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Grocery retail trends The third largest spend item in the household budget after housing and transport, food and grocery accounts for nearly 50% of every euro of retail spent. The market continues to grow, benefiting shareholders and customers alike as retailers strive to increase revenue and profit margin, opening up more stores and expanding and improving their product offerings and prices. In the year up to March 2007 the top 50 The customer experience has never been better, with those retailers adding 8 million square feet of sales space in 2007 alone. Even in the further developed Over recent decades, competitive forces have dramatically changed the face of grocery retail as we know it, with the steady growth of the supermarket giants all but wiping out the smaller often family-owned ‘corner shop’ grocers. But not even these new market leaders can afford to rest on their laurels, with ambitious sparring partners and new market entrants competing for market share. international expansion: The continued expansion of supermarket juggernauts Tesco (UK) and Carrefour (France) pose not only a threat to the smaller grocer, but also to giants like Wal-Mart (US), who now faces stern competition in its home territory after many years of almost unchallenged operation. Tesco’s discount retailers: In new store formats: With a wider range of larger ‘out of town’ and smaller ‘local’ convenience store formats customers have more choice – and less loyalty – than ever before. In the Asia-Pacific region, the convenience store format has enjoyed overwhelming popularity, with more than 93,000 new stores opening in the last few years. online shopping: Alternative channels such as online stores and home delivery networks offer armchair grocery shopping, often from new market entrants. In the The Sourcing
private label initiatives: With low-margin branded goods that are widely available offering retailers little room to differentiate, grocery retailers are taking control of their merchandising effectiveness and brand integrity by developing own-brand product ranges. Whilst in some cases the retailer owns the manufacturing operations, the majority of retailers work direct with third-party suppliers to produce branded goods on their behalf. Popular examples of private-label products include tiered discount or ‘value’ ranges to high-end premium ranges, as well as category-specific lines such as popular organic or theme-related products. The ability to develop own-brand products also give retailers the opportunity to ‘think outside of the box’ and develop products in a format that otherwise might not have sold well, or in some cases been allowed to have sold at all. For one more than grocery: In an attempt to capture a larger share of the consumer dollar and tap into higher profit margin opportunities, grocery retailers are expanding their offerings to include apparel and other non-food related merchandise, stocking everything from toys, electrical goods, furniture and stationery to sports equipment. A model pioneered by US grocer Wal-Mart, other grocery retailers have followed the trend, attracted by the higher margins offered by other non-food categories, as well as an opportunity to appeal to customers as a ‘one stop shop’ destination. Tesco now sources over €1.2 billion of non-food and clothing items per year and already has an estimated 7% share of the multi-channel retail: The trend towards customer-segmented store formats is increasing in popularity, with retailers operating multiple retail brands and store formats to appeal to different market segments and customer demographics. In the US for example, H.E. Butt’s Central Market stores appeal to the high-end of the market, whilst its H-E-B plus! superstores offer destination shopping based on a more typical mass market appeal grocery store format.
Excerpt from Got the Goods? - a White Paper provided by Eqos: An Intelligent Approach to Global Sourcing in Grocery Retailing
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In response to these competitive pressures and the proliferation of choice offered to consumers, today’s grocery retailers are transforming their businesses by developing value-added products and services to attract and retain customers. To do this effectively and efficiently, these strategies rely on advanced sourcing capabilities. 
Sourcing strategies
The effective use of sourcing strategies is becoming a business differentiator in its own right, helping retailers to stay ahead of their competitors.
agile sourcing: Retailers who are able to respond quickly to changes in market demand stand to profit by sourcing and adapting products ahead of the competition. By reacting to the latest consumer trends for low-carbohydrate, trans fat-free, organic and other health-driven fads, or the hottest children’s toy or latest line in home furnishing fashions, retailers seek not only to satisfy consumer demand, but also to claim valuable PR points in the race to be seen as ahead of the game. Managing changes in supply effectively, whether planned or unplanned, can also be a major source of competitive advantage. Whether due to unforeseen natural disasters or political unrest, dramatic increases in government tariffs or limitations to import quotas, or simply changing to a more local supplier to meet deadlines, retailers must be able to act nimbly and seamlessly when changing between sources of supply.
