DEBATE PITS SUPERMARKETS VS. ON-LINE RETAILERS

DAN ALAIMO

ATLANTA -- The supermarket industry may have moved beyond seeking to implement Efficient Consumer Response programs -- as the new era of Internet retailing takes hold -- but the results of the initiative drew heated debate during a panel discussion at the ECR 2000 conference here this month.

In a discussion that pitted the established supermarket business against new ideas and on-line retailing, the heated dialogue that ensued more than lived up to the panel's billing as an "Industry Crossfire." This year's ECR conference was the last such dedicated event, according to industry sources, as next year the Food Marketing Institute and Grocery Manufacturers Association plan to combine it with the e-Business Summit launched last year, and which will be held June 25 to 27 in Chicago this year.

"We had the opportunity to get inventory out of the system," said Bob Drury, senior vice president, logistics, manufacturing and information technology, Schnuck Markets, St. Louis, addressing a question about ECR's biggest triumphs.

"The frustrations were there all along, but the key was we had the right mindset in trying to help the industry achieve something, and I think that mindset is still there. But overall, the fact that we got together in our own mutual self interest and that of the consumer was really a key accomplishment that ECR can take pride in," Drury said.

"ECR did a fantastic job of painting a picture of what needed to be done," said Alex Gibbons, senior vice president and chief information officer, The Pillsbury Co., Minneapolis. "The success that has taken place in the last seven years has been actually the implementation of components of that strategy all the way through. So I think ECR has performed extremely well."

ECR's critics said that in focusing on details, the initiative fell far short in terms of the big picture.

"I'm not saying it wasn't efficient and didn't do anything, but you still have slotting, you still have inefficient pricing. Where's the 'efficient' in Efficient Consumer Response? I would argue you have a long way to go and that has given us a great umbrella under which to compete," said Fred Horowitz, president, NetGrocer.com, North Brunswick, N.J.

Another critic, Ryan Mathews, futurist, First Matter, Eastpointe, Mich., said a focus on the consumer was missing. "The biggest failure has been not including consumers and not actually connecting with them," he said.

Pillsbury's Gibbons acknowledged that ECR failed to complete its task. "The components, the tactical implementation of what we were looking at in the strategic picture has been very good, but the ability to get the behemoth organizations that we have to take that step forward has been an impossible task. You can lead the person to the picture, but you can't make them buy it," he said.

The key for the industry is increasing demand rather than simplifying supply, Mathews said. "We keep trying to come up with solutions to make the old way of doing things better. I think what we ought to do is just walk away from the old way of doing things, and look at what we need to do to stimulate the demand, because long-term, without consumer demand, it doesn't matter how efficient you are on the supply side."

Schnuck's Drury commended the supermarket industry in the United Kingdom for making much greater progress than U.S. companies.

"We have a long way to go to catch up with them in the logistics area, but I think there is good model. The question is, can we now do the kind of things in information technology and make the kinds of really tough decisions in terms of deploying capital to try to do the same kinds of things that are already pretty commonly done in the U.K.?" Drury asked.

Horowitz said that NetGrocer intends to take much of supermarkets' center store business. "If we don't take it, Wal-Mart and Costco will. To me, what has always been shocking about this industry is how you let other people set the tone. I really think the warehouse club business should have been owned by the supermarket industry," he said.

Previous to NetGrocer, Horowitz said he ran a branded consumer products company. "It gave me real insight into where the issues are in the supermarket industry compared to doing business with a Wal-Mart or a Costco. I can tell you at the end of the day, we were always more profitable in Wal-Mart even when selling at a lower price. You take into account slotting, the unsalables and all the other games that everybody plays, it's a more efficient consumer response, and that's what it really should be in the true meaning of the term," he said.

ECR expectations exceeded achievements, Drury said. "But I don't think the energy level has dropped. Whether we were naive in how much it would take to change our companies at that time, I can't tell you. But it is easier for a Wal-Mart of a NetGrocer or whomever, to come in with a new business model than it is to change an existing business model for a number of reasons, cultural and otherwise. The question is how quickly will the various players step up to the plate with what I think there are going to have to be enormous capital expenditures," Drury said.

"I believe that the work that has been done over the last seven years and the individual links in the value chain as we saw them seven years ago is still valid work," said Gibbons. "When we look at logistics and inventory reduction, and things that we concentrated on over these past years, we certainly have something very solid and we have to build around that."

"We have to separate the tactical from the strategic," Mathews said. "We've gotten very good at the tactical. If you don't have control over your inventory, information flow and process orders correctly, it doesn't really matter what your strategic vision is," he said.