Retail Food Distribution: The Race to EfficiencyUniversity of Minnesota The Retail Food Industry Center Retail Food Distribution: The Race to Efficiency Jean Kinsey, Director, The

University of MinnesotaThe Retail Food Industry Center

Retail Food Distribution:

The Race to Efficiency

Jean Kinsey, Director, The Retail Food Industry Center, Professor Applied Economics Dept.

IIFET 2000, Oregon State University


DRIVERS OF CHANGE

�Consumer preferences

�New Retail Competition

�Electronic/Information Technology

2

Nutritious, Safe, Cheap (Sustains Life)

Tastes Good

Variety

Convenient

Improve Health

Fun/ Status↑

Income↓

HIERARCHY OF CONSUMER PREFERENCES 3

University of Minnesota

Total food expenditures and food eaten at and away from home as a percent of

Disposable Personal Income (1929 to 1998)

0%

5%

10%

15%

20%

25%

25 35 45 55 65 75 85 95

Year

Food

at a

nd

away

from

hom

e

Total food expendituresFood at homeFood away from home

24%

21%

3.2%

11%

6.6%

4.3%

4

Retail Food SourceBy Grams of Food Eaten

7282

13 .6 11

7 .4

2 .47 .2 4 .2

0

20

40

60

80

100

1 9 9 4 1 9 7 7

Perc

ent

G roce ry Store F ast F ood R estaurant O ther 5

Percent of Fish and Seafood Purchased by Type by CSFII Respondents (by gram s)

Seafood62%

Fresh water18%

Shellfish20%

S ource: C S FII, 1994-1996


6

Percentage of Fish/Seafood Purchased at Various Retail Food Outlets by CSFII

Respondents (by gram s)

0 %

1 0%

2 0%

3 0%

4 0%

5 0%

6 0%

7 0%

Seafood Fresh water Shellfish

Per

cen

t

Grocery Store Fast food Restaurant Cafeteria Other food source

Source: CSFII, 1994-1996


7

Distribution of Retail Food Outlets for Fish/Seafood Purchased by CSFII

Respondents (by gram s)

Grocery Store60%

Other food source

7%

Restaurant24%

Fast food5%

Cafeteria4%

Source: CSFII, 1994-1996


8

Retail Food Outlets' Mix of Fish/Seafood Sold to CSFII Respondents (by grams)

0%

10%

20%

30%

40%

50%

60%

70%

80%

GroceryStore

Fast food Restaurant Cafeteria Other foodsource

Perc

enta

ge

Seafood Fresh water ShellfishSource: CSFII, 1994-1996


9


Six Types of Shoppers -TR FIC 1999

22%

20%20%

7%

15%16%

Discriminating Leisure Shoppers

Time PressedMeat eaters

Back to Nature

No NonsenseShopper

One Stop Socialites

Middle of the Road Shoppers

10

Current and Real Sales Growth Same Stores

1.9

3.3

2.93.2

2.32.6

-0.5

0.4

-0.4 -0.5

-0.2

0.7

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

Years 1993-1998

Perc

ent C

hang

e

University of MinnesotaThe Retail Food Industry Center 11

NEW COMPETITION

Supermarket

EfficientDelivery Systems

Wal-Mart

Category Killers(�Natural� Foods)

(Pet Food)

Drive Up Take-Out


InternetHome Delivery

12

Where do consumers buy take-out food?

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

4 5

F a st fo o dR esta u ra n tsS u p erm a rk etsO th er

4 1

2122

16

Percent


13

Internet Shopping

�1-5% of the market�Saves time?�Not profitable�Much promise of growth�A �must do� for retailers


14

Internet Shopping$10 bil now -> $85 bil

Peapod - 100,000 members- 70% online sales of groceries

1999 - $73.1 mil revenue and $28.5 mil lossesLosses : 1996: 34% of revenue of $ 27.6 mil

1997: 23% of revenue of $56.9 mil1998: 31% of revenue of $69.3 mil1999: 39% of revenue of $73.1 mil12/2000: estimated cash balance of -$17.8 milApril - 51% of stock purchased by Ahold, USA.

