 277.50 285.00 235.00 158.75
3500 . . . 323.75 320.00 260.00 173.75
4000. ? ? 370.00 355.00 285.00 188.75
4500 . . 416.25 390.00 310.00 203.75
5000. . . 462.56 425.00 335.00 218.75
1/age
Wage
rates illustrated were selected from actual wages paid whole-
sale deliverymen at time of study. Labor costs for wholesale milk
distribution other than commissions and base wages were excluded in the
comparison.
2/
Wage rates for each firm were as follows:
A 
= 
9.25 per cent commission, no base wage.
B 
= 
7.00 per cent commission, plus $75.00 per week base wage.
C = 5.00 per cent commission, plus $85.00 per week base wage.
D = 3.00 per cent commission, plus $68.75 per week base wage.
excluded in this comparison. In all cases, increases in total product
sales resulted in increases in weekly wages paid deliverymen. For the
firm that paid a flat commission only, direct labor cost per $100 of sales
remained unchanged at different sales levels, as in the case of Firm A.
43
Table 25. Average Labor Costs 
Per Hundred Dollars of Sales for 
Four
Firms Paying Different Wage Rates for Wholesale 
Milk
Delivery by Volumeof Sales, Alabama, 1961!
Sales per Firm
week A B C D
1000 9.25 14.50 13.50-"9.88
1500. . 9.25 12.00 
10.67 7.58
2000. . . 9.25 10.75 
9.25 6.44
2500. . . . 9.25 10.00 
8.40 5.75
3000 . . . 9.25 9.150 7.8315.29
3500. . . . 9.25 9.14 7.43 
'4.95
4000. . * 9.25 8.88 7.12 4.72
4500. . 9.25 8.67 6.89 4.53
5000 . " 9.25 8.50 6.70 4.38
!/Calculated from Table 24.
Where a base wage plus commission was paid, labor cost per $100 
of sales
declined sharply until sales reached about $2,000 per week. If cost of
supervisory labor and fringe benefits, both of which tend to be relatively
fixed at different levels of sales, were added to commission and base
wages, the economy of large volume sales becomes even greater.
Thew wweconomyrre aof .inc..r as ir ..i saeswpr wr.route n del ivry.r costs can beww r Lw
44
increase. Average cost of delivery declined rapidly from low volumes of
sales. and approached 7 per cent at large volumes of sales. For Firm A both
the marginal labor cost and average labor cost were 9.25 per cent at all
levels of sales.
If a fixed base wage is paid deliverymen, labor costs for low volumes
of sales may be greater than for another firm with higher commission rates
but no base wages; for example, Firms B, C, and D as compared with Firm A.
Firms B; C, and D can make larger delivery cost savings per dollar of pro-
duct by increasing sales than can Firm A.
In a study of labor costs on wholesale milk routes in Massachusetts,
it was reported that larger loads permitted both lower than average unit
costs and higher than average weekly wages (4). Likewise, results of this
study showed that larger loads resulted in lower than average unit costs.
The need to reduce distribution costs is especially important to
Alabama milk distributors because product costs, as well as wholesale and
retail prices, are fixed by regulation and because labor costs are a large
share of total distribution costs. The magnitude of this need can be
shown by examining the value of loads sold on 234 wholesale routes opera-
ted by the 14 distributors in May 1961. Average value of products sold
per route was about $1,850 per week. Two-thirds of the routes sold less
than $2000 of products per week. As given in Table 25 and illustrated in
Figure 2, large savings in distribution costs could be achieved by increases
in sales, especially the smaller routes.
45
Consolidation of Deliveries
Delivery costs can be reduced by increasing volume of products
delivered per customer. ;Increased volume per customer can be achieved
by reducing the duplication involved when a wholesale customer is served
by mnore:than one distributor. Wholesale customers in this study
received dairy products from an average of 1.6 distributors. Average
value of sales per delivery was $10.21. If each customer were supplied
by a single distributor, the average value of delivery would be increased
to $16.35. For example, consider the cost effect on a wholesale route
that serves 30 customers daily with sales of $10.21 per customer. The
average daily value per customer is increased to $16.35 because of
elimination of duplication in wholesale milk delivery. Average weekly
sales per route would increase from $1,838 prior to elimination of dupli-
cation to $2,941. On a weekly basis this amounts to an increase of $1,103.
