MILLBROOK MOVING NEW SERVICES FORWARD

JOHN KAROLEFSKI

AUBURNDALE, Mass. -- Millbrook Distribution Services is reinventing itself, according to Bob Sigel, president and chief executive officer. By doing so, the Leicester, Mass.-based firm will remain a high-tech, low-cost provider of distribution services to help its customers remain competitive.

"The Millbrook team has a clear vision of where we are heading, and how we are going to get there," he said, speaking here at special dinner in his honor, sponsored by the Housewares Club of New England. Sigel said his company is pursuing three major areas of opportunity:

Adding value to items that don't lend themselves to self-distribution by the retailer, or direct shipment by the manufacturer. "These items will typically have a lower unit value, be slower-moving, more difficult to handle, be shipped into the store in small quantities and can be purchased by us more economically," he said. Sigel said Millbrook would focus on developing the category management and merchandising expertise in these items to represent the needs of both trading partners. Millbrook will add new categories -- likely in general merchandise -- to its assortment as it crosses over into other retail classes of trade, he said. · Expanding the specialty foods business by leveraging the distribution and logistics capabilities developed for the nonfood business. "Today, we are among the largest specialty foods distributors in the country," he said, "and many of our customers are taking advantage of the economies derived by buying both nonfood and food from us."

Entering the third-party merchandising business by forming a new division, Millbrook's Retail Solutions, that will provide retail services primarily to manufacturers. "With over 700 people in the field, who already have the professional merchandising skills and field operations expertise, we have a solid base upon which we intend to grow this business," he said. Sigel gave the audience, which included his family, a sobering view of the future of the packaged goods business that was based on a report, "Retailing 2005," from Management Horizons, New York, the consulting division of Price Waterhouse.

"In the next 10 years, there will be fewer retailers, fewer wholesalers and fewer manufacturers. Only those organizations that are capable of reinventing themselves will survive," he said. He listed these specifics: · In the supermarket industry within the next ten years, the top ten retailers in the U.S. -- including supercenters -- will control half of the market. Today, they control less than 30%.

The drugstore industry will consolidate greatly over the next ten years. The top ten chains already account for over 50% of the market -- up from 36% ten years ago. · Leading supercenters will place added pressure on supermarket operators. They will use the advantage of "logistical prowess and sheer scale" to restrain costs. Categories such as health and beauty care are used as loss leaders.

"As a result, everyone will be forced to re-evaluate their purchasing practices and distribution methods," he said. According to Sigel, many large retailers will develop improved distribution and logistics capabilities internally, while others will outsource this business and instead focus on core merchandising competancies.

"An increased proficiency in the use of activity-based costing will lead to a better understanding of handling costs, which will result in more 'outsourcing' to those third parties that have achieved a cost advantage," he said. "The biggest potential for the wholesale sector will come as leading wholesalers transform themselves into high-tech, third-party distribution services," he said.