BATON ROUGE, La. -- Wholesalers like Associated Grocers here perform the important task of consolidating the buying power of individual independents to gain a price from CPG manufacturers that is competitive with that charged to supermarket chains.
Now the National Grocers Association, Arlington, Va., which represents the independent supermarket sector, is taking the process one step further by consolidating food wholesalers to gain the best pricing from suppliers of commodity supplies such as stretch wrap, meat film or T-sacks. And NGA is helping to cut the price even more by having these suppliers compete for its business through reverse auctions conducted online.
The wholesalers participating in the program include Associated Grocers, Baton Rouge, La.; Bozzuto's, Cheshire, Conn.; Laurel Grocery, London, Ky.; and Certified Grocers Midwest, Hodgkins, Ill.
Reverse auctions are bidding events backed by a buyer, in this case the NGA-organized wholesalers. The buyer details the product it needs, and suppliers make dynamic bids online to win the business. San Francisco-based ecMarkets conducts the online reverse auctions.
AG Baton Rouge has participated in 16 auctions since it began the process in late September 2001, and currently three are under way. So far the co-op has procured supplies such as pan liners, thermal paper, meat trays and T-sacks, and is considering produce pull bags, sheet paper and plastic cutlery, said Darin Arceneaux, vice president and chief executive officer, AG Baton Rouge.
NGA has been instrumental in the success of the reverse auction program, said Arceneaux, noting that although AG Baton Rouge has annual sales of $500 million, NGA brings $20 billion to the table.
In AG Baton Rouge's case, its previous procurement system was also automated, except for the negotiation part. "But now, with reverse auctions, ecMarkets solicits suppliers," Arceneaux said. "And other companies participating may also have their own suppliers."
In this scenario, reverse auctions work best, he said, where there is the least variation among demands of auction participants. For example, thermal paper is basically identical for everyone. A seller would see a large volume of demand and would gain efficiency in product runs and in storage, which it could pass on to the buyers. However, if there were little twists and variations in an item, the suppliers would see less benefit.
In the online auction process, suppliers also have a live opportunity to adjust their prices before the closing time. "Obtaining prices interactively from suppliers is very different from what we did in the past," Arceneaux acknowledged, adding that savings from reverse auctions typically range from 15% to 30%.
Arceneaux said that so far goods purchased via the auctions have been largely used at the distribution center. Lately, though, items such as T-sacks have been sold directly to retailer customers.