NASHVILLE, Tenn. -- The complementary strengths of independent retailers and full-line wholesalers make for a powerful combination even in an increasingly competitive marketplace, said Al Plamann, president and chief executive officer of Certified Grocers of California, Los Angeles.
"Independents know their communities, and are able to offer personalized service," said Plamann. "They are also more flexible, and can quickly adapt to a changing customer base. And wholesalers are able to offer more stockkeeping units than even an integrated retail chain."
Independent retailers and wholesalers are facing not only an unprecedented level of corporate consolidation within the supermarket industry, but are also vying with newer food retailing channels as well, said Plamann in his keynote address at the Productivity Convention and Exposition, held here Oct. 25 to 28.
Plamann cited the recent wave of mergers and consolidations as "the single most important news story in the food industry." He delivered his address at 8 a.m. Monday morning, Oct. 26, and began his speech saying that as far as he knew, "there had been no new multibillion-dollar grocer mergers this morning."
Wholesalers and independents can best combine competencies as a "virtual chain," said Plamann, adding that "wholesalers must be the catalyst to establish these alliances." The virtual chain should provide "seamless, transparent, efficient interactions, without massive paperwork."
For such a virtual chain to succeed, wholesalers will need to expand their traditional roles, working as "key enablers" for independent retailers in a number of critical areas. "We need to play to, and support, their strengths; be creative with new retail formats and locations, and provide expertise in new areas," he said.
In order to take advantage of these positives, the virtual chain will need to employ information technology to an unprecedented degree. "The companies best equipped to use data to compete are the most successful," said Plamann.
Wholesalers must also work more closely with manufacturers for the virtual chain concept to be successful. New levels of trust and new technologies both need to be brought into play, he noted.
"Manufacturers are under pressure to increase their profitability, so they are seeking efficiencies and rethinking their sales and promotion strategies," said Plamann. "For wholesalers, this requires complete and open sharing of information on both sides, in areas such as product strategy."
In addition, wholesalers should work with manufacturers to improve logistics and distribution efficiency; explore systems for more rapid sharing of information, such as electronic data interchange; and help design promotional programs "to enhance margins for all parties in the virtual chain," said Plamann.
Wholesalers can also provide key support to independents in store-format and location decisions. Plamann described Certified's Apple Market Banner, under which the wholesaler provides independent retailers with a unified name and logo, as well as advertising and merchandising support.
"With the Apple Market program, the stores were redesigned and upgraded from the inside out, but they remain independently operated," said Plamann. "Retailers converting to this format have seen average annual sales increases of 20%."
Of more concern to wholesalers are the trends identified in the recently released report, "Strategies 2005: Vision for the Wholesale-Supplied System." Plamann summarized some key findings from the report, which was sponsored by Food Distributors International, Falls Church, Va., and the National Grocers Association, Reston, Va., and prepared by A.T. Kearney, Chicago.
"Wholesalers' strongest share is among smaller retailers, and the large chains view wholesalers as less desirable sources than [doing] self-distribution," said Plamann. The report predicts that independent retailers either will have limited growth, or will grow large enough to opt for self-distribution. "Either way it's bad for wholesalers," he noted.
Besides a slow-growing customer base, the explosion of new food-retailing channels has also raised the pressure on wholesalers. "Manufacturers [looking to sell product to consumers] can use full-service wholesalers, integrated retail chains, warehouse clubs, category killers, or via consumer-direct," said Plamann. "They could even use a food-service wholesaler for their home-meal replacement product."
The situation requires "significant steps taken now, by wholesalers, retailers and manufacturers," said Plamann. "We know where we are, and we know how to get there. Some of us will."