One hears much hype about big data likened to a gold mine waiting to be drilled for its treasures to improve business efficiency, especially in the retail logistics firmament but big data has done little to save the retail food giants from losing market share to their nimbler, arriviste discount grocers like Lidl, Aldi and Poundland, and now the return of Netto allied to Sainsbury. Yet there can be no doubt that the advent of online shopping has forced supermarkets to become more efficient and that has meant becoming more reliant on warehouse technology. This the big retailers have done so why have they failed to send the upstart discounters packing?

chazThe thread running throughout the supply chain is fast, accurate handling rates because today’s UK consumer, 20% of whom now do most or all of their grocery shopping on line, demands shorter delivery times, like same or next-day delivery. The advent of voice picking, pick-to-light and a plethora of goods-to-picker delivery systems have all helped to shorten order fulfilment times. Real-time stock control affords availability and lead-time transparency which consumers now demand, and retailers must keep up these IT investments or else lose market share. Moreover, good stock- forecasting programmes that react in real-time to daily changes in weather forecasts, for example, can reduce total inventories typically by 30% while leaving customer service levels unharmed. Given that stock-holding costs can dwarf all other warehouse running costs combined these programmes can be so valuable as to deliver a two-week payback.

It seems the reasons why the big retailers have lost market share to discounters are four fold:

The economic crisis that blew up in 2008 and so squeezed incomes that fell in real terms and thus made shoppers more price aware.

An apparent sea change in shoppers’ habits from shopping in just one store to shopping around.

A failure to obey the first law of marketing – giving the consumers what the consumers want and not what retailers think is best for them.

A failure to see what was happening among discounter competitors who did obey the first law by giving permanently low prices and reasonable quality.

The fact is that the big four grocery retailers who dominated about 80% of the UK grocery market had become arrogant, born of complacency and fat years based on high prices and at times what suspiciously looked like odious cartel practices. Their marketing ploys like trumpeting ‘massive’ price cuts which were only pennies off for a few derisory days or which had their prices raised first and then dropped so they could claim a price slash, also did not go down well with consumers. Price rises could also be made less obvious by retaining unchanged pack sizes and prices while substantially cutting the contents’ weights.

So how did the small, foreign-based discounters give the giants nightmares? It has much to do with harnessing appropriate logistics technology and a no-frills approach to new store openings. Some 25 years ago this writer visited Netto’s only national distribution centre (NDC) in Denmark which supplied all of its 120 EPOS-connected grocery stores. At the end of each day all the stores uploaded their sales data electronically to the NDC, which triggered a replenishment action so that all stores had their sold items delivered the next morning before opening times. At the time, Netto had only 600 SKUs (compared with a typical 40,000 in a Tesco superstore) almost all of which were popular, fast movers but if they became slow they were quickly dropped and replaced by other, hoped-for, fast movers. This gave them another huge advantage over the big grocery retailers because it meant that there were no huge sums tied up in stocks. With the help of a fast sortation conveyor, Netto’s NDC saw 90% of all its stock pass in and out every 24 hrs. Today Aldi and Lidl operate similar business models though with typically 1,600 SKUs.

Warehouses put money to sleep and so given the slow-moving sales nature of most of the big retailers’ stocks they are at a serious cost disadvantage with the minnows. This allows the discounters to undercut the giants seriously and permanently and so take market share. As this writer commented in print after the Netto visit: “If this business model ever crosses the North Sea to Britain it will give the big boys nightmares.”

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