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Multichannel supply chains: an evolution not a revolution

Details of the food and grocery supply chain challenges created by today's 'hot' shopping channels. Takeaways from IGD's Multichannel Supply Chain event

About this article

Shopper habits have changed drastically and they have changed fast. Traditional supermarkets are now not only competing with each other but also with the new faces of Aldi, Lidl and Ocado.

Against this backdrop, IGD’s Multichannel Supply Chain event explored how the ‘hot’ shopping channels are creating more challenges and opportunities for today’s food and grocery supply chain.

Shopper habits are changing

The way people shop now is very different from ten years ago. Long gone are the days when shoppers made a trip once a week to a large supermarket to complete the weekly shop. Now shoppers:

  • Use multiple channels in combination with one another
  • Are motivated to get the best overall range, value and convenience
  • Don’t think in terms of channels but do see different strengths in different forms of retailing

Changing shopper habits has led to three trends:

  • The rise of the discounters in the UK
  • Increased penetration of online grocery shopping
  • Shoppers shopping ‘little and often’ means their local stores remain relevant

There are now three ‘hot’ channels that are driving growth in the UK grocery market

Channel share in the UK grocery market

Retailers have to effectively compete in at least one of these ‘hot’ channels to drive growth. The majority of UK grocery retailers have operated in all of these channels for some time, but with little or no growth in the more traditional channels, focus has turned sharply to convenience, discount and online operations.

What does this mean for supply chain?

The supply chain characteristics of the convenience, discount and online channels are very different to supplying a more standard supermarket/hypermarket operation.

Convenience

Convenience

  • Smaller stores have less shelf space, little room to store and organise incoming deliveries and limited vehicle access
  • Sales volatility is high both within the day and through the year
  • Case sizes, order frequency, order quantity, vehicle size, product ranges, replenishment sizes, RRP solutions and in-store processes all need to be re-evaluated
   
Discount

Discount

  • Offer a limited range, run basic stores and tightly control costs
  • Operate with basic IT systems – for example orders can be placed with suppliers by fax or email
  • Little data sharing across supply chain, making collaborative working difficult
  • Use own product descriptions instead of barcodes/supplier descriptions leading to confusion
   
Online

Online

  • Multichannel retailers service online orders through a mix of picking in-store and dedicated fulfilment centres
  • Stores need to maximise availability earlier in the day to ensure optimum picking
  • Demand patterns for online orders can be very different to store sales, making forecasting and planning harder for manufacturers

 

Complexity is rising

With some retailers operating in all of these sales channels, it’s inevitable that supply chain complexity is rising. This can lead to inefficiencies and rising costs – which is not an option in today’s trading environment.

 To help combat complexity and provide solutions to these challenges, retailers are asking for more from their suppliers:

  • Convenience
    Pack size is a particular issue. If suppliers used smaller pack sizes, more suitable for the smaller operational areas of stores, it would improve operational efficiency for retailers
  • Online
    The online pick for customer orders tends to happen between 5 – 7am in-store. This means stores need to be fully stocked much earlier in the day than previously. Shortening lead times and earlier deliveries back through the chain would help retailers improve on-shelf availability
  • Discount
    Traditionally difficult to engage with, discounters operate with strict parameters and like full pallets and full truck loads to keep costs down. IT systems are unsophisticated and failure to comply with these rules means suppliers will be de-listed

Manufacturers

As complexity rises, manufacturers are looking to their own businesses to simplify operations. This manifests itself in a number of ways but could include:

  • range reviews
  • SKU reduction
  • simplifying processes

Enhancing partnerships with trading partners is vitally important. Further collaboration, be it with retail trading partners, logistics companies or suppliers further down the chain is required to tackle the multichannel supply chain challenge.

The Multichannel Supply Chain event highlighted that many collaborative partnerships are already underway in all of the channels and are starting to make a difference to performance.

This is encouraging - these challenges are too great and too complex to tackle alone and those that collaborate, and collaborate well, will thrive.

IGD’s Supply Chain Analysis service has an area dedicated to multichannel supply chains including latest insight, case studies and trends.

To learn more about multi-channel retail click here and access IGD’s multi-channel white paper.

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