Efficient Consumer Response was the wake-up call heard throughout the grocery industry just a few years ago when alternative-format stores and deep discounters threatened to sweep across the competitive landscape.
With their sharp pricing and polished logistics, the new formats lured away many of the supermarkets' best customers and eroded business in some of the most-profitable categories.
To meet the challenge, industry leaders endorsed a sweeping plan aimed at streamlining distribution, forging stronger partnerships with suppliers and, ultimately, lowering prices for the consumer.
Almost four years have passed since that project, known as ECR, was launched in mid-1993 and many of the ideas championed at the time have been adopted, including the increased emphasis placed on collaborative efforts between distributors and suppliers to reduce unnecessary costs, and the widespread use of electronic data interchange for exchanging information.
As a result of EDI and other cost-cutting moves in the supply chain, the industry has made significant progress in the area of efficient replenishment and is now beginning to tackle the efficient assortment issue through better category management efforts on both the supplier and distributor side.
Yet there remain questions about whether ECR can tackle two of its remaining challenges: efficient new-item introduction and efficient promotion. The four efficiencies -- replenishment, assortment, promotion and new-item introduction -- are the cornerstones of the overall ECR strategy.
In the area of efficient promotion, executives acknowledge progress has been constrained by antitrust concerns and some lingering doubts about whether ECR should even try to tackle the issue of promotion in a free-enterprise system.
It is with these issues in mind, that industry leaders will meet this week in Atlanta for the third annual Joint Industry Conference on Efficient Consumer Response. About 1,700 attendees are expected, similar to last year.
Among executives leading the ECR effort, there is a strong belief that for the project to succeed, they need to regain some of ECR's early momentum, achieve a greater industry understanding and increase participation.
Some ECR proponents also believe ECR must be more closely linked to everyday practices -- such as how to reduce out-of-stocks and make specific categories more productive. These are among the ECR Executive Committee's top priorities this year.
Among the good news conference attendees should hear is that the ECR initiative is close to achieving, or should hit this year, the critical mass level -- estimated at about 30% to 35% of total industry volume.
That projection is expected to be among the findings in Kurt Salmon Associates' annual status report on ECR. The consulting group helped formulate the ECR strategy in 1993, and has closely followed its progress for the past few years.
"We're really seeing critical mass starting to come about now and progress in ECR over the past few years has been very good," said James Horton, national director, retail for the Atlanta-based firm. "It's a judgment call, but my feeling is that we will probably find that critical mass has been met this year."
Still, Horton acknowledged that the goals of efficient new-product introduction and efficient promotion are lagging behind the progress in efficient replenishment. This is one area KSA is expected to address in its annual report this year.
"I think we're seeing benefits there, but they clearly aren't dominant areas of ECR right now," he said. "There are some companies pushing those areas hard and getting more payoff than other companies. In efficient product introduction, manufacturers are still spending an awful lot of money when they introduce products for sale."
One industry executive said he believes efficient promotion may be an area outside the scope of ECR, and that the initiative must focus on efficiencies to be gained in areas like "unnecessary deductions and those sorts of things."
"We're a free-enterprise system and in a free-enterprise system you would expect that markets would dictate how people come to market as opposed to making trade initiatives," said the executive, who asked not to be named. "To me it doesn't get thrown in the same basket."
Still, many companies acknowledge that they've adapted continuous replenishment and EDI elements of ECR to serve as a basis for improving efficiency.
For example, Supervalu, Minneapolis, rolled out its Advantage program, which incorporates some ECR-like ideas with broader strategies for pricing and customer service for its retailer customers.
"Our Advantage initiative remains our priority," said Jeffrey Noddle, an executive vice president at Supervalu. "Although there's a lot of discussion around the industry [as to whether] ECR is still alive, our read is that a lot of companies have gotten into ECR and made their decisions on what they're going to do and not do. I think people are off on their own doing those things now."
Noddle said he believes there's "not as much collective action as there was before" on ECR, but noted that this is likely due to internal evaluation efforts aimed at absorbing the ECR strategy. "Each company needs to decide its own strategy and implement the components it believes have a reasonable payback for them," he added.
The two ECR initiatives getting the most attention are EDI and category management, though the latter "probably will take a longer to filter through the industry," Noddle said.
However, there has been little success in achieving efficient new-item introduction despite a tremendous influx of new merchandise into the pipeline every year, he added.
