Traditional grocers battling Amazon want to claw back sales lost when items are out of stock, equal to some 10% of annual sales, they say
By Annie Gasparro, Heather Haddon and Sarah Nassauer
Nov. 27, 2017 7:00 a.m. ET
Grocers are giving food companies a tougher mandate: Ship on time, or pay the price.
Food retailers want their suppliers to resolve the persistent problem of delayed or incomplete deliveries, which they say costs them millions of dollars a year in lost sales and overtime pay.
Retailers used to give suppliers more leeway, since any number of factors—bad weather, a surge in demand, technology malfunctions—can foil deliveries of cereal, cheese, candy and other packaged goods from warehouses scattered around the country.
But now as traditional grocers battle Amazon.com Inc. and other online retailers that prioritize delivery speed, as well as price-cutting discounters, more are taking a strict line with suppliers, telling them on-time deliveries will translate directly into more sales and profits.
Delayed deliveries can leave holes on store shelves. Sales of some $75 billion a year are lost because products are out of stock or unsalable for other reasons, according to the Food Marketing Institute, a trade organization. That is about 10% of annual grocery sales industrywide at a time when sales growth is hard to come by.
“It’s a massive opportunity from a financial and customer standpoint,” said Robert Clark, senior vice president for merchandising at Kroger Co. , the second-largest U.S. grocer by sales.
The country’s biggest grocers are leading the charge. Kroger is fining suppliers $500 for every order that is more than two days late to any of its 42 warehouses, and Wal-Mart Stores Inc. is charging suppliers monthly fines of 3% for deliveries that don’t arrive exactly on time, according to the retailers. They began issuing the fines in August.
Charles Redfield, executive vice president of food for Wal-Mart US, told suppliers they could also lose shelf space if they don’t solve their delivery problems, according to people in attendance at a supplier meeting earlier this year. Retailers can threaten suppliers with loss of promotional space in stores, analysts said.
One way retailers have kept suppliers in check is by issuing report cards that measure service levels, including timeliness. New tracking capabilities and data give retailers even more leverage to press their suppliers, said Foster Finley, head of logistics consulting for AlixPartners.
Suppliers, too, want to solve the delivery problem. “We all want to capture every sale that we possibly can,” Hershey Co. Chief Executive Michele Buck told analysts during a conference call last month.
Most large suppliers average around 75% of orders on time and complete, analysts say. “An out-of-stock on an important product can lead to thousands of lost consumers in a given day,” said J.P. Morgan food analyst Ken Goldman.
But making necessary improvements to meet tighter delivery windows is time-consuming, costly and complicated, and it is a strain on some packaged goods companies. They need GPS trackers and software to adjust routes in real time. Filling full orders fast is also challenging, since many manufacturers house items all over the country. That is particularly true for refrigerated items needing costly cold storage—which has fueled investments in more fulfillment centers, industry consultants said.
At Hershey, significant supply-chain investments will hamper the company’s profit margin likely through the first half of 2018, according to Ms. Buck. “That is an overall theme in the industry,” she said.
Mark Clouse, chief executive of Pinnacle Foods Inc., maker of Duncan Hines and Birds Eye brands, said the delivery issue is getting “a heightened level of focus,” with retailers now consistently demanding better customer service in tighter delivery windows. “The investments that we’re making are going to better position us for that in the future,” he said.
A more-precise delivery window keeps shelves stocked and the flow of products more predictable, while reducing inventory—all of which are increasingly important to Wal-Mart as it invests heavily to compete online, executives at the retailer said. The change could create $1 billion in additional sales over time, they said. “We hope we don’t have to collect any fees from suppliers. We would much rather have all the product we ordered on time,” said Wal-Mart spokesman Kory Lundberg.
Wal-Mart wants general merchandise from manufacturers sending full truckloads of large orders to arrive within a two-day window 75% of the time, down from four days, and it wants shelf-stable food and household items to arrive within a one-day window 75% of the time, down from four days, a spokesman said.
