BrainTrust Query: How Will Localized Assortments Affect Distribution Methods?
By Bill Bittner, President, BWH Consulting
I won’t say
how long ago it was that I began stocking shelves in a grocery store, but
it was just before the start of the "Supermarket Age." The modern supermarket
is a vast bizarre of products, seemingly targeted to no one and aiming
to please everyone. But concern over waste and slow moving inventory has
prompted retailers to consider more specialized assortments. The goal has
become "localized assortments" that better reflect the actual needs of
a particular location’s customer base.
I was thinking
about how this would change distribution methods and recalled the "mixed
cases" of toilet tissue from my shelf stocking days. Basically, we could
order white tissue and a case of colors that had one row each of, say,
pink, blue, green, and yellow. But as supermarkets came on board, with
larger shelf space and the desire to replenish products individually, the
use of mixed cases seemed to decline. Of course, the challenge with mixed
cases is that not all locations will sell the different colors at the same
rate. Just because the store needs more pink doesn’t mean it also needs
more blue.
This presents
one look at how the whole concept of localized assortments may have a profound
effect on distribution methods and store layouts. Items that had previously
been handled through warehouses or wholesalers may go to jobbers or DSD
specialty suppliers. Warehouse layouts must be reconsidered because travel
distances will increase as more items are bypassed during order selection.
Store layouts will not need to handle as many different items, so out of
stocks should decline as the remaining items increase their inventory in
the selling area.
Mixed cases
may see a resurgence because they reduce the facings and handling required.
I think more manufacturers should consider them. Any retailer will tell
you that the majority of pack sizes are too large. Studies repeatedly show
that 90 percent of the items sell less than a case per week. Intelligent
use of mixed cases that includes a replenishment application that can consider
all the options seems like an opportunity to improve the servicing of localized
assortments and the efficiency of the supply chain.
Discussion
Questions: How will localized assortments affect distribution? With perpetual
inventories becoming the norm, do more mixed shipping containers make
sense? Are replenishment applications up to the task?
Actually, I have the opposite concern that supermarkets and drug stores are relying so much now on SKU rationalization, that results will be erroneous. All stores will soon have almost exactly the same SKU assortments, in all the same places, and consumers will have fewer choices, less innovation, and fewer specialty selections, and the only difference from one retail chain to another will be “price.”
Localized assortments will undoubtedly have an impact on distribution and store layout.
It’s important, however, to keep this in context. In my experience, you can have a profound impact on the “local” assortment by modifying less than 5% of the total as long as the 5% is displayed/presented in a manner that will get the retailer full credit for recognizing the preferences of the local customer. Generally, 95% of the assortment will remain the same.
The real impact, in my experience, is in the central buying and planning organization. Identifying the local preferences, finding suppliers, negotiating the terms, rationalizing the assortment to take something out to make space for the localized items–all this has a multiplier effect for the central team insofar as they have to expend the same energy on each deal, whether it’s 2 dozen or 1,000 dozen.
The smart retailers parse many of these tasks out to the field and place more responsibility/authority closer to the local customer.
I can’t imagine it’s economical to send mixed cases of low-priced product to supermarkets. It’s not the same as shoes or apparel and doesn’t even merit pre-packs from the manufacturer.
If a specific grocery store doesn’t have enough demand to take a solid case, why in heaven’s name would a product be in the assortment in the first place? That would cut it out of the local assortment (for better or worse).
I too started out stocking shelves in a supermarket (then defined as doing over $20,000 per week). Our assortments were small if for no other reason than we had limited space. We competed with other supermarkets for the customers’ grocery dollar, not the wide assortment of retailers that now fight for that share of wallet.
I support Mr. Emerson’s position; it is not the number of items of the size of the purchase that drives the work load at the central buying office, it is the number of vendors. It takes just as long (perhaps even longer) to develop and maintain a business relationship with a highly popular single item local vendor as it does with a regional or national vendor with a broad line of items. This may be best handled by the field organization, but it should be remembered that this process has to be “guided” because we have seen where this type of empowerment has had unpleasant consequences.
