IIFET 2000 Proceedings
Retail Food Distribution:
The Race to Efficiency
Jean Kinsey, Director, The Retail Food Industry
Center, Professor Applied Economics Dept.
IIFET 2000, Oregon State University
University of Minnesota
The Retail Food Industry Center
IIFET 2000 Proceedings
DRIVERS OF CHANGE
•Consumer preferences
•New Retail Competition
•Electronic/Information
Technology
University of Minnesota
The Retail Food Industry Center
2
IIFET 2000 Proceedings
↑
Income
↓
Fun/
Status
Improve Health
Convenient
Variety
Tastes Good
Nutritious, Safe, Cheap (Sustains Life)
HIERARCHY OF CONSUMER PREFERENCES
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IIFET 2000 Proceedings
Total food expenditures and food eaten at and
away from home as a percent of
Disposable Personal Income (1929 to 1998)
Total food expenditures
Food at home
Food away from home
25% 24%
Food at and
away from home
21%
20%
15%
11%
10%
6.6%
5% 3.2%
4.3%
0%
25
35
45
55
65
75
85
95
Year
University of Minnesota
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Retail Food Source
IIFET 2000 Proceedings
By Grams of Food Eaten
1994
1977
13.6
11
100
7.2
P ercent
80
4.2
2.4
7.4
60
40
82
72
20
0
G rocery Store
F ast F ood
R estaurant
O ther
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IIFET 2000 Proceedings
Percent of Fish and Seafood Purchased by
Type by CSFII Respondents (by gram s)
Shellfish
20%
S ource: C S FII, 1994-1996
Fresh
water
18%
Seafood
62%
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
70%
Percentage of Fish/Seafood Purchased at
Various R etail Food Outlets by C SFII
R espondents (by gram s)
60%
P e rce n t
50%
40%
30%
20%
10%
0%
Seafood
Grocery Store
Fast food
Fresh water
Restaurant
Shellfish
Cafeteria
Other food source
Source: CSFII, 1994-1996
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
D istribution of R etail Food Outlets for
Fish/Seafood Purchased by C SFII
R espondents (by gram s)
Restaurant
24%
Cafeteria
4%
Fast food
5%
Other food
source
7%
Source: CSFII, 1994-1996
Grocery Store
60%
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Retail Food Outlets' Mix of Fish/Seafood Sold
to CSFII Respondents (by grams)
80%
70%
Percentage
60%
50%
40%
30%
20%
10%
0%
Grocery
Fast food
Restaurant
Cafeteria
Store
Seafood
Fresh water
Shellfish
Other food
source
Source: CSFII, 1994-1996
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
S ix T yp es o f S h o p p ers -T R F IC 1999
One Stop
Socialites
15%
16%
Middle of the Road Shoppers
22%
Discriminating Leisure
Shoppers
No Nonsense
Shopper
7%
20%
Back to Nature
20%
Time Pressed
Meat eaters
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Current and Real Sales G row th Same Stores
3.3
3.5
3.2
2.9
3
2.6
2.3
Percent Change
2.5
2
1.9
1.5
1
0.7
0.4
0.5
0
-0.2
-0.5
-0.5
-0.4
-0.5
-1
Years 1993-1998
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
NEW COMPETITION
Drive Up
Take-Out
Efficient
Delivery Systems
Wal-Mart
Supermarket
Internet
Home Delivery
Category Killers
(“Natural” Foods)
(Pet Food)
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Where do consumers buy take-out food?
45
41
40
Percent
35
30
25
20
21
22
16
F a s t fo o d
R e s ta u r a n ts
S u p e r m a r k e ts
O th e r
15
10
5
0
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Internet Shopping
•1-5% of the market
•Saves time?
•Not profitable
•Much promise of growth
•A “must do” for retailers
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Internet Shopping
$10 bil now -> $85 bil
Peapod
- 100,000 members
- 70% online sales of groceries
1999 - $73.1 mil revenue and $28.5 mil losses
Losses :
1996: 34% of revenue of $ 27.6 mil
1997: 23% of revenue of $56.9 mil
1998: 31% of revenue of $69.3 mil
1999: 39% of revenue of $73.1 mil
12/2000: estimated cash balance of -$17.8 mil
April - 51% of stock purchased by Ahold, USA.
