WASHINGTON -- Millbrook Distribution Services, which supplies some 15,000 retailers with nonfood and specialty food products, outlined a three-pronged strategy designed to take the company into a new era of retailing by the year 2000.
Bob Sigel, president and chief executive officer of the Leicester, Mass.-based distributor, said Millbrook is well positioned and technologically equipped to capitalize on opportunities in a rapidly changing and challenging marketplace.
"Distributing solutions is the new marketing approach we are taking," Sigel said during Millbrook's second annual trade show here last month. Millbrook's Expo '96, which featured educational seminars and 325 exhibitors, drew more than 1,000 retailers, brokers and manufacturers.
Millbrook's three areas of strategic focus are:
It will concentrate on specialized distribution of hard-to-manage nonfood categories.
Through a newly formed company, Millbrook Retail Solutions, the distributor will focus more directly on the third-party merchandising side of the business in offering a variety of services and labor to both manufacturers and retailers across all trade channels.
It will build upon its specialty foods business by being a full-service, full-line supplier. This is a segment that offers supermarkets "an enormous opportunity to differentiate themselves," said Sigel.
Millbrook will use the activity-based costing method as a cornerstone in executing its strategies, and to prove to its clients that it can be what Sigel described as the "right source" for product acquisition and distribution.
The distributor has retained the services of Willard Bishop Consulting, Barrington, Ill., to measure cost and productivity issues associated with distribution decisions.
Bill Bishop, president of the consulting firm, also attended the trade show and presented an overview of activity-based costing principles and how the process is affecting the industry.
Applying this method of analysis to "hard-to-manage" nonfood categories will be particularly important for Millbrook in convincing its retailers, even those supermarkets with self- distributing warehouses, that it can supply certain categories more efficiently and at a lower cost.
"As activity-based costing moves along its continuum of analysis, many retailers will realize the right way to do these product categories will be to outsource them to people that can do them more efficiently," said Sigel. "ABC is giving us the ability to unbundle each and every action that takes place in the distribution channel," he added.
He concedes Millbrook doesn't expect to be an outsource for all nonfood categories, especially for products that have high turns.
"There are some retailers out there that have sufficient size and scope, in health and beauty care in particular, with everyday low pricing, that might have their own warehouse facilities and may be able to buy a number of items in top HBC or fast-moving general merchandise more efficiently than we can," he said.
But many retailers aren't applying activity-based costing and, therefore, they don't realize the true costs of products and categories they merchandise, he emphasized.
"Retailers are applying one general cost for handling all the thousands of products they sell across the board," said Sigel, who pointed out that handling costs are much higher for items with low-unit volume, low-unit value and wide variety, and those that tend to be impulse driven. Sigel said Millbrook has the ability to add more value in such difficult-to-handle nonfood categories by driving retailers' distribution costs down and delivering products efficiently and on time. "The critical issue of the future will be low capital investment, and making sure your inventory in store turns quickly," said Sigel. About 80% of the 38,000 items Millbrook represents sell on an average of about one piece per week, Sigel said. The distributor has the capability to ship in minimum order quantities and in many cases will ship just one piece.
"We are competing with people that ship in full cases. We think we have the advantage to free up capital inventory with less than full-case quantities," Sigel said.
Through its Retail Solutions division, Millbrook will concentrate on becoming an outsource of store merchandising services.
Sigel pointed out that the application of category management and movement to micromarketing has resulted in many planogram changes at retail. This has fostered the need for more outsourced labor to perform more in-store services such as major category resets. As a result, many new third-party service merchandising organizations have emerged in a growing and competitive field.
The high cost of labor and its supply are consistent problems that are given high priority among issues faced by supermarket operators, said Sigel. Manufacturers have also come to realize the high costs associated with the store coverage that retailers are asking them to provide, he added. "Manufacturers are very concerned about transferring the whole role of in-store service. They can probably get critical mass or more efficiencies in having an organization or third-party represent them," said Sigel. He believes Millbrook is ideally positioned to provide such services.
"We have existing relationships with manufacturers and core merchandising competencies. We look to re-engineer ourselves and expand upon what we are doing," said Sigel.. The ability to have national coverage among the many regional players vying for third-party business is viewed as key to Millbrook's success in this area, said Sigel. The company has over 800 field organization people in the United States. "The critical success factor for somebody to do it right, and for manufacturers not to have to manage a number of these groups all over the country, is to have the ability to sell on a national basis," he added.