Earlier this year, PwC conducted a global survey of Consumer Goods and Retail CEOs to get their thoughts on the economic outlook for their marketplace, the key issues they face, and the importance of their supply chains in a multi-channel world. Supply Chain Nation spoke with Lee Gill, JDA vice president retail strategy EMEA, to get his reaction to what the survey found out about the EMEA marketplace. The following is a summary of his comments.
SCN: In the PwC survey, the CEOs indicated that Germany and Russia were two areas where they expect significant growth. Why do you feel these countries will experience growth?
Gill: Firstly, it is about the economic performance of these two regions, and secondly, the expansion of a very healthy retail market. Germany’s economy has been quite resilient, unlike the rest of Europe that went through quite a brutal recession, Germany recovered very rapidly and has pretty healthy GDP growth, which has averaged about 2-3 percent over the last three years. This is a very impressive performance, particularly compared to countries like Spain, Italy and France which continue to struggle for growth. The German marketplace is also in a good place when it comes to other economic fundamentals—it has a low unemployment rate, about six percent, and it has inflation well under control at about three percent. It is also worth noting that the German retail market is large and in reasonably good health, it ranks third in size within the European region. So it is against this background that we continue to see investment in operational efficiency and a general confidence.
Russia, similarly, almost escaped the recession. Russia did have a dip, but they rebounded very fast. Russia’s performance is even more impressive. Their GDP growth over the last few years has been the envy of their neighbors, at around four percent. Unemployment is under control at about seven percent, and inflation, which has been high, has declined to about six percent. It is the largest retail market in the whole of the European region and continues to grow through store expansion, but is also seeing consolidation into fewer hands.
In both countries there are consistent themes of strong, resilient economic performance and an expanding marketplace, and that provides investment funds for supply chain performance efficiency. That is, in my opinion, why these two countries stand out in Europe compared to all of the other countries.
SCN: The CEO survey indicated that European retailers are investing in their supply chains. Why is that important for them?
Gill: It is driven by a number of factors, the two most important being cost reduction and managing business complexity. The Supply chain continues to represent a significant cost for retailers. I’m talking here about the physical assets of the supply chain, which include everything from the warehouse and transportation networks to the high cost of carrying inventory. Those are the costs retailers are trying to tackle the most, because any reductions in those costs flow straight through to the bottom line. When you consider that Europe is just emerging from the recession, it has been very challenging to make sales growth. So what do retail and CPG executives do? If top line growth is hard to achieve, you still have to deliver EBITDA growth, so hence the focus around cost reduction. I think that is why you have seen investment in supply chain to tackle efficiency and to reduce costs further as an absolute necessity to drive margin.
But investing in the supply chain has also been driven by heightened business complexity. This might be through International expansion, or diversification of store formats, or new international sourcing locations. But one of the most disruptive forces the supply chain is impacted by is omni-channel retailing; satisfying customer needs around buy anyhow, anytime and receive anywhere, anytime. These things have had a profound impact on the supply chain.
These are the things I see driving supply chain investments.
SCN: Thank you for your insights, Lee.