From the estimating equation illustrated in Figure 1, it was 
found
that labor cost per $100 of sales would be decreased from $9.73 to $7.54
as a result of increased sales. On a weekly sales volume of $2,941, the
savings in direct labor costs would be $64. Additional savings accruing
to the industry would result from increased volume of sale per route.
Fewer routes, both deliverymen and trucks, would be required for the
industry to serve wholesale customers.
The greatest amount of duplication of distributors 
per customer was
found in supermarkets (three) and small grocery stores (two). Since a
large portion of all milk sales are made to supermarkets and small grocery
stores, substantial increases in distribution efficiency could be made by
46
reduced duplication. Average 
number of distributors serving schools,
eating places, and drug stores 
were from 1.04 to 1.30 distributors. 
In
addition to the possibility of achieving 
savings through elimination of
wholesale duplication, additional 
savings in delivery could be obtained
through less frequent deliveries 
where storage facilities 
are available.
The wholesale customer decides the preference 
of products and number
of brands to be displayed. Consolidation 
of deliveries to customers
occur only when there is economic 
incentive for the wholesale customer 
to
reduce the number 
of brands he will sell.
Reduced Services
A reduction of the number of services 
provided by deliverymen is a
potential way of reducing costs per unit 
delivered. In a California study
of milk delivery costs, substantial 
savings in truck and delivery labor
costs could be accomplished 
through a reduction in the amounts 
of services
provided (1). In that study, milk delivery 
processes were divided into
three different delivery types. The first type of delivery 
represented
the steps usually performed by 
the route driver at a typical 
wholesale
stop. Such steps normally include 
securing the order, assembling 
the
desired order, delivering and arranging 
the order, removing "damaged" pro-
ducts, and collecting. The second 
type of delivery was one in which
"securing the order" and "collecting" 
were eliminated. The route man
knew the order in advance and 
all collections were made by mail. 
The
third type of delivery was one 
in which the delivery time 
was reduced by
using a sidewalk delivery process. 
Desired products were left on 
the
customer's sidewalk and thus 
number of delivery steps was 
minimized.
47
For the average stop in the California study, a 37 per cent reduction
in costs occurred when the second type delivery process was used. This
is where the order was known in advance and collection was made by mail.
Savings were increased to 52 per cent when the third type or sidewalk
delivery process was used. Such cost reductions were possible, however,
only when delivery costs were considered to be a function of time required
in the delivery process, i.e., hourly wage rates were paid. Net savings
would depend upon the additional costs brought about by reduced services.
Such costs would include phoning in the order by a customer, bookkeeping
costs required for the collection by mail, and additional labor on the
part of a customer to bring products into the store from the sidewalk.
The potential savings, suggested in the California study are not cur-
rently possible in Alabama because of different methods of wage payments.
In Alabama wholesale milk route labor wages are paid on a percentage of
sales commission basis and in some cases additional wages are paid in the
form of a base or fixed salary, whereas hourly wages were paid in Cali-
fornia. However, results of both studies suggest opportunities of cost
savings by paying labor costs involved in the distribution of wholesale
milk products on an hourly basis instead of using the present Alabama
wage and commission payment methods.
SUMMARY AND CONCLUSIONS
Distribution is the most costly function in the marketing of fluid
milk products. This marketing function is defined as the movement of
milk products from processing plants to wholesale and retail customers.
In 1966, about three-fourths of the total sales of fluid milk products
48
in Alabama were distributed on wholesale routes.
The purpose of this study was to obtain information on characteristics
of wholesale milk distribution in Alabama, to determine costs involved in
milk distribution, and to determine potential savings that could be
realized by adopting alternative delivery 
practices.
Data were obtained from a sample of 39 wholesale milk routes operated
by 14 fluid milk distributors in 
Alabama.
Average daily distance traveled on 39 routes was 80 miles. Country
and small town routes were longer and had more but smaller accounts than
city routes.
Small grocery stores, eating places, country stores, and service sta-
tions were the most common accounts served. Supermarkets and schools
were the largest and most frequently served accounts. Largest total sales
were made on Friday and Saturday while Wednesday was the day when the least
volume of sales was made. Cash accounts were mainly small volume custo-
mers, whereas charge accounts were usually larger customers such as
supermarkets and schools.
