As retailers develop a host of fresh food offers, it is recognized that the pursuit of product quality and wholesomeness cannot be achieved without proper distribution and cold chain management controls. As such, cold chain management needs to bring a structured quality management system to the existing family of product quality and safety programs—providing for a strong, effective and disciplined system that promotes consumer satisfaction and loyalty.
The challenge for many specialty retailers and mass merchant operators as they enter into these ‘fresh’ new programs is that they have to transform their distribution controls into cold chain controls. Until recently, many firms have viewed distribution controls separate from cold chain controls. One primary reason was few firms knew how to identify or develop cold chain controls. Many operators contended that there were ample distribution controls in place when assessing how well the current system performs against generally accepted industry practices.
However, industry practices are changing daily. Drug store chains are introducing full lines of perishable programs in competing head on with specialty retailers and convenience stores. Mass merchants are receiving truckloads of fresh products daily to extend a new offer for shoppers seeking a one-stop experience. But, as the fresh market grows, there are challenges ahead.
For the typical grocer, their ‘fresh’ offer represents over 30 percent of sales—but 50 percent of inventory loss. It also requires a disproportionately high level of sourcing and merchandising effort. Due to the relatively high inventory loss, many nascent perishables departments are recognizing the opportunities in improving net contribution margin through better management of lost sales and reducing shrink. In many cases, net margin improvement of four points or more is becoming relatively common.
In the recent past, the first line of defense in reducing shrink was refusing deliveries that did not meet, sometimes, arbitrary temperature criteria, which is costly and destined to doom. As such, we are witnessing a broadening of the food distributor’s role in managing emerging and established fresh programs. One way of doing this is to outsource perishable distribution to select providers. The good news is that there is a wide range of options in choosing a provider, who now range from processors to broadline distributors to wholesale grocers. Unfortunately, many providers are struggling with their broader role as being a business partner, which is well beyond that of the traditional delivery agent.
As the distributors’ and providers’ roles broaden, there are many questions being posed by retailers, such as:
• How dependable would a distribution partner be based on our requirements?
• Can they deliver on our company’s ‘quality promise’?
• What processes are in place to deliver specific value?
The answer retailers are looking for is how a distributor’s business process can be executed in advancing their competitive advantage. Many distributors are now working diligently in refining processes designed with their customer’s specific needs in mind.
The need for answers is being driven by the need to focus on productivity and partnerships. Process drives standardization and sustainability, and just as important, a quality and food safety culture that is embedded in the business.
In simple, operating terms, retailers are collaborating with their distributors in coming up with an approach that can also answer these questions:
• To what level of standard do we need to perform?
• How is performance measured?
• How are benefits quantified?
In today’s hyper competitive market, retailers place a premium on fresh merchandise as it is the single greatest traffic driver and differentiator. High quality meat, produce and prepared meals have become strategic wedge offerings for most grocers and mass merchants, presenting them with a tremendous opportunity in differentiating themselves. According to FMI, an organization that serves the needs of food distribution and related business, “Perishables remain the ultimate point of differentiation for shoppers.”
With the rise in fresher and more wholesome foods creating a more demanding environment across the entire food-industry value chain, providers and distributors are feeling the pressure to deliver more for less.
Nick Pacitti is a partner with Sterling Solutions and is a co-founding member of Georgia Tech’s Integrated Food Chain Center.