Doug Carolan, executive vice president and chief operating officer of Associated Wholesale Grocers, Kansas City, Kan., said he views ECR, in part, as a means of giving the industry "commonality relative to what companies are doing."
The wholesaler will consider any initiative that can improve operating efficiency, lower cost to its retailers and provide the consumer with a better product. Associated is currently working on continuous replenishment projects with about 20 vendors.
"I don't think everything that has to do with being more efficient is going to be found [in the ECR guidelines book]," he said. "What's going to be found in the book is what people are doing."
However, "If you take a broad brush stroke and say 'paperless system' -- well, people are attacking that in different ways. One area is accounts payable/receivable and another area is warehousing."
In its efficiency effort, Associated Wholesale Grocers has stepped up EDI use, started a paperless pick system in the warehouse and set a goal to achieve a paperless system. But Carolan noted that cross docking, pallet modules and other cost-cutting moves have been standard procedure at the company for many years.
"The viewpoint inside our company is how can we improve each year," he said. "In initiating those improvements, some fall hand-in-glove with the ECR movement, and others are of our own undertaking."
Last year, AWG began putting on-board computers on its trucks and can now track each delivery run against a predetermined efficiency plan. The computer program routes the truck from the warehouse to the store. As a result, Carolan estimated AWG has reduced some distribution costs by 10% to 15%.
Spartan Stores, Grand Rapids, Mich., is another company that notes a significant increase in EDI transactions as a result of ECR.
"We are now functional in everything that matters -- purchase orders, invoices, electronic funds transfer, advance ship notices and price announcements, and soon on item maintenance and deal announcements," said Jim Swoboda, Spartan's director of logistics and distribution technologies.
"We have furthered the cause of cost-to-serve pricing from manufacturers with a couple of new programs waiting in the wings [and] unveiled our cost-to-serve, or cost-plus, pricing program."
Spartan also has made strides in infrastructure improvements that will serve as the foundation for new technologies that enable many more ECR practices, Swoboda said.
Frank Manetta, executive vice president at Riser Foods, Bedford Heights, Ohio, and chief executive of its Seaway Foods wholesale division, said the company is trying to implement "every single thing that's available to us," particularly under the EDI umbrella, with as many vendors as it can.
"We're redoing a lot of systems in the warehouse," he said, noting that Seaway is using both Uniform Communication Standard I and II transaction sets. As a result, it has improved in-stock service levels to its retail customer to about 98% without "having to bring in a lot of inventory to do it."
Costs have been cut through a reduction in the number of clerks required to process paper transactions, and because EDI transactions are more accurate and require fewer deductions and chargebacks.
However, Manetta noted, it's "a little bit more difficult" for a wholesaler to implement category management unless all its stores use scanning.
"It's not that it can't be done on a different scale, but the actual blueprint for category management, in my opinion, doesn't fit with a wholesaler of our type," he explained. "But there are parts of category management that we certainly can use."
Still, Manetta said he believes most of the cost savings achieved through ECR have flowed to the supplier side.
"I think we've cut a lot of costs for [suppliers]," he said. "I still view ECR as a vendor-initiated situation. Yes, there were costs in the system that didn't belong there, but those major savings they keep talking about, I think, you will see most of that [end up] in the vendor community."
Horton of KSA said he believes all sectors of the industry, including manufacturers, wholesalers and retailers, are investing "pretty substantial amounts" in ECR efforts, particularly category management.
Some of these efforts include "a redirection of activity and a rethinking of where the investment should be made" to determine where the largest payoffs will come from, he noted.
KSA is working with a number of top 10 distributors, and each one is aggressively moving forward with ECR projects, Horton said.
"Many companies that were skeptical about ECR have begun to put cross-functional project teams together and are really going out and spending quite a bit of money on implementing some of the ECR concepts," he added.
"Probably the area getting the most attention -- and where only a few players have really gotten a benefit -- is category management. Many other companies are attempting now to concentrate on category management, believing it is the area where they are going to get the most benefit for the amount of money and time invested."
He also acknowledged that many companies already have achieved success through investing in EDI and continuous replenishment efforts and are now beginning to consider how to tackle efficient product introduction. In addition to cutting costs, successful implementation of ECR strategies can also lead to increased sales and margins, he said.
"I think the people who have made the most progress are more interested, and the ones that have not gotten results have tended to push it aside," he said.
"But there's so much success in the industry now by a handful of players that the ones who aren't doing it well tend to believe they're not doing it right rather than it's not going to work for them."