The average daily load size was 1,286 quart equivalents of milk pro-
ducts, 46 pint equivalents of cream products, and 192 units of other
products. The wholesale value of milk, cream, and other products delivered
on the routes during the period of a week averaged $2,149.90 and ranged
from $1,195.65 to $4,551.83.
Labor costs were made up of base wages, commissions,and fringe bene-
fits. All deliverymen were paid on a percentage of sales commission
basis and in addition, approximately half~6f the deliverymen received a
base wage. Weekly labor costs per route averaged nearly $185. Since all
49
delie ymenwere paid commissions based on sales, variations in total labor
costs were closely related to value of sales.
Labor costs per $100 of sales averaged $8,60. To the extent that
these costs were fixed, a reduction in labor costs per dollar of sales
could have been obtained by increasing the values of the load carried.
Average labor costs per customer were 99 cents and were usually
inversely related to the number of customers served. As the number of
customers served increased, labor costs per customer decreased because
the fixed labor costs were spread over a larger number of customers.
The average labor costs per quart equivalent ofproduct delivered
were 2.3 cents and ranged from 1.1 to 2.2 cents among the routes. Data
showed that there was an inverse relationship between labor costs per
quart equivalent of milk products and number of quart equivalents delivered
per route.
Labor costs made up 76.5 per cent of total delivery costs and truck
costs accounted for the remaining 23.5 per cent. Total delivery costs
averaged 11.2 per cent of the wholesale value of the products delivered.
Because of the nature of competition and market regulation, increases
in efficiency may be difficult for Alabama wholesale milk distributors to
attain. Milk distributors have strong competition from other distribu-
tors in the market place. The Alabama State Milk Control Board regulates
distributors in regard to product prices and trade practices, thus elimi-
nating price competition. To survive distributors must be able to compete
with other firms, but they are limited by the Milk Control Board in the
number of ways they can legally increase milk sales and efficiency.
Since the field work was completed for this study, a number of Alabama
50
distributors have reduced delivery from six to five days 
per week. Besides
providing better working conditions for deliverymen, truck costs, especially
variable truck costs, were substantially reduced. Also, any increases in
volume and value of loads reduce fixed costs per unit of product delivered.
Because of competition among distributors to maintain their share of
each wholesale customer's business, other ways of increasing size of loads
are difficult to achieve, One possible way volume of deliveries may be
increased is through consolidation of deliveries by wholesale custo-
mers. However, the wholesale customer will not likely reduce the number
of brands he sells unless there is an economic incentive, such as quantity
discount pricing. If the Milk Control Board permitted quantity discounts,
the wholesale customer would tend to purchase milk products from fewer
distributors. However, with increased pricing efficiency from consoli-
dation of orders, the wholesale customer may lose some milk business
because he would have fewer brands from which the retail customer could
choose.
The present structure of wholesale milk distribution favors distri-
butors that have large volume (value) routes. Data show that larger
route loads resulted in lower than average unit costs. If the Milk Con-
trol Board permitted pricing practices that would encourage increased
marketing efficiency, milk producers, processor-distributors, and con-
sumers would benefit.
51
LITERATURE CITED
(1) Clarke, D. A., Jr. 1956. Milk Delivery Costs and Volume Pricing
Procedures in California. Calif. Agr. Exp. Sta. Bull. 757.
(2) Conner, M. C. and Edward J. Giles. 1960. Milk Delivery Practices--
Alternatives and Costs. Va. Agr. Exp. Sta. Bull. 515.
(3) Simmons, Richard L. 1962. Wholesale Milk Distribution Practices,
Costs and Pricing in North Carolina. N. Car. Agr. Econ. Inf.
Series No. 88.
(4) Spindler, Herbert G. 1958. Labor Costs on Wholesale Milk Routes
in Springfield, Mass. Mass. Agr. Exp. Sta. Bull. 498.
(5) State of Alabama, Department of Industrial Relations. Workmen's
Compensation Division. Amended through 1963. Workmen's
Compensation Law.
(6) State of Alabama, Department of Industrial Relations. Amended
through 1961. Alabama Unemployment Compensation Law.
(7) Williams, S. W. 1953. Costs and Returns to Alabama Milk Distribu-
tors. Ala. Agr. Exp. Sta. Bull. 287.


1*.~l