The retailer will fine suppliers for shipments that arrive late and for those that arrive early or incomplete. Too-early arrivals can crowd tight backrooms with excess inventory. Because fines are a percentage of the missed order value, large suppliers that ship to warehouses can rack up monthly fines of over $1 million, according to people familiar with the fines.
Kroger’s Mr. Clark said the company will eventually fine for any shipment that isn’t received on the due day. “If it was an occasional issue, it wouldn’t have been worth the time and effort” to police deliveries, he said.
A spokeswoman for Smart & Final, a California-based warehouse-style grocer, said: “It’s imperative that our suppliers provide full orders, on time.”
Kraft Heinz Co. , maker of Jell-O pudding and Oscar Mayer hot dogs, recently invested in a supply-chain visibility provider to help it predict shipment arrivals, monitor truck temperatures and make adjustments in real time to ensure it meets delivery windows. Troy Shannan, head of U.S. operations, said in the past, “once the truck was on the road, we knew it would get there. Now, we’re focused on when it arrives.”
Procter & Gamble Co., Wal-Mart’s largest supplier, has spent billions of dollars in recent years overhauling its supply chain, in part to meet retailers’ more-precise shipping windows and boost its ability to ship online orders directly to shoppers, company executives said. It consolidated hundreds of offices and warehouses across North America into eight facilities and set up six so-called mixing centers, where computer algorithms work with robots and humans to load trucks with the optimum mix of products to ship to retailers.
Many other suppliers don’t have the necessary warehousing infrastructure. Steve Matthesen, CEO of Acosta, Inc., a sales and marketing agency for consumer packaged goods, said: “Shipping complete orders on time is a completely reasonable request but turns out it’s harder than it sounds.”
—Sharon Terlep contributed to this article.
(Note: That unpublicized human/migrant trafficking (slavery) along the sw border states is about to be more lit than usual to meet them quotas
. Prison labor about to be on fleek also
)
By Annie Gasparro, Heather Haddon and Sarah Nassauer
Nov. 27, 2017 7:00 a.m. ET
Grocers are giving food companies a tougher mandate: Ship on time, or pay the price.
Food retailers want their suppliers to resolve the persistent problem of delayed or incomplete deliveries, which they say costs them millions of dollars a year in lost sales and overtime pay.
Retailers used to give suppliers more leeway, since any number of factors—bad weather, a surge in demand, technology malfunctions—can foil deliveries of cereal, cheese, candy and other packaged goods from warehouses scattered around the country.
But now as traditional grocers battle Amazon.com Inc. and other online retailers that prioritize delivery speed, as well as price-cutting discounters, more are taking a strict line with suppliers, telling them on-time deliveries will translate directly into more sales and profits.
Delayed deliveries can leave holes on store shelves. Sales of some $75 billion a year are lost because products are out of stock or unsalable for other reasons, according to the Food Marketing Institute, a trade organization. That is about 10% of annual grocery sales industrywide at a time when sales growth is hard to come by.
“It’s a massive opportunity from a financial and customer standpoint,” said Robert Clark, senior vice president for merchandising at Kroger Co. , the second-largest U.S. grocer by sales.
The country’s biggest grocers are leading the charge. Kroger is fining suppliers $500 for every order that is more than two days late to any of its 42 warehouses, and Wal-Mart Stores Inc. is charging suppliers monthly fines of 3% for deliveries that don’t arrive exactly on time, according to the retailers. They began issuing the fines in August.
Charles Redfield, executive vice president of food for Wal-Mart US, told suppliers they could also lose shelf space if they don’t solve their delivery problems, according to people in attendance at a supplier meeting earlier this year. Retailers can threaten suppliers with loss of promotional space in stores, analysts said.
