NEW WORLD ORDERING

MARC MILLSTEIN

Dramatic change in how consumers order and receive products captured center stage in 1996. Retailers and wholesalers this year began grappling seriously with the complex question of how to reap the benefits -- and not miss out on the rewards -- promised by home-shopping programs.

One clear sign of the shifting business climate was the sheer number of phone, fax and on-line home-shopping programs launched by retailers, most often in conjunction with third-party firms, to test the waters of the new distribution channels and not be left out of the emerging market opportunities.

A growing roster of distributors and suppliers also began to take up the question, often behind closed doors, of home shopping's long-term impact on the supermarket industry. In addition, the subject became a sizzling hot topic of conversation at industry seminars and conventions.

While home shopping may have succeeded in capturing the imagination of the industry, other distribution and trade relations issues also exerted enormous influence on supply chain practices throughout the year.

The industry's sweeping Efficient Consumer Response initiative continued to generate considerable talk and progressive change in how trading partners tackle supply chain issues and help ensure future success for distributors and suppliers.

In that regard, the ECR Operating and Executive Committees hammered out plans and goals for taking the industry to the next step and reaching critical mass in core ECR programs. At the same time, a growing number of leading retailers and wholesalers deepened their commitment to key ECR programs, especially in areas such as activity-based costing, category management and electronic communications standards.

Here are some of the supply chain and operations highlights of 1996:

Home-Shopping Quest

The distribution side of the supermarket industry this year was characterized, perhaps more than anything else, by the intense interest and steely determination of retailers and wholesalers to test the potential of home-shopping programs.

Retailers and wholesalers in large numbers began offering home-shopping services, most often in conjunction with third-party firms, to test the effectiveness of the services to cater to a new breed of customer and compete in a new age of retailing.

Among the news reports of programs launched this year was the announcement in the first week in January that Shaw's Supermarkets, East Bridgewater, Mass., was about to enter the home-shopping arena via its World Wide Web page on the Internet.

Other major players who ventured into the home-delivery field or expanded their programs earlier this year were Byerly's, Edina, Minn.; Oshawa Group, Etobicoke, Ontario; Tops Markets, Buffalo, N.Y.; and Supervalu's Shop 'n Save division, Pittsburgh, to name just a few.

The drive to meet the challenge of providing home-shopping services to hungry consumers at an affordable price however, was hardly led by supermarket retailers and wholesalers alone.

Instead, many of the industry's programs were spearheaded by third-party firms, such as Peapod, Evanston, Ill.; Shoppers Express, Bethesda, Md.; and Shopping Alternatives, Bethesda, Md. As the year progressed, other firms, including Food-online.com, Needham, Mass.; Groceries To Go., Medford, Mass.; and Streamline, Westwood, Mass., also got involved in developing innovative home-shopping programs.

Despite the rush to hop on board the surging home-shopping bandwagon, though, considerable questions continued to linger about how to develop a thriving program capable of serving the consumer while delivering sustainable profits to distributors and service providers.

Indeed, as the year came to a close, the biggest news in home shopping involved revelations that several home-shopping programs, including those at Shaw's Supermarkets and Giant Food Stores, Carlisle, Pa., were shutting down, at least temporarily.

The closures came as a result of a shake-up involving several third-party service providers. Streamline, for example, was set to acquire Shopping Alternatives, while Shoppers Express began re-evaluating its business plans. For retailers and wholesalers, the future of home shopping could hinge, in part, on how these third-party companies emerge to serve the industry.

Meanwhile, Hannaford Bros., Scarborough, Maine, decided to take matters into its own hands and late this year created a new subsidiary, Hannaford's Homeruns, to handle all aspects of its home-shopping program internally, including setting up a dedicated fulfillment center for processing and assembling customer orders.

Gearing Up for Consumer-Direct

While the initial scope of home-shopping programs began taking shape in the industry in 1996, distributors and suppliers also began peering into the future to gauge the long-term impact and potential opportunity, or threat, poised by the switch in how consumers can order and obtain groceries.

