CHICAGO -- The march to Efficient Consumer Response is still drawing an enthusiastic crowd of supporters.
But increasingly, industry executives, including those involved in spearheading the massive re-engineering effort, concede that ECR must begin focusing much more attention on
satisfying the most critical supermarket player of all: the consumer.
Thus far, nearly all of the industry's ECR efforts have involved implementing programs to enhance business practices between trading partners and cut supply chain costs.
Even in several critical areas such as efficient promotion and efficient product introduction, which can enhance the consumer's shopping experience while reducing food industry costs, much progress remains to be made.
It is with these issues in mind, as well as the momentum building from more than three years of ECR efforts and progress, that industry leaders are gathering here this week for the second-annual Joint Industry Conference on Efficient Consumer Response. The event is expected to draw up to 1,500 retailers, wholesalers, manufacturers and other key industry players.
While there is no doubt the industry has made enormous progress in implementing ECR programs, from streamlining supply chain logistics to upgrading systems networks, much more work still needs to be done to ensure the supermarket's competitive edge into the next century.
To provide an overview on the industry's ECR efforts to date, and the road the initiative still has to travel, SN interviewed officials at four leading distributors involved in the program in various degrees. Here is what they had to say:
Michael Julian
chairman, president, CEO Farm Fresh Norfolk, Va.
ECR got a real lift when people thought of it as a way to reduce the costs of doing business. People jumped on the bandwagon. It fit in with the industry's response to competing retailers, such as Wal-Mart, that seemed to be logistically much more capable and advanced.
But as I have said before, Sam Walton is probably sitting on a cloud now, laughing up his sleeve at our industry. He built his business by driving sales through satisfying the customers -- and only then looked back and made billions by engineering out costs.
But when ECR started out in the food industry, it was just the opposite. We decided to engineer out the costs first and maybe only sometime later think about selling to customers. I'm glad to see people in the industry now talking more about the customer.
We've implemented category management here and moved forward with some other programs that are part of the ECR umbrella. But all our decisions have been driven by the desire to make the shopping experience better for customers, to sell customers by satisfying their needs. If we can also figure out how to save some money along the way, we're happy.
ECR can not only result in lower prices but provide customers with a better shopping experience. The category management strata of ECR is a good example of how ECR can impact the consumer by managing categories to meet their needs.
We believe in destination categories and in figuring out our index in the market. For years we had a very low customer satisfaction index in our baby food formula and diaper section. When we studied it, we realized we weren't pricing the products correctly and didn't have enough variety. We've made a significant turnaround by managing that category better.
I've heard some comments about ECR being one-sided, with manufacturers getting all the benefits. That's like saying you negotiated for a car and didn't get the price you wanted while the other person did. One of this industry's great weaknesses is making itself out to be the victim. If I'm negotiating with a manufacturer, it's up to me to make sure I share in the savings and get the price I want.
Craig Schnuck
chairman and CEO Schnuck Markets St. Louis
The whole focus of ECR thus far has been on cost reductions and efficiency opportunities. We haven't really focused yet on how ECR might benefit the consumer, except in the area of reducing prices and cutting out-of-stocks.
Reducing out-of-stocks is the primary area consumers have felt the impact of ECR so far. We've certainly had a significantly improved in-stock situation here. We've also seen some better ordering processes implemented. Continuous replenishment programs have resulted in improved service levels in our warehouses.
There's evidence of lower ECR-related pricing already on certain products. But in other product categories, where there've been no supply chain cost reductions, there's been no impact on the pricing.
There's also been very little activity on the promotion side of the equation. I don't see any specific consumer or distributor benefits in that area yet, but it's definitely an opportunity on which more attention should be focused in the near future.
In terms of whether manufacturers are carrying their weight in implementing ECR, I think it varies widely. Some manufacturers have been carrying their share of the load and others have been notably absent. There's going to have to be some improved communication between distributors and manufacturers to encourage more companies to become involved.
We're trying to take maximum advantage of all the opportunities afforded to us by the whole ECR initiative, and that includes a wide range of opportunities. But we've had to put our ECR expansion process on hold for about six months during our acquisition of National Stores. We didn't want to be starting up new ECR programs just as we were taking on a large number of new stores. But that was our own choice.
Frank Manetta
executive VP, wholesale operations Riser Foods Bedford Heights, Ohio
The [theoretical] impact of ECR on consumers is in two areas: in-stock levels and lower cost of goods. Whether that's a reality, though, is hard to say. The everyday-low-pricing part of ECR has lowered prices to consumers, but consumers may have been getting better prices before from couponing and high-low strategies.
The real winners with ECR are still the manufacturers. ECR is going to take $33 billion out of the supply system, but I don't see many wholesalers or chains showing record profits.
Procter & Gamble is now testing not offering coupons at all in at least one market and putting that savings into the consumer's hands. But I don't know how they're going to accomplish that without offering additional price reductions or incentives for consumers to buy their products. If everybody is EDLP, what is going to persuade consumers to select one product over another?
From a wholesaler point of view, what will happen when we can no longer benefit from traditional business practices? We have to pass those costs on to our customers, whether independents or chains, because wholesalers can't absorb those costs and it's unclear whether retailers will be able to.
Until more manufacturers work hand in hand with wholesalers, ECR basically is going to stay in a stall mode.
That doesn't mean we as a wholesaler aren't moving forward with electronic data interchange or other ECR components, but I'm not sure about the concept of getting more money into the hands of consumers.
Manufacturers haven't been paying their fair share of the costs, but they've been gaining more than their share of the profits. Savings from ECR should be distributed in the following way: 30% for wholesalers, 30% for manufacturers, 30% for retailers and 10% for consumers. Until that happens, ECR's going to remain stalled.
David Walrod
executive VP, chief operating officer Seaway Food Town Maumee, Ohio
I view ECR as a way to get a clearer picture of the item mix customers want, to eliminate out-of-stocks and to deliver product at a lower cost to remain competitive. We're in a position now where we've got to work with manufacturers to sort out some of the logistics issues that will ultimately result in reduced pricing and better in-stock positions.
Ultimately, I think that as the industry saves money, much of that savings will be passed on to the consumer. But we need to continue to make sure we get the cost reductions projected as part of the ECR initiative.
We're moving in that direction here. We've got some initiatives in the areas of electronic data interchange and vendor-
managed inventory that will reduce our costs.
We're also now putting an automated reordering program together, and when that becomes operational we're going to be looking at some very significant dollars we can pass on to the consumer.
Out-of-stocks will be reduced through use of scan data tied to automatic reordering. We're also developing a system now where we will cross-dock individual cases for stores. That will reduce the need for pick slots and reserve slots.
We're using scan data more intelligently and are able to hit our promotions more directly. Until all of the manufacturers line up to do EDLP, however, we're not going to get the full benefit of that -- and I don't know if that's ever going to happen.
There's still some manufacturer reluctance to implementing ECR. Manufacturers that cooperate with the industry should be rewarded through increased sales and market share. That issue needs to be addressed before the whole system can come together. ECR may have to become more retail-driven.