15

Lack of Volume buyingPicking costs too high (charges are 60% of delivery cost)Size and density of market too smallDelivery imperfect, consumers not home;

unforgiving;

Sinha & Heim examined how the processes matched the products being sold


Internet Shopping : B2C Problems

16

Internet Shopping B2C e-commercePeapod AholdStreamline Tesco DirectWebVan Wal-MartNetgrocer AlbertsonsSimple SimonPrice-line


17

�Lower prices driven by lower costs

�Retail driven orders-new relationship to suppliers

�BwithB e-commerce

�Information systems drive distribution

The Wal-Mart Effects


18

ECR

To Integrate the food distribution system like Wal-

Mart had integrated its procurement and distribution

system


19

The ECR VisionTimely, accurate, paperless information flow

Smooth, continuous flow of product matched to consumption

Supplier Distributor Retailer Consumer

University of MinnesotaThe Retail Food Industry Center 20

0

5

10

15

20

ECR Adoption and Performance

High Adoption Low Adoption

Index of ECR Practices AdoptedSource: The Supermarket Panel, 1998 data, The Retail Food Industry Center, Universityof Minnesota

Medium Adoption

Sales / Sq Ft Inventory Turns/Yr Sales Growth


21


New Products Annually

5000

7500

10000

12500

15000

17500

20000

22500

25000

89 90 91 92 93 94 95 96 97 98

Nu

mb

er

of

Ne

w P

rod

uct

sFood

All Groce ry22085

17977

12055 16863

9192

11037

22

NEW PARTNERSHIPS: B2B e-commerce

Retailer orderspull product

POS Data

UCCNET

Internet Interface

CPFR

Food Manufac-turers/

processors

Wholesalers/Self Distributors


A black box

23

New Way to do Business

Wholesaler 38%

Direct Store Delivery28%

Self-distributing Chain34%

Manufacturer Retailer/Consumer

Scanner data


24

GROCERY DISTRIBUTIONPERFORMANCE - 1997

Measure Wholesaler Self-DistributerOperating Cost per Case $ .47 $ .29

Cost as a percent of Sales 2.71% 1.72%

Throughput (cases/hour) 70 78Cases Selected/hour 155 194

FDS, FMI:1997 Distribution Center Benchmark Report

University of MinnesotaThe Retail Food Industry Center25

GROCERY DISTRIBUTIONExpenses - 1997

Measure Wholesaler Self-Distributer(Percent of Sales at inventory costs)Labor 2.46 1.56

Non-Labor 3.60 2.28Supplies .28 .09Utilities .16 .09Inventory Adjustment .11 .03

FDS, FMI:1997 Distribution Center Benchmark Report


26

Top 4/5 Retail Food Store Companies, U.S.1930 1990 19991. A&P 1. Kroger 1. Kroger

2. American 2. American Stores 2. Wal-Mart

3. Kroger 3. Safeway 3. Albertson�s

4. Safeway 4. Winn- Dixie 4. Safeway

5. National Tea

Percent of Total Sales:17 16 34


Source: Mayo, Food Institute ReportWal-Mart is all Supercenter sales

27

Retail Food Store Concentrationof Stores and Sales -1997 U.S.

Type of Store Number % Store % SalesSupermarkets 30,300 24.1 76.6

Chains 18,955 15.1 60.0Independents 11,345 9.0 16.6

Convenience 56,000 44.4 6.3Wholesale Clubs 730 0.6 4.7Other 38,970 30.9 12.4Total 126,000 100% 100%

FMI Report1998,

28

RETAIL FOOD SUPERMARKET

Price Competitor

Supermarket

Upscale, full service catering, deli

Added restaurant - eat in ortake out


29

Documents

Retail Food Distribution: The Race to EfficiencyUniversity of Minnesota The Retail Food Industry Center Retail Food Distribution: The Race to Efficiency Jean Kinsey, Director, The