ATLANTA -- The wholesaler-supplied independent retail sector is running at less than 80% of capacity, owing to a factor as simple as lack of adherence to shelf-schematic integrity, according to preliminary findings of the Retail Coverage/In-Store Implementation Study unveiled here.
The project received its initial airing at last week's Food Distributors International Annual Business Conference & Partners Program.
But the same study suggests that independents could increase unit sales by 21% by solving problems surrounding shelf sets. Further, it claims that an increase of no less than $115,000 in top-line revenue, per store, per year, can be realized by speeding the rate at which new products arrive on independents' gondolas.
The presentation of the study, at an FDI general assembly, pointed out that the relatively low level of efficiency in independents' activities, such as shelf sets and speed-to-market with new products, comes at precisely the moment that newly merged self-distributing chains are endeavoring to leverage their size to increase operational and buying efficiencies. That means the performance gap between independents and chains is fated to grow, absent action from the independent sector.
The somber findings of independents' relative lack of sales productivity -- and the situation's potential upside -- were set out during the conference assembly by Brian Harris, chairman, Partnering Group, Playa del Rey, Calif, which conducted the study. James Meyer, president and chief executive officer, Spartan Stores, Grand Rapids, Mich., chaired the event.
"The [study's findings] aren't pretty," asserted Harris. "But they show tremendous scope for improvement."
Said Meyer: "Many of us openly recognize that current processes are neither efficient nor effective. Furthermore they are creating significant challenges to the competitiveness of the wholesale-supplied channel."
Also providing an analysis of the project's conclusions were members of a panel consisting of Sandy Brawley, corporate director, customer development, Clorox Sales Co., Oakland, Calif; Leland Dake, vice president, wholesale merchandising, Supervalu, Eden Prairie, Minn.; Kurt Nolan, executive vice president, grocery retail operations, Marketing Specialists Sales Co., Dallas, and Dave Somerset, director of marketing, Family Fare, Hudsonville, Mich. Brawley and Dake are co-chairmen of the retail coverage committee that's developing the report.
"The project's scope is such that it has all the major trading partners involved: Wholesalers, retailers, manufacturers and sales and marketing agents," observed Dake. The initial findings presented last week centered on two areas through which the wholesale-independent sector could create an immediate and substantial increase in sales and profits:
Planogram maintenance and integrity.
Speed-to-shelf of new products.
"It's very clear that these are two areas where sales and profits are being missed today," said Harris.
Data about shelf-schematic integrity were developed by looking at practices of 90 stores in which 200 different product categories were examined along with 105 weeks of product-ordering data.
The difference in performance between stores that maintain shelves with a high degree of integrity, and those that don't, yields a 21% difference in unit sales, a 12% difference in dollar volume (as pricing and promotion are considered) and a 7% difference in gross profits.
Could that be translated to an upside in sales and profits by instilling shelf-set discipline? Panelist Brawley asserted that the number should be a good one, but that "even if we are half successful with these numbers, we would have put in place pretty substantial growth."
The other major upside for food distributors identified in the preliminary findings of the study concern speed-to-shelf for new products. And it's a race being lost by independent retailers, and lost by a wide margin.
Speed-to-shelf by various channels of trade was analyzed in the study by taking a look at 1,600 new items over a period of six months and the experiences of 450 independent retail stores. Data on sales and gross profit on every new item in every store was captured, making it possible to measure the results of different speeds to stable distribution in various trade channels.
Here are the findings: Integrated chain retailers brought new products to the shelf in 3.6 weeks, drug chains in four weeks, mass merchandisers in 4.1 weeks and, trailing by some distance, were independent retailers at 7.2 weeks.
"Those three or more weeks [of delay] mean a significant competitive disadvantage, particularly in serving consumers and in lost sales and profit opportunities," said Harris.
What if the time gap was closed? Harris said that greater speed-to-shelf would yield $115,000 per year, per store, in added sales and $30,000 in added gross profit for each store. Harris told SN after the presentation that those increases would result if independents' speed-to-shelf were reduced to four to four-and-a-half weeks.
"None of this is building new systems," Harris told the conference. "It's doing the right work at the right time and, frankly, the work that should be being done today."
Panelist Somerset asserted that, "Many smaller independent retailers don't have the financial resources or staffing to be able to accelerate processes like these. But this is a matter of what has to happen," in some cases "for survival."
Panelist Nolin added that, "Concurrently [with the study] sales agencies are transforming from geographic organizations to team-based organizations. That transformation will help in some of these processes."
More about the project, together with its how-to-implement phase will be made known at FDI's Midyear Executive Conference to be Sept. 10-12 in Hilton Head, S.C.