EFFICIENCY TEST

WASHINGTON -- The industry's Efficient Consumer Response initiative -- entering an important phase of its own -- could help the entire grocery industry pull through a critical stage."I think we're at a very crucial juncture," said C. Manly Molpus, president and chief executive officer of the Grocery Manufacturers of America here. "We're going to have a refocusing on the consumer that's going to drive

WASHINGTON -- The industry's Efficient Consumer Response initiative -- entering an important phase of its own -- could help the entire grocery industry pull through a critical stage.

"I think we're at a very crucial juncture," said C. Manly Molpus, president and chief executive officer of the Grocery Manufacturers of America here. "We're going to have a refocusing on the consumer that's going to drive powerful changes with manufacturers and retailers as we approach the next century."

Since the principles of ECR advocate consumer-driven activity, the now-blossoming movement to streamline grocery distribution should play a large role in those changes. According to Molpus, the ECR movement has made enough progress to handle that challenge.

"I don't think there's any question that 1996 will be a real historic year, because by 1996 we're going to hit the critical mass in most of the ECR initiatives that will begin to make the ECR tools an everyday part of the business," Molpus said.

The critical mass, he said, will be reached when more than one-third of the grocery volume is distributed through ECR initiatives.

"The time [for ECR] is now," Molpus told SN in an interview in GMA's Washington headquarters while preparing for this week's annual GMA executive

conference in White Sulphuur Springs, W.Va. "We have done the job you would expect an industry to do -- that is, to coalesce a variety of players in the industry throughout the supply chain together to develop a consensus about a new way of doing business.

"We have had pilot projects to demonstrate whether that new way of doing business works. We've shown positive results. Basically we're laying out the road map. At this point it's up to the companies and the individual managements to decide if they want to pick up that information and run with it. I'm suspecting that in the next six months we'll be at that critical juncture where we'll have to take this and really move it downstream -- and I fully anticipate that will happen."

Molpus appeared awed as he looked back at the implementation of ECR, something he said was even more noteworthy than the introduction of the Universal Product Code.

"I can't imagine anyone would have thought three or four years ago that we would have made this kind of change and developed this kind of a consensus throughout the industry that would make a change of this scope and breadth," he said.

Given ECR's wide scope, many companies have weighed their resources against their priorities and concentrated their efforts on one area of ECR, rather than on the whole picture, Molpus said.

"I think once they get some experience with any part of it by forming an alliance, then they're quicker to see the value of implementing the next step of the total ECR program," Molpus said. "I also think the one part of ECR that has come forward most recently, literally in the last six months, as a more important tool is activity-based costing. They fully understand that in order to get the cost out, you have to get to know and understand the cost better. Activity-based costing is helping them to do that."

In addition to driving costs out of the system, "ECR has provided us with some excellent tools to improve our sales and marketing, and our ability to meet consumer needs," Molpus said. "And as we're getting more experienced with category management, and quick replenishment, we're seeing this thing about getting the right product at the right place at the right time at the right price is starting to really work for us."

Molpus was quick to discourage any personal comparisons to Pollyanna. "I don't want to sound as if this is all real easy and everybody in the world is doing it and everything is terrific. It requires a tremendous amount of intensive effort and real allocation of resources. You have to spend money to do this. So I don't mean to imply at all that it's easy or that we've overcome all the cultural barriers to changing jobs and the way people think."

On the other hand, he remains optimistic.

"While there are still pockets of improvement and still some behavioral and cultural changes we need to come to grips with and deal with -- there's still some significant problems with deductions and damaged goods -- on the whole, we are moving down the right road. "Some companies are perhaps at a different speed, but we're heading in the right direction, which gives me reason to be optimistic about our ability to reduce this cost and for everyone in the supply chain to be better marketers and to end up doing a better job of servicing the consumer."

Molpus then switched hats and became a teacher.

"Manufacturers make money selling to retailers" would have been a standard true-or-false question on a grocery industry test a few years ago, he said. "Retailers make money buying from manufacturers" would have been another.

" 'Manufacturers and retailers do the best job of making a profit and growing the business when they together serve the consumer better' would be a question which would more closely reflect the status of the industry today," he said. "That's where the focus needs to be, as opposed to where it was just three or four years ago."

That focus, Molpus added, must be carried out every day.

"The industry should never get lulled into thinking we can grow and prosper by cutting costs. That's a necessary ingredient. But the crucial ingredient to growth and prosperity is selling and meeting the consumer needs."

Molpus praised the strategic alliances being formed between retailers and manufacturers today, predicting they would pay even greater dividends "when we start tapping into electronic marketing, more frequent shopper programs and the whole range of activities the electronic marketplace is going to bring us in the next century." Those alliances will help retailers and manufacturers cater to what Molpus called "fragmented consumers" whose desires vary from category to category.

"On one hand they might want a diet soda, but then they want to splurge with the premium ice cream. They may want a fat-free salad dressing so they can have pasta fettuccine. It's a real mix out there today."

The development of the cable television industry and other sorts of information technology has and will continue to make reaching consumers even more challenging, Molpus predicted. "One of the interesting things we have to look forward to over the next five years is to see how all this electronic information is going to change the way people shop and how we're going to shape, influence and benefit from that."

Supermarkets, he added, will be particularly challenged, because people will want supermarkets to be "very much targeted" into what they also buy in alternative formats. "My guess is that people will continue to stick with supermarkets as their fundamental shopping place, and then there will be these trips out to these other formats on particular occasions." Food service, he added, will be a major growth area for supermarket retailers and grocery manufacturers.

With regard to facing the competition from alternative formats, Molpus said a strategy of going to a higher level of investment and merchandising of store brands would be a failing one.

"One of the things that attracted people to the alternative formats has been the availability of national brands. People had never heard of these stores, but one of the things that got them shopping there was the availability of national brands they were familiar with and had trust in," he said.

The jury is still out on premium private label, Molpus added. "Fundamentally, as you might expect, I just believe in the strength of the national brands. Private label is certainly not the first threat to the success of our business. I think we'll continue to see variations of private-label marketing and merchandising programs. Premium private label is just another chapter in the book."

Turning his attention to activity that happens only blocks away from GMA's offices, Molpus said the new Congress has a more favorable outlook toward business than its predecessors. The regulatory reform bill that would mandate risk assessment and cost-benefit analysis on all future regulations "could be the single most important piece of legislation affecting the future of business," he said. The bill, Molpus explained, would lessen regulation because government would be targeted "real risk, not perceived risk."