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IIFET 2000 Proceedings
Internet Shopping : B2C Problems
Lack of Volume buying
Picking costs too high (charges are 60% of delivery
cost)
Size and density of market too small
Delivery imperfect, consumers not home;
unforgiving;
Sinha & Heim examined how the processes matched the
products being sold
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Internet Shopping
Peapod
Streamline
WebVan
Netgrocer
Simple Simon
Price-line
B2C e-commerce
Ahold
Tesco Direct
Wal-Mart
Albertsons
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
The Wal-Mart Effects
•Lower prices driven by lower costs
•Retail driven orders-new relationship
to suppliers
•BwithB e-commerce
•Information systems drive distribution
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The Retail Food Industry Center 18
IIFET 2000 Proceedings
ECR
To Integrate the food
distribution system like WalMart had integrated its
procurement and distribution
system
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
The ECR Vision
Timely, accurate, paperless information flow
Supplier
Distributor
Retailer
Consumer
Smooth, continuous flow of product matched
to consumption
University of Minnesota
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The Retail Food Industry Center
IIFET 2000 Proceedings
ECR Adoption and Performance
High Adoption
Medium Adoption
Low Adoption
20
15
10
5
0
Sales / Sq Ft
Inventory Turns/Yr
Sales Growth
Index of ECR Practices Adopted
Source: The Supermarket Panel, 1998 data, The Retail Food Industry Center, University
of Minnesota
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
New Products Annually
Nu mb e r o f Ne w Pro d u cts
Food
All Groce ry
25000
22085
22500
20000
17977
17500
15000
1 2 5 0 0 12055
11037
10000
7500
5000
16863
9192
89 90 91 92 93 94 95 96 97 98
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
NEW PARTNERSHIPS:
B2B e-commerce
UCCNET
Retailer orders
pull product
POS Data
Internet
A black
Interface
box
Food Manufacturers/
processors
CPFR
Wholesalers/Self Distributors
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
New Way to do Business
Wholesaler 38%
Scanner
data
Direct Store Delivery
28%
Manufacturer
Retailer/
Consumer
Self-distributing Chain
34%
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
GROCERY DISTRIBUTION
PERFORMANCE - 1997
Measure
Wholesaler
Self-Distributer
Operating Cost per Case
$ .47
$ .29
Cost as a percent of Sales
2.71%
1.72%
Throughput (cases/hour)
70
78
Cases Selected/hour
155
194
FDS, FMI:1997 Distribution Center Benchmark Report
University of Minnesota
The Retail Food Industry Center 25
GROCERY DISTRIBUTION
Expenses - 1997
Measure
Wholesaler
IIFET 2000 Proceedings
Self-Distributer
(Percent of Sales at inventory costs)
Labor
2.46
1.56
Non-Labor
3.60
2.28
Supplies
.28
.09
Utilities
.16
.09
Inventory Adjustment
.11
.03
FDS, FMI:1997 Distribution Center Benchmark Report
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Top 4/5 Retail Food Store Companies, U.S.
1930
1. A&P
1990
1. Kroger
1999
1. Kroger
2. American
2. American Stores
2. Wal-Mart
3. Kroger
3. Safeway
3. Albertson’s
4. Safeway
4. Winn- Dixie
4. Safeway
5. National Tea
Percent of Total Sales:
17
16
Source: Mayo, Food Institute Report
Wal-Mart is all Supercenter sales
34
University of Minnesota
The Retail Food Industry Center
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IIFET 2000 Proceedings
Retail Food Store Concentration
of Stores and Sales -1997 U.S.
Type of Store
Number
% Store
% Sales
Supermarkets
30,300
24.1
76.6
Chains
18,955
15.1
60.0
Independents
11,345
9.0
16.6
56,000
44.4
6.3
730
0.6
4.7
Other
38,970
30.9
12.4
Total
126,000
100%
100%
Convenience
Wholesale Clubs
FMI Report1998
,
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IIFET 2000 Proceedings
RETAIL FOOD SUPERMARKET
Price Competitor
Supermarket
Upscale, full service
catering, deli
Added restaurant - eat in or
take out
University of Minnesota
The Retail Food Industry Center
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