In our experience the difference when one seeks to localize the assortment has more to do with space allocation and inventory levels than it does with changing the items carried. As a rule of thumb, I would say that between 5% and 10% of the items have to be changed. However, to be effective, the consumer has to recognize that you have changed these items, which does mean the merchandising has to draw attention to them.
I am not sure you are going to see a movement to mixed cases. I think what we will see is more of a movement to partnerships between major chains and their DSD partners to expand their assortments to carry more regional brands, smaller pack sizes, and unique or specific categories.
This is where I think we will see a major shift in the relationship of DSD and Warehouse assortments where chains will move away for constant switching of specialty partners for more long-term and intertwined relationships.
I’m a big believer in localization but I do agree it can be a logistical nightmare, especially for high speed systems such as Walmart’s. Perhaps leaving the task to store management is a better way to localize assortments. Leaving it up to the store was effective in smaller sized locations. With some tweaking and mapping, I could see it working at the store level in larger locations as well.
This is another example of where technology is going to drive a wedge between retailer “haves” and “have-nots.”
Some retailers will invest in the technology to optimize assortments on a store level and manage the order-of-magnitude increase in complexity that store-by-store assortments and mixed-case replenishment introduce. As a result, they’ll be able to squeeze more sales with less shrink from the same portfolio of store locations.
Other retailers who choose not to invest in the technology will potentially have lower costs at headquarters (no technology to buy, much less complexity to manage). But, without the technology, they will be forced to pursue the “stack ’em high and let ’em fly” approach to store assortment management.
There’s room for both types of retailers in the market, but the decision to invest (or not invest) in the technology is a strategic one, and should be treated as such.
OK, here’s yet another former “stock boy” as we were called, weighing in. The logistics of our “local assortment” at the Candler Supermarket were simple and efficient. It was called direct store delivery and that is how practically all of our meat and produce was sourced. Dry grocery and general merchandise came from the local Cash & Carry or MDI distributors, and everything else was handled by a couple of rack jobbers and the traditional DSD folks (bread, dairy, chips, soft drinks).
Sound archaic? Ever see “Back to the Future”?
I’m a former stock boy too and this article caused me to think about how out-of-stocks have changed over the years with all of our modern technology. In my local supermarket O-O-S’s are worse now than they ever have been. I don’t think that you can blame the technology.
In the local case, I think it comes back to the age old problems of people. This particular chain is going to as many part timers as they possibly can. It seems to be resulting in more poorly trained employees, poor communications, and a very poor attitude. Where they once were very in tune with their consumer’s wants and needs, they now appear to have adopted a laid back “it’s not my job” attitude. They feel if management doesn’t care, why should they?
Mixed cases would be a step backwards in my view. If a product doesn’t warrant ordering a case, then don’t carry it. Each color or variety should have a separate UPC code and be ordered and stocked independently. If there is not enough volume to justify that, then it shouldn’t be an option.
Thanks for all the responses, I’m glad to learn I am not the only one who never left his first industry.
Yes, localization brings in complications which retailers do not foresee, distribution being one of them. The key here is to strike a balance between using a one-size-fits-all approach and merchandising each store individually. One size fits all leads to inventory and cash flow issues where as localization leads to merchandising and distribution complexities. The solution here is to localize, but yet not merchandise each store individually. It’s about identifying synergies between stores and getting pack sizes right.
I agree; case pack is an issue for almost all the retailers and I live through it every day. The key here is to find opportunities and show the dollar benefits to the vendor to help with the case pack challenges. With localization, mixed cases could still be an option; just one would need 2-3 different types of mix cases. Efficient cross docking and intelligent labeling could also help this issue.
As a manufacturer, mixed cases of anything are difficult to manage, difficult to make, and more expensive to fabricate from a logistics and purchasing perspective. Product volume, homogeneous quantities, and product velocities are all important considerations in today’s shopping environment.
Wal-Mart and Costco are both reflections of this, and their purchasing public is not clamoring for a greater selection. Instead, they are purchasing the products available to them because of the price that it is offered at. Price is the leader here, not product selection.