TEMPE, Ariz. — Publix Super Markets claims an impressive 55.1% market share of traditional grocery business in its five-state trading area, yet it's striving to further improve in-store performance.
It expects CPG suppliers to weigh in with practices that can help Publix merchandise more effectively, said Dave Bornmann, vice president of product business development for grocery and nonfoods at the Lakeland, Fla.-based chain.
“We need actionable ideas that are Publix-customer-centric and that fit within our market position and our culture,” said Bornmann, in a keynote address delivered at the 16th Annual National Frozen and Refrigerated Foods Association's Retail Executive Conference, held here last month.
He discussed several areas Publix identifies as “key opportunities for the CPG industry,” including “product availability; the nutritional value of CPG foods; the rate of new items and the quality of innovation; and the need for more help within our stores, largely due to the innovation of so many new items.”
Bornmann, whose purview at Publix includes product logistics as well as all Center Store, frozen and refrigerated merchandising, related what amounts to a “can-do list” for Publix vendors, which is aimed at improving sales, relieving some labor burdens from store associates and improving the overall shopping experience.
As to Publix's expectations of suppliers, he said, “Not surprisingly, it's the basics first: 100% order fill rates; on-time delivery; accurate invoicing; and timely communications for new items, promotions and other key announcements.”
“To grow our joint business,” he added, “we need suppliers that are flexible with price and non-price funds, to permit Publix to differentiate itself from the competition.”
One challenge of significant importance for a chain with such a large footprint in its markets is product availability, Bornmann said.
“Publix is experiencing more and more opportunities in not being able to secure product quantities that we need to satisfy our customers to grow our joint sales.”
He related several recent experiences where Publix has been unable to obtain enough supply of new items that were selling well. “It's important for our suppliers to have new items in stock and to have capability to produce them once they are introduced.”
In two new frozen lines introduced last year, Bornmann said, the chain was cut 71,000 cases in the fourth quarter, due to insufficient manufactured quantities. Similar availability issues have occurred with holiday items. During the month of December, one major CPG supplier had cut over 18,000 cases in a key product.
“Our customers expect Publix to be the retailer that has the new, advertised items. When we're out of stock, we disappoint our customers, and our store associates take the heat unfairly.”
Publix's 31 grocery buyers reviewed more than 9,400 new items in 2007, he said. The onslaught causes pressure on shelf space, especially within the refrigerated and frozen sections. It also harms shopability by having too many items in the section and increases the labor Publix and its suppliers will incur to make the shelf changes.
“Given these costs, plus the product development and marketing costs that you bear, the ROI from most new items must be negative,” he said. “Only new items that are truly differentiated, and which avoid the cannibalization of existing sales, have the opportunity to surpass these costs and potentially create positive net sales and profits.”
Bornmann said Publix was increasingly concerned about the consequences of product recalls, and he urged manufacturers to improve practices to reduce these incidents. In frozen and refrigerated foods alone, Publix had 18 total recalls in 2007. “The trend across time shows that we are not getting better,” he said.
“Our No. 1 priority is to remove recalled product from our shelves to protect our customers. In doing so, we expend a lot of additional labor and shift our focus away from selling and serving our customers.”
Publix also sees opportunities in product quality, both nutritional and in terms of appearance. Bornmann said shoppers have been concerned about excessive levels of saturated fat and sodium present in some frozen convenience foods.
“I've spoken with several suppliers about the balance of protecting current volume, production costs, maintaining taste, while improving the nutritional value of their current foods. I know improvement is not easy, but the threat is very real.”
Another aspect of product quality of concern at Publix is the appearance of product contents vs. the packaging. Bornmann discussed an Internet site that drew attention and hurt consumer confidence by showing the “amazingly different” packaging of CPG foods vs. the actual appearance of the foods inside.
“As the CPG industry faces stiff competition from fresh food alternatives, I'm asking you to improve quality checks; increase the nutritional value of foods; and to create foods that look like your packaging,” he said.
He continued, “We also expect a sincere interest and involvement in improving our joint supply chain. We need to work together to reduce the overall cost and not simply shift costs back and forth to each other.”
Bornmann made specific reference to the four-year-old joint Publix-supplier scorecard, which he said was “an important improvement for us.” The scorecard tracks performance of Publix's 2,100 CPG suppliers on key areas such as order accuracy, inventory levels and damages.