Industry consolidation and attempts to take costs out of the system have given rise to regional distribution. This trend can be counter-productive to building partnerships, retailers pointed out.
hem soon enough," said Darryl Wikoff, president of Dierbergs Markets, Chesterfield, Mo.
"As manufacturers downsize their sales force, this will be a focus for us in the next five years," said Ron Shooltz, chief operating officer at Wesselman's, Evansville, Ind.
But most agreed that pressure to make the distribution of nonfood and specialty food more cost-effective and efficient in getting the right product to the consumer will enhance future partnerships. Here are some of the issues that were discussed.
Trading-partner relationships
SN: How do you see the role of trading-partner relationships changing over the next five years?
HIGHSMITH: The trust in partnership relationships will grow. The need for the right items vs. slotting allowances will come into focus more as you become true partners instead of buyers.
WIKOFF: We see regionalization of the distribution process. Therefore, a lot of brokers are calling on the warehouse instead of dealing directly with the supermarket. The result is a shift in costs rather than taking costs out of the system.
With this direction we may be losing some of what we are talking about here, which is service to the retailer and fostering partnerships. I am not sure how it will all play out with some wholesalers and all the re-engineering that's going on.
THOMPSON: It becomes a challenge to make that channel efficient and get costs out of the system, especially with specialty foods where there is special handling involved. This means labor and costs that are difficult to work out of the system.
SIGEL: The ongoing Efficient Consumer Response push and more attention being paid to activity-based costing will change a lot of how things are done in the marketplace in the next five years. This will impact how manufacturers go to market, how items are shipped into the stores, what portion of items are bought on a direct basis vs. a third party, what services will be provided by manufacturers.
We are changing our whole company by expanding into third-party services. Because of the trend toward regionalization we will provide that service that might not be provided otherwise. But our survival as a wholesaler will depend on the ability of everyone in the channel to analyze their costs on an activity basis. Otherwise it will be driven by a manufacturer or the perception on the part of retailers, particularly those that are self-distributing, that they can do it all themselves. Our studies tell us that is not correct. As people get more sophisticated and the information gets better, you'll see shifts in product sourcing. It will be dramatic and will help the supermarket industry be more competitive with other classes of trade.
Regional Distributors' Effect on Retail
WIKOFF: Expanding on the regionalization of the distribution process, I am not against it. But what I've seen in the last few years is that the brokerage community and vendors are calling on the regional center and we aren't seeing them in our areas. We aren't getting the new products or hearing about them soon enough. We aren't getting the deals and information on them because we are too far away for them to call on us.
Vendors have streamlined their organizations to call on the warehouse because that is where they are directly selling their products. But that is not getting to the soul of the consumer and ultimately that is not what we are talking about in managing on a local basis. We still have to have representation of products and exchange information with the experts vs. having the vendors sell it to the wholesaler who then passes it on to us and assumes we get all the information we need.
SHOOLTZ: We are in a sub-region, so our experience has been the same. We are actually ringing up our vendors daily, asking them: "Where is our deal?" As manufacturers downsize their sales force, we will be focusing much harder on this issue in the next five years.
SIGEL: It's a very important issue that's been brought up. As part of our reorganization, we moved our headquarters staff to Massachusetts and kept our support center in Harrison, Ark. What we have done is respond to the need to be a more efficient provider and lower the cost of doing business. Our foremost mission in life is to make sure we get goods to market at the lowest possible cost so that our customers, particularly those in the supermarket industry, can be competitive and effective in the categories they sell.
Yet we have a disconnect at the moment. We are in advance of the marketplace. We are trying to do the right thing, yet the traditional broker network can make it very difficult for that to happen. Manufacturers will have to reassess how they compensate brokers and how information is being applied.
Manufacturers have a lot of work to do in how they work with their brokers. Chesebrough-Pond's has done a good job in working with us to accomplish coverage around the country. It's a critical issue for us and other wholesale grocers as to how they consolidate facilities.
