ECR Vs. Laissez-faire
ront-page news article in the SN issue of Nov. 18 are about the fact that diverting is still going strong, and that EDLP (everyday low pricing) is under challenge. I would like to add some thoughts on these topics.
It comes as no surprise to me that forward buying has not gone away and that, in fact, it's on the increase. It also comes as no surprise to me that EDLP has not proven to be the silver-bullet solution to profitability and business growth some had predicted.
From the beginning I had praise for ECR (Efficient Consumer Response) as an effort to get all companies in the food chain to take a critical look at how they do business and decide if there isn't a better way.
A lot of good things have happened. Communication between the different links in the food chain has improved dramatically and we are adopting the more rapid, more efficient new technology at an accelerating pace. This is all to the good.
But it has always given me a little heartburn to see "expert" consultants and idealistic theorists talk about building the ideal system. History tells us that the profit motive in a capitalistic system will drive us in the right direction.
Diverting serves a purpose. Diverting keeps everyone honest. When there is cheap product on the market in Chicago, where it is not needed, it's diverted to Dallas where someone wants it.
Reasons why a manufacturing company oversaturates one market are not the concern of a free-market system. The free market will take care of that.
And, of course, wholesalers will always be looking for the best product buys. They owe that to their customers and, most importantly, that's how to make money.
As for EDLP, it's a great idea, and it works for some, but there will always be a lot of reasons to have special promotions and big sales.
There are a lot of excessive costs in the food system and, in theory, if they were all taken out perhaps a lot of money could be saved.
Take couponing, for example. What a waste! I get so tired of waiting in line while someone presents the checkout clerk a fist full of coupons.
What about advertising? Think of the millions spent on television ads.
And some product packaging is so expensive it costs more than the food inside.
So, the list of creative trade promotion gimmicks is endless.
But the fact is, food companies have decided that it's worth the cost to attract the customer. That's what a free market is all about.
In an ideal system there would be just one manufacturing company making cereal. Then, they wouldn't have to advertise. They wouldn't have to promote. They could have only one factory and ship it to one food warehouse in each city. One modern warehouse could more efficiently supply each city. Then the cereal could be delivered to the grid work of cookie-cutter stores arranged in the metropolitan area. Think of the duplication eliminated. Think of the savings. Think about the ideal structure.
What would we call such a system? How about communism?
My take on this whole question of re-inventing the food delivery and marketing system is this: It's good to look for better, more efficient ways of doing business. Trade associations can help to encourage discussion and cooperation.
But if we think we can or should be able to tell all the great free companies how to do business, that's a big mistake and it's not going to happen.