FDI MIDYEAR EXECUTIVE CONFERENCE 2000-09-25

DAVID MERREFIELD

LAS VEGAS -- The profitability of Center Store products sold through the wholesale-supplied sector may be under appreciated by manufacturers, according to a study presented during a general assembly at the Food Distributors International Midyear Executive Conference here.

The study, "A New Vision for the Center Store," was developed by National Grocers Association's Industry and Trade-Relations Council, an entity created in 1998, and presented here earlier this month by NGA, Reston, Va. For the first time, the FDI conference included NGA's midyear conference.

Tom Zaucha, NGA president and chief executive officer, told the assembly that, "Over the last decade we have experienced an alarming erosion of Center Store as an increasing number of critical stockkeeping units found their way onto the shelves of club stores, supercenters, mass merchandisers, drug chains and seemingly anywhere else that has four walls, a ceiling, a floor and a register."

But that's not all that has contributed to the decline of the category, he said. "In the final analysis, the combination of the buying-driven business model with growing competition and new investment in stores' perimeter departments have all contributed to the deterioration of Center Store performance."

It may be possible for independents to win back lost sales through the long-discussed and highly challenging concept of converting the wholesale-supplied system to a "virtual chain." And, another boost to the Center Store situation could be found if manufacturers were to better understand the profitability of the sales they can achieve in independent supermarkets.

Those concepts were aired during the session by Daniel Lyman, vice president, Willard Bishop Consulting, Barrington, Ill., the consultant engaged to help guide research.

"The new business model is the virtual chain," he said. "It requires a fundamental change in how we do business. We know this change will be difficult, if not impossible, to execute in many ways."

Lyman said components of the virtual-chain model include establishing uniform technology platforms for trading partners, strengthening trading-partner relationships, employing category management and adopting the view that the ultimate consumer is the actual market.

Moreover, Lyman called on manufacturers to recognize the true profitability sales through independent stores can produce.

"Most manufacturers are very developed in their ability to measure cost to serve, but not their ability to measure customer and channel profitability. Account and channel profitability is a better measure of true value since it takes into consideration product mix, breadth of distribution and other product-related elements.

"Once manufacturers switch to a full profit-and-loss view that takes into consideration these factors, they see that the bottom-line profit of the independent channel is better than they expected. If this is the case, the economic picture is brighter than we originally thought."