PASADENA, Calif. -- Moderation is the byword as the supermarket industry moves toward an Internet-enabled, business-to-business environment.
That attitude was reflected several times by participants in a retailer and wholesaler panel held during the Supermarket News/Executive Technology Summit on Internet commerce held here last month.
A report specially prepared for the summit by the Advantage Group/U.S. Markets, Worthington, Ohio, was the catalyst for discussion for the panel.
In presenting the Advantage Group report, Douglas Rossiter, president of the research company, noted that the pace of progress toward B-to-B in the supermarket business has been moderate, rather than rapid or cautious. Noted as one barrier was proving B-to-B's business case.
Additional panelists were Jeff Noddle, president and chief operating officer, Supervalu; Alfred A. Plamann, president and chief executive officer, Unified Western Grocers; and Terrance M. Rockstad, chief executive officer, Dan's Super Market.
Among the study's other findings:
Fewer retailers or wholesalers see competitive advantage as a key benefit of B-to-B, ranking merchandising opportunities first.
Collaborative applications were seen to be a high priority, but so were other applications, such as item catalogs and category management.
Setting standards for B-to-B through the UCCnet and XML (eXtensible Markup Language), along with direct connectivity in private exchanges, are areas of high focus for the survey respondents.
Marc Millstein, editor-in-chief of Executive Technology and the former lead editor of SN technology coverage, moderated the panel.
Millstein: What points in the study did you find particularly interesting or surprising?
Plamann: I found it fascinating that some of our priorities really lined up with the priorities that the survey focused on. At least in our part of the world, the supply chain is constantly looking for a rational business case. The margins are so thin already that without a business case, it is difficult to justify expenditure larger than what we are now doing.
I know we are all looking for a business case for most of the applications and we are wondering are we ever going to get the money back? I think ECR is a good example from the wholesaler prospective. We spend a lot of money working on our systems and what we found out is that most of the large manufacturers were out there working with us, but we had a whole array of other manufacturers who weren't large enough to put in place everything we needed, so we really only got about three-fourths of the way there.
Rockstad: Probably the most significant change we went through with the B-to-B equation was a huge shift in talent. As a 50-some-year-old company, we had a lot of people who I would refer to as traditional merchants, and as we embraced technology, it certainly was better for the sense of planning and forecasting and replenishing, and it was complex.
But there was a whole range of merchants out there who in their careers decided they didn't want to be in this business anymore. So now what we are dealing with is, we are actually too much a technology-driven company, and we have actually lost the art of being a merchant.
It's just amazing what we have done with B-to-B, but when I look at this whole report, what occurs to me is I don't think customers really care that we have B-to-B. They want things like quality, service, a more pleasant store.
Noddle: I agree. ... We have lost some passion for selling food and for the food business.
On the study, I wasn't surprised to see that collaboration was very highly rated as an objective, but very low-rated as an implementation. Because what we are all striving for is somewhat of a seamless supply chain, and we all have that objective, yet delivering on that is still difficult, because it is still growing up in a number of different pods, as I would call them. If you add up the investment in the food industry that is going into all the exchanges related to the food industry, including convenience stores and food service, it is somewhere between $500 million and $1 billion across the whole supply chain. We think that the exchanges will fare better over time.
However, I was also glad to see that there was some caution in the study. That people responded cautiously to their expectations of when they might get returns on this. A year ago, you would have had higher expectations because there was something of a fever over what the exchanges could deliver. So I was glad to see that there was a more cautious and realistic approach.
On the exchanges, we are a member of WWRE [WorldWide Retail Exchange] and I don't want to give the impression that we don't think that is a good decision, because it is. But we do think that so much has been invested across the whole industry, that perhaps the industry could have done it together, and avoided the replication of CEOs, administrative staffs and technologies.
Millstein: In the study, "competitive advantage" was near the bottom of the list of benefits expected from the B-to-B investment. How far can you take B-to-B and not expect a competitive edge?
Rossiter: One of the views that seemed to come through at least inferentially was that the industry has been through ECR [Efficient Consumer Response], EDI [Electronic Data Interchange] and a lot of other activities in which it has made investments and sought to find ways to more efficiently move goods and exchange information. And that the outcome of that for many in terms of net profit is we aren't really much better off, although we are still in business, and that is important.
I would agree with Terry in that the focus in the past has been more on the buying side with respect to efficiency as opposed to selling. If this can be designed in a way that does tie in to competitive advantage, whatever that is for a company, that in my view should be core. Whether it's variety, whether it's price, whether it's some other aspect of serving your consumer, to me that is the important opportunity.
