A&P Gets Out of Self-Distribution Model
By George Anderson
A&P has reached a deal to turn over distribution in the U.S. to C&S Wholesale Grocers.
In a released statement, Christian Haub, chairman and chief executive officer of A&P, said, “It is a key step in our ongoing effort to reduce costs overall, and specifically
to align our infrastructure to the ‘New A&P’ that will result from the completion of our announced restructuring plan. In addition, C&S’s best-in-class expertise will
enable our management to focus exclusively on the development and expansion of our fresh and discount retail formats.”
Last month, A&P announced plans to focus on its retail business in the Northeast and seek ways to reduce supply chain and other costs. A&P expects the deal with C&S
will help the company achieve $40 million in annualized savings.
Moderator’s Comment: What are the pros and cons of self-distribution versus being supplied by a wholesaler? Do you expect to see more large grocery chains
move out of self-distribution and turn that area of their business over to wholesalers? –
George Anderson – Moderator
Ten years with Fleming Foods and three with SuperValu established in me a deep respect for grocery distribution specialists, in spite of later long-term projects for Kroger, Safeway, and Ahold. Even at Raley’s we co-owned a separate distribution operation because it made economic sense.
C&S simply has better buying power than A&P. They are a proven merchandising entity that has the respect of suppliers, something that A&P has lost a bit over the years.
Additionally, having a partner like C&S gives A&P a vocal, observant collaborator who can help them spot stores with problems, new store locations, and other marketing opportunities. It’s an extra set of professional eyes and ears with a stake in A&P’s success, and another observer of field operations. Wholesalers bring a completely new layer of involvement and input, and A&P can use it.
A&P is making the right move. Outsourced distribution is not bad for business. Not knowing C&S Wholesale personally, I will make the assumption that they are well versed in distribution best practices and have sufficient technology and capacity to support the A&P SKUs. Now it becomes a matter of the contract for guaranteeing order fill rates, line fill rates and negotiated transportation rates.
Logistics Service Providers (3PL) are a good way to reduce the costs associated with distribution. Facilities, systems and labor costs combined can amount to large capital investments. This is a text book case for understanding the distribution maturity model and when to make the outsourcing decision. The 3PL decision is not right for everyone, nor is it for the faint of heart.
As long as A&P does not take the approach where they are totally hands off of everything associated with the 3PL, they can succeed in this model. A&P must clearly articulate what their expectations are and then monitor the processes completely. The 3PL decision should not reduce the A&P supply chain group down to zero, as there are new tasks as well as some of the same older tasks that are to be considered. The difference now can be that instead of focusing on fixing supply chain problems, they can focus their energies on in-stock positions, SKU mix, product rationalization and customer satisfaction.
A good set of key performance indicators, real time access to the supply chain events and quick decisive action to changing market conditions can assist A&P return to profitable growth in a 3PL world. Making the decision on a company’s core competencies is a very difficult task. Let’s watch how this story evolves.
Editor’s note: For another good RetailWire discussion on this subject, see Bill Bittner’s article from 4/14/05 – Does Self-distribution Still Make Sense?.
A&P amazes me. They have been able to keep downsizing for the past several decades and they are still around. Farming out the distribution is probably a wise move for them. From what I have seen of their warehouses, they are badly in need of updates. That costs money, of which A&P has been in short supply. The money would be better spent trying to improve their stores. Typically, outsourcing is often about saving on labor. I can see this trend spreading to other larger supermarket retailers as well, especially those squeezed between Wal-Mart and the successful regional privately held chains. It’s been a slow bleed for a lot of these chains and perhaps outsourcing the supply end will slow the bleeding even more.
I have always thought of Wal-Mart as a state of the art distribution company before being a retailer. Their focus on making the process as efficient as possible leads to the retail positions they can take on product lines. If C&S can provide that focus for A&P along with their other retailers and focus on efficiencies there is no reason those retailers staying focused on merchandising could not reduce costs and hopefully bring a better shopping experience to their customers…which at the end of the day is the most important issue.
Why is there distribution at all?
Department store companies are moving to direct-to-store shipping from the manufacturer with hanging goods already on hangers.
Barcoding and electronic ordering should make the distribution function a matter of consolidating cartons into truckloads–nothing more.
Now that A&P and all of its banners, including the acquisition of Pathmark, will become C&S biggest customer, the move to C&S was a good one.
As A&P clusters its operations in 6 states and DC, it will have the advantage of shorter stocking times from the nearest C&S warehouse. As it expands and acquires and builds more stores in this geographic area in the coming years, it will be able to take advantage of both its buying clout and its proximity of its stores to the C&S warehouses. A win-win situation for both A&P and C&S.