One way retailers have kept suppliers in check is by issuing report cards that measure service levels, including timeliness. New tracking capabilities and data give retailers even more leverage to press their suppliers, said Foster Finley, head of logistics consulting for AlixPartners.
Suppliers, too, want to solve the delivery problem. “We all want to capture every sale that we possibly can,” Hershey Co. Chief Executive Michele Buck told analysts during a conference call last month.
Most large suppliers average around 75% of orders on time and complete, analysts say. “An out-of-stock on an important product can lead to thousands of lost consumers in a given day,” said J.P. Morgan food analyst Ken Goldman.
But making necessary improvements to meet tighter delivery windows is time-consuming, costly and complicated, and it is a strain on some packaged goods companies. They need GPS trackers and software to adjust routes in real time. Filling full orders fast is also challenging, since many manufacturers house items all over the country. That is particularly true for refrigerated items needing costly cold storage—which has fueled investments in more fulfillment centers, industry consultants said.
At Hershey, significant supply-chain investments will hamper the company’s profit margin likely through the first half of 2018, according to Ms. Buck. “That is an overall theme in the industry,” she said.
Mark Clouse, chief executive of Pinnacle Foods Inc., maker of Duncan Hines and Birds Eye brands, said the delivery issue is getting “a heightened level of focus,” with retailers now consistently demanding better customer service in tighter delivery windows. “The investments that we’re making are going to better position us for that in the future,” he said.
A more-precise delivery window keeps shelves stocked and the flow of products more predictable, while reducing inventory—all of which are increasingly important to Wal-Mart as it invests heavily to compete online, executives at the retailer said. The change could create $1 billion in additional sales over time, they said. “We hope we don’t have to collect any fees from suppliers. We would much rather have all the product we ordered on time,” said Wal-Mart spokesman Kory Lundberg.
Wal-Mart wants general merchandise from manufacturers sending full truckloads of large orders to arrive within a two-day window 75% of the time, down from four days, and it wants shelf-stable food and household items to arrive within a one-day window 75% of the time, down from four days, a spokesman said.
The retailer will fine suppliers for shipments that arrive late and for those that arrive early or incomplete. Too-early arrivals can crowd tight backrooms with excess inventory. Because fines are a percentage of the missed order value, large suppliers that ship to warehouses can rack up monthly fines of over $1 million, according to people familiar with the fines.
Kroger’s Mr. Clark said the company will eventually fine for any shipment that isn’t received on the due day. “If it was an occasional issue, it wouldn’t have been worth the time and effort” to police deliveries, he said.
A spokeswoman for Smart & Final, a California-based warehouse-style grocer, said: “It’s imperative that our suppliers provide full orders, on time.”
Kraft Heinz Co. , maker of Jell-O pudding and Oscar Mayer hot dogs, recently invested in a supply-chain visibility provider to help it predict shipment arrivals, monitor truck temperatures and make adjustments in real time to ensure it meets delivery windows. Troy Shannan, head of U.S. operations, said in the past, “once the truck was on the road, we knew it would get there. Now, we’re focused on when it arrives.”
Procter & Gamble Co., Wal-Mart’s largest supplier, has spent billions of dollars in recent years overhauling its supply chain, in part to meet retailers’ more-precise shipping windows and boost its ability to ship online orders directly to shoppers, company executives said. It consolidated hundreds of offices and warehouses across North America into eight facilities and set up six so-called mixing centers, where computer algorithms work with robots and humans to load trucks with the optimum mix of products to ship to retailers.
Many other suppliers don’t have the necessary warehousing infrastructure. Steve Matthesen, CEO of Acosta, Inc., a sales and marketing agency for consumer packaged goods, said: “Shipping complete orders on time is a completely reasonable request but turns out it’s harder than it sounds.”
—Sharon Terlep contributed to this article.
(Note: That unpublicized human/migrant trafficking (slavery) along the sw border states is about to be more lit than usual to meet them quotas
. Prison labor about to be on fleek also)