The broker network gets to be counter-productive and they begin arguing against efficiencies for their own benefit. We can't deny them that. They want to make a living and they will try to focus the sales and channel it into a direction that will help them. That is the business nature of it. But if the manufacturer doesn't know how to split those commissions and work it in a way that will get the right coverage, it is a problem. We hope it gets solved soon.
Merchandising Efforts and Other Collaborations: Taking It to Store Level
SN: How do you see retailers and manufacturers working together to develop and improve presentation in the store where consumer impulse buys are really critical?
HIGHSMITH: It all goes back to proper planning. We are doing a lot more than we ever did in the past and cooperating more with the trade. We now ask for people's ideas and are putting a lot of them to work.
SHOOLTZ: We single out the groups who have good products, are working with us the best and want to sell the most.
The area that is extremely important to us is price because we are this home-town friendly group in that smaller store. We never let the big guy get our customer. Everybody is low price in our area. So manufacturers have to work much closer with us on every-day-low-price. We have 1,000 EDLP items on the shelf every day. We also have "valu-buys" priced in a temporary price reduction program in which we pass along the manufacturer's allowance. But in EDLP and valu-buy programs, we've gone to the manufacturer and requested more deals. We are dealing with more bill-backs to the manufacturers and sell more merchandise today than ever before.
WIKOFF: The big shift from a promotion standpoint is moving from paying fewer dollars for promoting to more dollars for scan data and product movement. This is good. As retailers we should produce for manufacturers so they get some value for their dollars. We shouldn't just be a way to advertise their products and get their advertising dollars and stick it in our pocket if we didn't move any products.
Sometimes we aren't as receptive as we should be to the help available. We get too caught up in stocking shelves, ordering products, following our routine and collecting our ad dollars as opposed to really spending time trying to find new ways to move products and promote them. The retailer has to be receptive to that as well.
MUSICO: With in-store presentation, a lot of it has to do with whether you believe what's good for the category is going to be good for your business. It's a different approach in how you go into retail and how you want to execute it.
In the old days you'd always want to put your new item next to the best-selling brand and stockkeeping unit. Today you are looking more to adjacencies based on how the consumer shops the store and section.
We have changed our focus over the years to how the consumer shops the section and decisions made at the point of purchase. Does she look for brand or flavor? This is changing how we set shelves and promote items. All this information has made us smarter and it has helped the categories as well.
THOMPSON: We started a perfect partners program a few years ago, which essentially addresses how the consumer shops. It works by putting together the products that the consumer would eventually use for a particular eating occasion. It's not always easy to execute in-store because sometimes these products come from different distribution channels, but hopefully by merchandising these products together it provides an umbrella under which things can happen in-store.
SN: Is specialty food getting more integrated in main stream grocery?
THOMPSON: In terms of merchandising, hopefully some thought is given to location and proximity of items. I think at certain times of year it behooves a manufacturer to work with a logical partner. In our case, we produce crackers, so we work with a cheese company. We are trying to work with a wine company. This is the way consumers think about these things. We want to create a merchandising celebration of products that will encourage people to pick them up.
SIGEL: We are seeing a dangerous trend as supermarkets go to category management. Some are assigning the specialty foods category to main line grocery. So somebody that buys condiments for main line grocery is now being assigned condiments for specialty. That is not a good idea in our opinion. It's diluting the expertise and it's having those specialty items compete with national brands. That's not the intent of specialty items. Nobody said we are going to have as many sales on imported olives as we would on domestically produced, lower-priced olives.
In terms of cooperation, there has got to be an understanding of the category and what it means. We are having everything to do to convince people that being progressive in category management is good, but in specialty foods it's not good. It's going to be counter-productive unless you have the same expertise 10 or 15 times over.
THOMPSON: In the area of cooperation, most of the specialty food companies are far too small to effect the kind of communications we are talking about. They rely on distributors to essentially educate the retailer. Education is nothing more than passing on research. This is the way the consumer wants to shop this section and wants to think about these items. This is the role this product plays in their lives and why it is important and why it can become a request item.