responsible sourcing: Although the ‘pile ‘em high and sell ‘em cheap’ strategies of the 1990’s continue to have major appeal in some markets, in others, discount strategies sit alongside products that satisfy more recently popular green, ethical and even politically-focused sourcing philosophies, where products are often sold at a premium. With today’s consumer more aware of where their products come from and the impact they have on the environment, communities and economies, grocery retailers need a tighter grasp of product origins. In theimproving sourcing effectiveness: Retailers can achieve significant cost reductions by integrating and improving siloed systems and processes. By ensuring more effective collaboration, more accurate data integrity and improved inventory planning, retailers can benefit from faster time to market and improved product margins. Grocery retailers need the ability to respond to changes in the supply chain quickly and responsively in order to ensure on-shelf availability. According to a report from ECR Europe6, when consumers are faced with out-of-stocks, 37% will, on average, buy a different brand, whilst 21% are likely to go to a different store. Another 9% will decide not to buy the product at all. To prevent this, close integration between the demand signal and suppliers is critical.
are you ready?: How retailers respond to changing market dynamics varies tremendously. Global sourcing has changed the face of grocery retail worldwide. By consolidating spend across retail brands and locations, retailers can leverage pricing advantages and product quality and consistency. By sourcing globally, grocery retailers have the ability to source from a broader range of suppliers, taking advantage of cheaper products and seasonal goods from across the world. Options for private label ranges are putting more control into the hands of retailers. But capitalizing on these opportunities isn’t always easy. Without the appropriate infrastructure, processes and systems in place, taking advantage of supplier consolidation and other sourcing opportunities can result in a lot of pressure on the business.
With growth top of the agenda for most retailers, the problem can only get worse. Spreadsheets can only take you so far. Whilst the administrative costs and delays related to cumbersome manual processes are obvious, they are small in comparison to the revenue opportunities lost and costs incurred through poor on-shelf availability, lack of supply chain visibility, and poor supplier performance. Lack of insight into supplier practices can have a devastating effect on the reputation and brand power of the retailer, who risks brand damage and the potential loss of future revenue from ever-demanding and discerning customers. In such a competitive market environment, grocery retailers can’t afford to make such costly mistakes.
intelligent sourcing: Designing, sourcing and buying goods can be a complex process that is typically hampered by the extensive use of spreadsheets, emails and phone calls. The need to key and re-key data from paper to system or between unconnected systems is not only inefficient but can lead to unnecessary errors. Errors in processing or having to make simple changes to product components or information on packaging can incur precious time delays and unnecessary costs. Updating and sending out multiple versions of documents to suppliers – even by email – requires a significant amount of human resource. Duplications and misunderstandings are always a risk. Lack of visibility into the status of an RFQ for new products, or the progress of a re-order shipment from factory or distribution centre to store prevents retailers from having an up-to-date view of their business, making fire-fighting the norm and effective decision-making difficult at best.
Throwing more resources at the problem might help, but it’s not the long term answer. Until now, the ability to help grocery retailers manage critical sourcing functions effectively has been an issue largely unaddressed by IT vendors. But today an increasing number of retailers are moving away from home-grown and bespoke systems in favour of innovative software that helps formalize best practices and helps under-pressure grocery retailers manage and scale their businesses.
According to a survey carried out by AMR Research and the National Retail Federation’s (NRF) CIO Council, retailers planned to focus 60% of overall IT spending on implementing and supporting packaged software, reflecting a massive change in how retailers typically develop systems7. Already in place with multi-category grocery retailers such as Tesco, Sainsbury’s, and H.E. Butt, Eqos PLM, Sourcing and Supplier Management solutions are helping sourcing professionals establish best practices and automate processes to achieve greater effectiveness and efficiency in their sourcing programs.
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