Wednesday, August 29, 2018

The Face of Retail is Changing and Causing Ripples in the Logistics Supply Chain

Throw in Brexit and Consolidation Seems to be the Keyword
Shipping News Feature
UK – A new study by supply chain and logistics consultancy Scala has found that traditional major retailers' share of product volumes has declined in recent years, with volumes down nearly 5% since 2015. Hardly surprising is the conclusion that the erosion is a result of the emerging growth of discount retailers, expected to see an increase of almost 50% in their value over the next five years, due to customer demands for affordable convenience.

Trends such as these send ripples right down the supply chain and Scala’s latest UK Logistics Report, based on a benchmarking exercise that the company has carried out annually for the last 12 years or more, indicates that major retailers are responding to the threat from the discounters by seeking benefits from consolidation, which again is impacting the supply chain sector. Dave Howorth, director at Scala, explains the problems thus:

“The retail landscape is changing, no longer is it dominated by the ‘big four’, as discount and convenience retailers have emerged from the shadows following changing consumer loyalties and preferences. Discount retailers, in particular, have seen monumental growth over the past decade, with chains such as Aldi and Lidl gaining more market share to challenge those at the top. While increased competition is positive for consumers, as it means they are likely to receive the best products and services possible, for the logistics sector, there are serious implications.

“Ultimately, more stores, growing networks and greater convenience comes at a cost to suppliers and the logistics businesses powering the supply chain. The major retailers have, for some time, been looking at what the discount retailers do well and have initiated processes to rationalise product ranges and simplify their businesses to better manage their costs.

“The recent Sainsbury’s/ASDA merger and the tie-up between Tesco and Carrefour highlights this innovative approach to making cost reductions, but the resulting impact to manufacturers could be detrimental. The impact of rationalisation on the logistics sector is two-fold. It may well help suppliers reduce logistics costs for supplying to major retailers, through larger loads and fewer delivery points.

”However, with retailers now requesting more bespoke products and pack sizes, the knock-on effect for manufacturers is added complexity, and therefore cost. This, alongside products increasingly becoming absent from retailers’ shelves, could mean the end for suppliers that become viewed as redundant in the not-too-distant future.”

Add to this the huge growth in online marketing, something which has taken off in Britain at an unexpected rate, and we have a very confusing picture for the future. The Scala report indicates it expects that, whilst traditional supermarkets are only set to see a value increase of 5.9% over the next five years, convenience stores are expected to grow in value by over 17% as they leverage their appeal to younger shoppers and those looking for food-on-the-go.

Throw into the mix the confusion over Brexit and the waters really begin to muddy. The consensus of opinion from bodies such as the United Kingdom Warehousing Association (UKWA) whose members include such as John Lewis, is that the likelihood post Brexit will be that the aforementioned consolidation causes the need to stockpile more in pre-retail warehouses. Looking on the pessimistic side, the possibility of a serious collapse in urban food supplies is a theme the UKWA has been illustrating for some time.

Whilst the threat which Scala perceives for manufacturers may be a real problem for many, one has only to look at the recent House of Fraser debacle in which XPO Logistics has taken a hit for over £30 million, something not many warehousing and goods distribution groups could survive.And of course who could forget 'Chickengate'?

The need to know the market, not only one’s own, but equally that of one’s customers, has never been greater and these inevitable changes in habit may bring misery or delight, dependant on a company’s precise position.