DALLAS — The ability for independent operators to improve their competitive position must come from a willingness by their wholesale distributors to reduce supply chain costs, David Schoeder, principal at The Food Partners, Washington, D.C., told the Executive Management Conference of the National Grocers Association here.
The conference was closed to the press but a copy of the presentation was given to SN by NGA officials.
“Sales growth from wholesalers' existing retail base will be minimal in the intermediate term, driven primarily by retailers seeking a more efficient supply chain,” Schoeder said.
That means wholesalers will have to close non-viable distribution centers over the next few years to reduce supply chain costs and give independents a better chance to compete, he explained.
Schoeder also said wholesalers may need to seek more opportunities with convenience stores or small businesses.
While self-distributing chains are focusing on removing costs at the distribution level rather than the retail level, grocery wholesalers “have not been on the front line fighting the battle for consumer dollars,” Schoeder said.
Caught in the middle of the supply chain, wholesalers are feeling the pinch from deflation and a lack of forward-buy opportunities on one end and from lower purchases by retail customers on the other, he noted.
The demise of Fleming “was the one event in the last 15 years that created a material benefit for other wholesalers nationally,” he said. “But in the new world order, the competitive dynamics of wholesale have changed in many markets.
“Historically, the voluntary wholesale business model relied on a high degree of trust between the retailer and his wholesaler and competition to balance the relationship. But the resurgence of the retailer-owned distribution model reflects the turning of the tide in many markets.”
Schoeder said he believes acquisitions by retailers will be driven by strategic buyers consolidating in-market or contiguous opportunities as other retailers seeking exit strategies for underperforming assets create opportunities for other operators.
Large-scale acquisitions will probably be delayed, he said, while distressed companies are likely to be sold as break-up plays.
“Of the stores for sale, fewer will be acquired because retailers are embracing a ‘pick of the litter' strategy, and the focus will be on acquisition opportunities of one or two stores to in-fill markets.
“However, major retailers will continue to reduce their store base market-by-market, and the divestiture or closure of underperforming stores will accelerate — at the same time the financial performance of underperforming retailers will decline more rapidly because they are the least competitively positioned,” he said.
As a result, new retail grocery store development will be driven primarily by retail failures and the attractive rental terms that will be available, with retailers focusing on existing stores to retain customers and attract new ones who are changing their shopping patterns, Schoeder said.
The number of retail grocery acquisition opportunities last year far exceeded the number of transactions that were actually consummated, and the retailers offered for sale were primarily distressed assets, he added.