SUPPLY CHAIN STANDARD NOVEMBER 2008
www.supplychainstandard.com
way and internet sales holding up well, this is unlikely to be a
major issue. Fresh produce has suffered from rising prices,
due to freight costs and poor weather affecting yields, and is
also an area where wastage is high and losses from poorly
estimating demand can be considerable.
It would seem likely that supermarkets would look for
greater flexibility in supply chains here to improve “just-intime”
ordering to respond to changing patterns of consumer
demand. Various waste-reduction projects in recent years
have focused on smaller size outers and part packs to match
supply to demand and cut wastage. With demand falling and
unpredictable, keeping the shelves full, but not over-filled, is
going to be challenging. Certainly fresh produce shelves in
some of the supermarkets I’ve visited recently seem less well
stocked than they did a year or so ago so perhaps canny
produce managers are delaying re-ordering to cut waste.
Cost savings
Fresh produce, especially all those pre-packed and prepared
salads and vegetables are premium products offering higher
margins. Replace them with more basic value lines – one
recent report noted a boom in turnip sales, for example – and
margins will be squeezed. Inevitably retailers will start looking
for cost savings elsewhere: waiting to mark down prices until a
product is actually at its sell-by date rather than doing so the
day before, perhaps? Less frequent deliveries, perhaps, or a
greater tolerance of out-of-stocks especially less popular
premium products? Or trying to trim transport costs further?
More “value products” can be expected, too, in the ambient
and chill markets. Tesco has just introduced a range of
discount goods and cut hundreds of prices to regain shoppers
lost to the likes of Aldi and Lidl. The “Discount Brands at
Tesco” range covers around 350 products and includes such
things as tea bags, biscuits, shampoo and washing-up liquid.
Finding space for a large number of new low price lines
obviously means pushing other products off the shelves and it
is interesting that companies like Couponstar – which
distributes promotional coupons via the Internet for shoppers
to print out at home – is currently reporting a massive upsurge
Tesco has just introduced a
range of discount goods and
cut hundreds of prices to
regain shoppers lost to the
likes of Aldi and Lidl.
While the high
street clothing
sector is clearly
suffering, sales
continue to rise
online –
especially for
those focusing
on young
fashions like
Asos (up 104
percentinthe
six months to
the end of
September).
SCS:RETAIL SUPPLY CHAINS 13
in interest from the branded FMCG suppliers it works with.
Redemption rates for these DIY coupons are showing a 652
per cent increase year-on-year with a 513 per cent increase in
the numbers of coupons shoppers are choosing to print out.
Obviously cash-strapped consumers looking for a bargain
have something to do with this surge, but the increase in
branded manufacturers seeking to distribute the coupons (for
which Couponstar will guarantee a level of redemption so that
sales of 25,000 items or whatever can be assured) suggests
they are also focusing on brand loyalty and demand to combat
the risk of delisting.
As with fresh produce, selling lower cost basics does little
for margins. On the plus side, however, are reports that
because people are eating out less they are buying luxury
items as an occasional “eat-in” treat. These should offer rather
better margins but both Marks & Spencer and Waitrose have
started packaging weekend “food deals” of two two-course
ready meals and a bottle of wine for £10: it might boost sales
but probably does very little for margin.
Bad week
The problems are rather different when it comes to non-foods.
Furniture sales, which always increase when people move
house, have – unsurprisingly – fallen steadily for the past eight
months: 22 per cent down year-on-year at John Lewis during a
particularly bad week in September, for example. Mixed
reports elsewhere, too: while clothing sales were ten per cent
down year-on-year in September, mobile phones were six per
cent up; and while Game Group reported a 54 per cent upturn
in business, thanks largely to Nintendo Wii, PC World was 12
per cent down in the four months to August 23.
The results for supply chains are clearly mixed. Furniture
and big ticket items tend to be dispatched direct from
factories or RDCs rather than via a store so falling sales here
must affect any third party logistics providers focusing on this
market – especially those offering premium “two-man”
services to deliver the bigger items. Further back along the
pipeline falling sales to consumers means less demand for raw
materials and factories on short-time. The Baltic Dry Index of
the 22 main dry bulk routes shipping raw materials fell 52 per
cent in September as freight prices plummeted in response to
falling demand.
While the high street clothing sector is clearly suffering,
sales continue to rise online – especially for those focusing on
young fashions like Asos (up 104 per cent in the six months to
the end of September). For multi-channel operators having
the right goods in the right place is vital with no-one wanting
to see out-of-stocks online and surpluses in remote high street
branches. Again, greater flexibility in supply chain operations
could be important with a single rather than separate
fulfilment centres for real world and online as well as a review
of inter-branch transfers of merchandise or direct to
consumer dispatches from over-stocked stores.
Slower sell-through in stores also means less need for
frequent replenishment: busy stores which once welcomed a
daily delivery of new merchandise may find this becoming a
weekly affair with an inevitable cut-back in use of third party
logistics operations.
The more pessimistic are already predicting that UK
unemployment could reach two million by Christmas. While
not immune to this onslaught retail supply chains at least
have the hoped-for annual surge in sales in the run-up to
Christmas to look forward to. If Christmas trade follows
current trends, however, it could be very different and MFI will
not be the only one desperately looking for rent money.
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