April 28, 2014 Opinion piece
A new project to streamline the supply chain to independents has the backing of major supplier companies.
This article first appeared in the April edition of The Wholesaler.
Shopper habits may be moving toward a convenience platform, but it’s the grocery multiples who are driving growth in the sector and the total convenience market serviced by delivered wholesale and cash & carry is in decline. This trend is set to continue unless businesses in the sector are able to capitalise on their strengths and create competitive advantage through collaboration.
By bringing stakeholders together, GS1 UK is producing a roadmap for the industry that will clearly identify best practices that could be applied to core business processes in order to deliver significant competitive improvements for the sector so that all businesses involved can start to feel the benefit of margins being eased, rather than squeezed.
One of the advantages the multiples currently have over convenience stores is a more streamlined supply chain. For retailers in the convenience sector who have found margins coming under increasing pressure from all sides over the past few years, taking costs out of getting products to their shelves is vital to their ability to compete in a market where discounters such as Aldi and Lidl are redefining distribution.
We are aiming to identify potential opportunities where convenience businesses might look to optimise their trading performance and increase operational efficiencies. As part of this process we asked some of our senior brand-owner members about their experiences to help build a picture of where these efficiencies might be found.
John Macfarlane, Customer Director at Unilever, says that greater cooperation and standardisation of processes is important. “The whole supply chain has to work together if we are to reduce costs. Having an increased number of mutually-agreed processes and more standard ways of working will enable the efficient movement of goods throughout the supply chain,” he says.
The type of inefficiencies we are looking to address include wasted delivery runs where orders are incorrect or incomplete. For Nick Beresford, Sales Director Convenience & Discount Channel at P&G UK, the opportunity is around “seeing where the waste is in the system and finding ways to optimise through end-to-end supply chain analysis.”
We have also identified the lack of a standardised approach to sharing data. The increased volume of forms that need to be completed at the order and fulfilment level to get data into a retailer’s system introduces resource costs, delays and the possibility of human error. Standardisation would help to drive out cost from the supply chain by saving time and reducing road miles. Beresford says that P&G is currently working on a project to standardise pallet heights to enable more double stacking, for example.
There is a wider opportunity around customer insight that remains untapped for this sector. Generating a clearer picture of what customers are shopping for and when could greatly aid store planning strategies and inspire a form of local store brand loyalty that feels personal in ways supermarkets cannot. For the multiples, this has generally been built up through loyalty cards and Steve Young, Director of Sales, Route to Market at Miller Brands wonders whether this could be adapted for the sector – “At the moment, customer targeting just isn’t there,” he says. How a customer insight programme would be managed remains to be mapped out; it may even be enabled through data-sharing between all parties, but it can be a powerful tool.
Digital future?
While digital technology is something most high street brands have had to embrace, what operational benefits digital offers for the convenience sector is less clear. There seems to be widespread agreement that it is a big opportunity, but its use might be more subtle in execution. Click and collect has already been rolled out to some stores for example, and getting a consumer into a store is a huge step towards an impulse purchase.
Using social media for local engagement and promotion offers another obvious potential win. It requires resource to manage, but Macfarlane believes this is possible: “If the supply chain is fully optimised, the time spent on back-of-house admin can be refocused on front-of-house, customer-facing activity.” Young sees an opportunity to bring back the past in a way that would seem oddly modern, offering free delivery within a short radius of the store fulfilled by the shop assistant on a bicycle to remove costs.
The picture may not be completely clear yet, but there is a sense that digital can offer something as Conrad Davies, owner of three Spar stores in North Wales suggests: “In our sector it is not as straightforward as launching an ecommerce site, but there are a range of potential options that we can look at to enable customer engagement through digital channels.”
Next steps
There are many options available, but the common thread through the discussions with our members was that evolving and improving the operational efficiency of convenience is both possible and desirable.
In order to plot a route to greater efficiency we first need to understand where we are starting from, and the current position of all stakeholders. This is where FWD members come in; we want to know more about your operations and where you feel the productivity shortfalls are apparent in order to identify were standardisation can help your business and the sector as a whole.
The opportunity for supply chain operators in the convenience sector to start easing margins again is potentially significant. In 2013 for example, the cost savings for the retail / CPG industries due to the deployment of GS1 standards was estimated to be £10.9bn.
Over the next few months we’ll be building a picture of how wholesalers can optimise the processes through which goods are brought to market, to see where the existing shared platforms are and begin to develop best practices for all stakeholders. Through this cooperation we believe we can help reduce costs and increase communication for the benefit of the entire supply chain.