Noddle: People feel competitive advantage is going to be harder to achieve because these are open Internet-based systems, designed to be very fluid. But at the end of the day there will be competitive advantages. I think Tesco has proved that it has a competitive advantage. A lot of people initially entered into the business-to-business arena defensively rather than offensively, because they saw others getting into it.
But there are competitive advantages to be gained by any investment where you put your focus. We have done work on something called Supervalu Harbor, in which we are almost like an Internet service provider to the stores we do business with. They not only do all their functions with us, but they also can use it as a communication vehicle. It becomes a total application.
Plamann: I don't think it's a question of jumping into B-to-B to gather up a competitive advantage for a period of time. I think it is a question of doing it just to stay even. Because certainly some of the competitors that the independents have out there are already well up the curve. So I think it's an absolute issue of survival as opposed to trying to capture a competitive advantage.
Millstein: What role are the exchanges going to play in the industry? And what do you make of the multiple exchanges that have developed?
Plamann: We have not committed to a single exchange. We have prepared ourselves to participate in several of the exchanges, but we are not certain which exchange we would like to commit to at this point in time.
There are some economic constraints in the marketplace that will come into play at some point in time in terms of size if we are talking about an auction. If the exchange is designed for auction purposes alone, I think economic constraints will have a limiting effect on that.
Rockstad: I doubt that we will ever belong to an exchange, but again we will look to our wholesaler to make those type of strategic decisions. Whether it be a buying group or any method for enhancing your methods of procurement, those type of changes are going faster and faster. This method of procurement is going to continue to be refined to an exact science.
In terms of leadership, the industry, trade groups, trade journals, everybody seems to be talking different languages. Until there is a common, almost a virtual relationship, which we are attempting to get closer to with Supervalu, so it is one complete link where are all the dots are connected, you are going to have a lot of things off to the side.
While buying is one thing, selling is 80% of the game. So I think we have been spending money, but more importantly, emotional time, which is the real shortage out there. We have been spending a substantial amount of time in the last three to four years just getting prepared to use this and getting people to go through the mind change.
Audience: Is there a compelling reason today for a retailer or a wholesaler to join any of the exchanges?
Noddle: Having invested in it I would always like to see us lay off some of our investment to somebody else. But answering the question, I would say probably not. Because I believe that these are going to be open enough that you will be able to access them probably anyway. But frankly, I don't think that there is going to be any proprietary things that are going to belong to the owners or investors that wouldn't be available to the others.
Millstein: What is your feeling about industry progress in terms of achieving standards?
Noddle: There are too many disparate pods at this point, although the standard setting will get accomplished through UCCnet. That is why you are seeing the collaboration listed high among the objectives in the study, and low in implementation. There is not enough done, and that's why we are being very cautious to not do the things that don't integrate into all those other systems.
Plamann: I would say the approach we are seeing in terms of standards is haphazard. I'm not quite as optimistic as Jeff. It's going to take a little longer for us to adopt the standards. Each exchange is moving aggressively to try to capture as much business as they can as early on, and then on the other side of that, we have real needs with each of the vendors to try to bring information for new products, for example, down to our retailers as quickly as possible.
Rockstad: There are some accuracy issues relative to the information you are given, that then fits into some type of a planogram and then some type of a distribution process. It isn't working perfectly, but it's certainly moving in the right direction. But it's got to work perfectly. It's got to be accurate.
Audience: What do you see for the future of EDI in terms of the B-to-B environment? Plamann: One of the reasons that we're focusing so heavily on Internet applications is that it opens up a broader array of opportunities, certainly for our retailers and also for the smaller vendor. So EDI is alive and well, and we are going to probably do a whole lot more EDI transactions through the Internet activity as opposed to very direct vendor-by-vendor or retailer-by-retailer contact.
Noddle: We support EDI. We were a grandfather of the original EDI in the food business and UCS. We think that EDI will move completely to the Internet because of its costs benefits and its other applications that can be brought into it because it is in an open system. The transparency of the Internet and EDI is critical to it. So we are going to push that way.
Millstein: What other things are people doing here to take advantage of B-to-B?
Noddle: We have developed something we call Supervalu Harbor. It is an Internet application and will move all of our merchandising, invoicing and other activities to the Internet. Terry, as an example, is one company that is very progressive in grasping this. It is intended to be very seamless in terms of supporting the supply chain and communication, and they can use it almost as they would use an Internet service provider as an avenue to other applications, whether it be on e-mail or in their own internal accounting.