In that regard, a group of 17 retailers, wholesalers and packaged goods manufacturers, held a series of meetings to explore the supply chain implications of operating in a "consumer-direct" environment.

The Consumer Direct Cooperative, spearheaded by Andersen Consulting, Chicago, included top executives from Dominick's Finer Foods, Northlake, Ill.; Fleming Cos., Oklahoma City; H.E. Butt Grocery Co., San Antonio; Richfood Holdings, Mechanicsville, Va.; Ukrop's Super Markets, Richmond, Va., and Wegmans Food Markets, Rochester, N.Y. Manufacturer participants included Coca-Cola Co., Atlanta; Kraft Foods, Northfield, Ill.; Procter & Gamble, Cincinnati and Ralston Purina Co., St. Louis, among others.

The group, which met under a veil of secrecy, conducted a six-month study on the logistics and business implications of home shopping. The study concluded, according to sources, that consumer-direct programs will emerge as a major retailing force, with considerable, and possibly dramatic, implications for all segments of the industry.

In an exclusive interview with SN this fall, one member of the group said the study predicted that home-shopping and delivery programs would capture 5% to 15% of total supermarket sales within five to seven years, and that 20% to 25% of all consumers would participate to some extent in such programs.

ECR Committees at Work

The drive to streamline the supermarket industry and ultimately to deliver greater value to the consumer -- known as Efficient Consumer Response -- continued to exert a major influence on new retailer, wholesaler and supplier programs throughout the year.

The shift in business practices spurred by the ECR initiative was highlighted at the FMI MarketTechnics convention in February, where findings of the 1996 ECR Progress Report, conducted by Kurt Salmon Associates, Atlanta, revealed that retailers and wholesalers -- not manufacturers -- were emerging as the driving force behind the industry's quest to enhance efficiency.

That same month, plans to launch 10 ECR pilot projects throughout Europe, and a major study revealing that the supermarket industry in Europe stood to reap $27 billion in cost savings from implementing ECR, formed the centerpiece of the first ever ECR Europe Conference in Geneva.

In the United States, meanwhile, the ECR Executive and Operating Committees forged ahead. In August, for example, the ECR Operating Committee singled out electronic data interchange in particular, along with activity-based costing, continuous replenishment programs and category management, as the core areas requiring additional focus in 1996 and beyond.

In subsequent meetings, the Operating Committee outlined plans for proceeding with new work involving several process improvement groups and goals to boost retailer attendance at the 1997 ECR Conference. It also pointed to the need for a greater marketing and consumer-oriented emphasis in ECR.

Leading the ECR Charge

While the ECR Committees worked to set broad ECR goals for the industry, a growing number of leading retailers and wholesalers took matters to heart and led the charge in making the necessary changes to drive efficiency.

Wegmans, for example, projected early in the year that nearly one-third of its grocery outbound shipments would be conducted via nontraditional distribution practices, such as cross docking and third-party consolidation programs, by year's end. The shift to more efficient distribution methods, was fueled in large part by use of activity-based costing models.

Another sign of the growing emphasis placed on implementing core ECR initiatives involved Penn Traffic Co., Syracuse, N.Y., which threatened to fine manufacturers who failed by March 31 to transmit key data via EDI, enlist in a third-party pallet program and meet scheduled delivery times.

Also in the spring, Rewe Zentralorganisationen, Cologne, Germany, touched off some raw nerves by announcing it planned a 1% surcharge on vendors to fund ECR programs at the large chain. Spartan Stores, Grand Rapids, Mich., for its part, during the summer announced that a wide ranging ABC analysis had revealed numerous opportunities to improve distribution practices, but that its trading partners needed to do more to step up to the plate and cash in on the opportunities.

Late in the year, H-E-B unveiled plans to integrate a third-party EDI system with its own network in a push to get a majority of vendors, and eventually all of them, on-line and transmitting key data electronically.

Meanwhile, Supervalu, early in the year, and Tops Markets, in October, both opened their much heralded advanced distribution centers capable of moving large amounts of product via cross docking, and streamlining many other aspects of their massive distribution operations.