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
University of MinnesotaThe Retail Food Industry Center
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
University of MinnesotaThe Retail Food Industry Center
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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
University of MinnesotaThe Retail Food Industry Center
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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
University of MinnesotaThe Retail Food Industry Center
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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
University of MinnesotaThe Retail Food Industry Center
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University of MinnesotaThe Retail Food Industry Center
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
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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
University of MinnesotaThe Retail Food Industry Center
InternetHome Delivery
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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
University of MinnesotaThe Retail Food Industry Center
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Internet Shopping
�1-5% of the market�Saves time?�Not profitable�Much promise of growth�A �must do� for retailers
University of MinnesotaThe Retail Food Industry Center
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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.
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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
University of MinnesotaThe Retail Food Industry Center
Internet Shopping : B2C Problems
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Internet Shopping B2C e-commercePeapod AholdStreamline Tesco DirectWebVan Wal-MartNetgrocer AlbertsonsSimple SimonPrice-line
University of MinnesotaThe Retail Food Industry Center
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�Lower prices driven by lower costs
�Retail driven orders-new relationship to suppliers
�BwithB e-commerce
�Information systems drive distribution
The Wal-Mart Effects
University of MinnesotaThe Retail Food Industry Center
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ECR
To Integrate the food distribution system like Wal-
Mart had integrated its procurement and distribution
system
University of MinnesotaThe Retail Food Industry Center
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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
University of MinnesotaThe Retail Food Industry Center
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University of MinnesotaThe Retail Food Industry Center
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
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NEW PARTNERSHIPS: B2B e-commerce
Retailer orderspull product
POS Data
UCCNET
Internet Interface
CPFR
Food Manufac-turers/
processors
Wholesalers/Self Distributors
University of MinnesotaThe Retail Food Industry Center
A black box
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New Way to do Business
Wholesaler 38%
Direct Store Delivery28%
Self-distributing Chain34%
Manufacturer Retailer/Consumer
Scanner data
University of MinnesotaThe Retail Food Industry Center
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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
University of MinnesotaThe Retail Food Industry Center
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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
University of MinnesotaThe Retail Food Industry Center
Source: Mayo, Food Institute ReportWal-Mart is all Supercenter sales
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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,
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RETAIL FOOD SUPERMARKET
Price Competitor
Supermarket
Upscale, full service catering, deli
Added restaurant - eat in ortake out
University of MinnesotaThe Retail Food Industry Center
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