The rise of e-commerce and success of omni-channel retailing has driven consumers to be more demanding than ever, and grocers need to evolve their supply chains to meet these rising expectations.

There are many components to this shift in demand and this 4-part blog series will go into more detail. The blog series will discuss shifting consumer behaviors, a variety of implications to the supply chain required to provide and scale service, while effectively managing inventory and value add processes, the ability to define and deliver an agile and scalable framework of capabilities that can aggressively respond to emerging trends and more.

Impacts of Changing Consumer Behaviors

The millennial shift has had widespread implications to retailers across industries, and while grocers have seen limited disruption relative to other verticals, there are indicators of shifting consumer behaviors. The shift is also having an impact on grocery market strategies that will define the marketplace in years to come.  Anticipating the future landscape and transitioning the storefront strategy will be key to survival, but proactively developing the infrastructure and capabilities across the supply chain to be ready to meet the challenges the future holds will determine who will survive, and who will thrive in a consumer centric world.  As technology and a demand for convenience drive behavioral trends, it is critical to understand the disruptive impacts the trends will have, and to also understand how technology will enable grocers to capitalize on the opportunities that the disruptions introduce.

These shifts have changed the way that we live in a measurable way through its impact on the shopping mission, and the industry is responding in the products they stock, the means in which they source and the store formats and layouts that serve their customers. These impacts are affecting the supply chain, and the tools and capabilities required to ensure efficient operations and excellence in customer service.

Proximity Based Shopping

Both convenience and a desire for freshness have contributed to a shift away from large, weekly shops and resulted in more frequent shopping excursions with more targeted purchases.  This has led to a shift in market share away from large mega-stores towards smaller, proximity based shopping centers. In order to maintain variety and minimize out of stocks through higher sales volatility, their supply chains must adapt and prepare for more frequent shipments, with more stops per shipment. Deliveries must consider increasingly customized store layouts and anticipate product placement to facilitate rapid shelf replenishment performance.  Most of all, they must be prepared to respond quickly.  Successfully adapting to this model will require investment in some core supply chain capabilities, including the following:

  • Intraday Replenishment Plans – Shelf space limitations naturally impact the ability to build safety stock requirements in high density locations, increasing the possibility of out of stocks and disappointed customers. To minimize this threat, intraday replenishment plans built on forecasts must accurately predict and deliver products multiple times throughout the day.
  • Store Centric Order Processing – Limited storage space and high velocity sales of popular products will require improved mechanisms to break cases and prepare orders based on store layouts so they may be quickly placed on the shelves, eliminating the risk of congested aisles as well as out of stocks.
  • Load & Route Optimization – More stops and more shipments means more trucks and drivers on the roads. Efficient load planning and route optimization will be critical to ensuring delivery windows for urgently needed items can be met, as well as to minimize the impact of transportation spend on operating costs.
  • Operational Efficiency and Scale – Demand volatility at peak times will require increased attention to efficient order processing, not only to assure labor costs are maintained, but also to ensure that decreased order cycle time expectations can be delivered against. Increasingly, automation is being relied upon to eliminate the threats of staffing challenges, as well as to increase throughput capabilities at peak times.  Since full scale automation is not feasible in legacy facilities, introducing innovative ways to improve throughput and drive efficiency, while orchestrating those activities with traditional layouts and workforces, will be critical.

Growth of Fresh and Local Categories

An increased focus on health and wellness has led to a surge in the sales of fresh and local categories.  Striking an effective balance of meeting customer expectations of quality and availability, while minimizing waste from expiration, can be a daunting challenge that requires an enterprise view of both inventory and demand with an awareness of the inventory specific attributes at the shelf level. A number of advances are required in supply chain capability to address these needs:

  • Shelf life management and aging profiles for the products are critical to appropriate inventory management, from the farm to the packer, into the distribution centers (DCs) and ultimately in the store. Consistency of attributes related to quality and freshness across planning, warehousing and store inventory systems will be critical to effectively managing this inventory.  Which batches to replenish and to which stores, where and how to reduce exposure to waste through conversion to prepare foods (possible from the DC or the store) and how to link pricing and promotions to supply and demand can dramatically improve margin performance.
  • Vendor collaboration offers an improved view to upstream challenges or opportunities, and in categories with limited shelf life, improved flow through capabilities such as ASNs and label compliance, or better yet, direct to store delivery can provide much needed improvements in the amount of time fresh product is available on the shelf as opposed to in a DC.
  • Comprehensive transportation routing approaches allowing backhaul opportunities for local drivers to pick up and distribute local products along their route and with returns to the DC offers tremendous opportunity to reduce transportation spend and improve product freshness upon delivery. Many grocers have already embraced these concepts, and innovations are underway to re-format local delivery vehicles to better accommodate in-route pickup and delivery.
  • Visibility into product origins is increasingly driving consumer behavior. A more skeptical consumer has increased information available describing product origins, while organic and animal welfare trade associations drive certifications in this area. Traceability and recall management are top of mind to high end grocers with sensitivity to brand protection, as a minor failure could have widespread implications to consumer perception of a commitment to quality.

Private Label, Prepared Meals and Snacks

Spurred on by the drive to convenience and exacerbated by more frequent shopping trips with more targeted intentions, sales of prepared meals and snacks have increased as well.  This offers opportunities to increase margin through value added services to the customers, as well as an opportunity to avert the risk of waste for foods that near expiration.  In parallel, seemingly contrary pressures focused on cost have resulted in a transition away from branded goods towards private label.  Interestingly, the management of the sourcing, production and inventory management of these products bear many similarities, driving grocers to think more like manufacturers.

  • The primary challenge with these categories lies within the planning aspects of how much to produce or purchase. Not only do demand forecasts need to be considered, but opportunity cost related to likely waste of near expiry product offers opportunities to extend lifecycle or to transform the inventory into a complimentary product.
  • Vendor collaboration has increased in importance as the ecosystem for private label and prepared meals has grown. While margin contribution should be improved by pushing into these areas due to a higher value add, the risk of undermining that profitability through waste can undermine and even prevent those accomplishments from being achieved.  Vendor collaboration reflecting a comprehensive, end to end supply chain for grocers and their suppliers, can help to minimize this risk.
  • Planning production across entities is critical, but supporting efficient operations internally can deliver substantial opportunity to capitalize on these opportunities.
  • The additional control and visibility from the supplier networks and through the stores allow increased levels of product quality, traceability and consumer safety. In a consumer environment increasingly focused on wellness, a comprehensive and secure supply chain is a marketing tool as well as a security benefit.

How JDA Can Help

With a long history of supplying grocers with best in class applications to manage, and a comprehensive view across assortment planning, supply chain planning, and execution, JDA is uniquely positioned to provide SME insight into the impacts of the shifting consumer behaviors on your business, and provide insight into the competitive landscape to provide a view to the criticality and urgency of transformative projects or programs to prepare for the coming disruption. Contact JDA today to learn more.

Learn more by downloading the eBook, “The Digitalization of Grocery.”