What a convenience retailer needs from a supply chain
Successful convenience retailers are aware that the supply chain is important to their business.
Often the instinct is to focus on minimising supply chain costs, but the supply chain can be
instrumental in delivering customer satisfaction and enabling the expansion of the business.
Convenience retailing requires more than taking “big store” disciplines and
offerings and squeezing them into a smaller store. It’s about understanding and
then meeting the specific needs of a localised group of customers - such as a
unique residential community, rail commuters, holiday makers etc. Each group
has its own timetable, product requirements, seasons, and price points driving its
expectations. To be truly successful the local market has to be understood and
the supply chain configuration tailored to meet the store’s specific needs. What I
will demonstrate in this article are three key areas a supply chain can provide a real improvement in the
business performance of a convenience retailer.
Meeting customers’ needs
A recent survey of convenience store customers, not surprisingly, showed that customers rate
‘availability of product’ and friendliness/helpfulness of staff as their most important satisfaction criteria
(above price). Similar surveys show convenience consumers are increasingly on the search for a “mealfor-tonight” or for “food-to-go”, irrespective of the time of day - which brings us back to availability of
product.
Availability of product when the consumer wants it is fundamental. The physical replenishment of stores
and shelves is key to achieving this availability. This requires a high degree of co-ordination and
planning to ensure the customer gets both maximum choice and also importantly is not inconvenienced
by trolleys, trays and merchandisers. Local convenience store markets have different peak shopping
times, (rail station stores, stores near schools and student neighbourhood stores are busy at different
times) and store staff levels are quite rightly designed around these peaks. From the stores’ perspective
staff should be focusing on customers, being friendly and helpful, and maximising the sales
opportunities. This is where supply chain can help. Maintaining general product availability, forecasting
and DC replenishment are skills common to all grocery retailers. However, where a convenience supply
chain will differ is in recognising the stores needs. A fully manned “back door” and a full-time
replenishment crew are typically not available in convenience environments. Replenishment schedules
should therefore be designed to deliver before or between peaks to meet the two critical customer needs
of full availability, and available helpful staff i.e. distracted by merchandising and roll cages. A transport
planning approach that recognises the requirements of individual store requirements is therefore
essential. This may require multiple deliveries across a trading day - remember the increasing
importance of the on-the-go offerings around the clock? Not having sandwiches at breakfast or after
eight pm is no longer credible. From a pure transport perspective delivering products to this schedule
may appear sub-optimal, it may even require smaller or additional vehicles, but it is one of the ‘get rights’
for a successful convenience operation.
Appropriate replenishment operations
Further back in the chain the distribution centre (DC) provides another area of opportunity for the
business. On the surface a DC for a convenience operation appears to work as for any other retailer of
similar products. Indeed there are many examples of convenience outlets being serviced from DCs
designed to service superstores. However, re-supply for a convenience outlet typically requires smaller
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quantities of product picked from a smaller range of products. This means the pick sequence, picking
unit and picking media should be specifically designed to meet the operational need. In some DCs where
convenience stores are order picked alongside superstores the travel distances and picking unit are
unsuitable incurring significant and unnecessary travel times. In this environment the issues and costs
incurred when a product not ranged in a convenience store is picked and delivered to store by mistake
go far beyond the cost of writing-off a case of product. This all adds additional cost and unnecessary
complexity to the convenience supply chain and should be deigned out. However, some complexity is
needed. Sub-case or single unit picking is a requirement for successful convenience retail and from a
DC operations perspective this is only feasible if the Warehouse Management System can recognise,
account for and re-unite singles, cases and pallets. This is not always the case, and this failure not only
adds cost to the business but prevents the introduction of our third area of opportunity.
Enabling increased revenue
The final opportunity is a potential step change through additional revenue opportunities. This
opportunity is enabled through inventory planning and a reduction in pack size and it meets the
consumers’ requirement for greater ranges and more enticing offerings.
Case study - To demonstrate this we can use a recent client, a large convenience store chain, as an
example. Recent analysis by our consultants of the convenience store inventory profile showed that
around 75% of stock in store could be classed as excess – i.e. not required to deliver the planned 99.5%
availability level. There were a number of drivers of this inventory, promotional stock not sold through
once the promotion was over for instance, but the overwhelming cause was pack size. An average pack
size containing 12 items accounted for up to one months’ inventory in many instances. This was in a
store operation where deliveries were made daily or at least every two days. Apart from the obvious
working capital reduction that could be achieved from removing 50% inventory from every store the other
significant opportunity here is the chance to create more retail space. Using singles picking to effectively
reduce the pack size at the store and the hence quantity on the shelf creates space for new ranges or
new services. Some ranges will be traditional; more of the same or complimentary products. Others can
enhance the food-to-go offering by adding services such as coffee bars, pizza ovens, deli counters etc.
Moreover, the offering to the customers can be further augmented by increased non-food services such
as Post Offices, DVD rental, and other concessions. All increasing revenue through the same floor space
and not affecting availability in the traditional range
Conclusion
In order to benefit from increased customer satisfaction, reduced working capital
and increased revenue, a holistic view of the supply chain is required. To be truly
successful the convenience retailer local market has to be understood and the
supply chain configuration tailored to meet the specific needs. In order to get this
right, the supply chain skills to deliver these benefits for the business are at the
distribution centre, with the transport and replenishment schedulers, and in the
detailed inventory forecasting and modelling capabilities, making supply chain
configuration critical.
For more information on how to achieve an effective convenience retail supply chain, please contact
Simon Butcher on Tel: +44 (0)7711 776133, email: simon.butcher@crimsonandco.com or take a look at
our website www.crimsonandco.com.
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