As part of our Expert Insights series, Supply Chain Nation recently sat down with Mike Griswold, Research VP at Gartner, to discuss current and future trends in the food retailing industry. Here is a summary of that conversation.
SCN: What are the biggest challenges facing food retailers today?
Griswold: The first challenge is in the merchandising area around the convergence of the assortment, space and price decisions, particularly for food retailers with their planogram-heavy environment. Typically what we have seen is those three decisions are being made separately—not necessarily by different people, but as separate considerations. What we are seeing now is folks need to start thinking about making those decisions together. When I am making an assortment decision, what are the ramifications on how much space I allot the product, and when I make a pricing decision, what does that mean about space? So the first challenge is to think about the assortment, space and price decisions collectively, as opposed to three separate decisions.
The second challenge is on the demand side. There is still a relative lack of maturity in food retailing here in North America; in the area of forecasting and replenishment in particular, getting to a common demand platform starting from the store and working backwards—an item/store/day-level forecast that represents store demand. We can then aggregate this into distribution center order forecasts so we can share with our suppliers, and ultimately, up the supply chain. There is a lot more discussion that I am having with food retailers around demand planning, around things like perpetual inventory and computer-generated ordering. My hope is that over the next 12-18 months we will start to see more food retailers gravitating towards that, but I think we are still in a fairly immature state in that area.
The last challenge is: what does omni-channel or multi-channel mean in this particular segment of retail? Does it mean order online/pick-up in store? Does it mean, at some point, home delivery? We have to sort out when food retailers talk about omni-channel, what exactly do they mean and what does it mean for the supply chain. Certainly in an order online/pick-up in store world there are a lot of ramifications for the demand signal—I need to have product. There are a lot of ramifications for inventory. As soon as I offer pick-up in-store I need to be able to have confidence in my perpetual inventory. I need to be able to manage that well to provide visibility to the consumer so they know whether or not it is worthwhile to reserve it and then come to the store to collect it. The last thing we want to do is have them go through all that and then get to the store and have no product.
So to summarize, the three main challenges are, first, how do I think about assortment, space and price decisions together; second, how do I get to a more mature level of demand planning; and third, how do I answer the question—what does multi-channel mean for me and then what do I have to put in place to support that?
SCN: Besides these issues, and the e-commerce challenges we will cover in part 2 of this blog series, what other changes do you see coming for the food retailing industry over the next 12-24 months?
Griswold: The big one, which is going to be an even bigger challenge for food retailers than any other segment of retail, is this push toward one-on-one, localized, real-time offers. This is because the amount of information food retailers have about the consumer is probably the richest set of data of any retail segment. I know what my customers buy, I know how frequently they buy, and if I’m smart, I know when there are gaps to what they bought in the past. All of that in the hands of a sophisticated analytics engine is pretty powerful. So when you walk into the store, I want you to tell me that you are there and then I will start sending you things that I think are important to you specifically. For example, if I know you are a big Coca-Cola drinker and you haven’t bought any in a while, I’ll shoot you an offer. Or if I know you buy a lot of pasta and we are just launching an own-brand pasta, I’m going to shoot you an offer.
All of that is great, and a great way to build that connection with the consumer, but the challenge I see is no one is telling the supply chain that. So what is going to happen is that we are going to get you all excited about our new pasta and send you to the pasta aisle, and there isn’t going to be any there because the supply chain didn’t know we were doing this. So over the next 12-24 months there needs to be convergence around how we want to engage with the customer individually and proactively, and the supply chain’s ability to dovetail that with demand. To me, in the food space, that is one of the biggest challenges I see in the next 12-24 months. How do we bring the merchandising and marketing side and the supply chain side together at the same speed? Because right now what is happening is the marketing folks are about three laps ahead of the supply chain and I think the path that we’re headed on is real-time, proactive, individualized disappointment because the supply chain doesn’t know what is going on. Food retailers will have to close that gap.
SCN: Thanks, Mike. It definitely sounds like some exciting and challenging times ahead for food retailers. Perhaps most exciting will be e-commerce. Mike will discuss that in Part 2 of our blog posting on Thursday, October 31.