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The UK grocery chain has experienced tremendous change in form of innovation and considered as one of the most efficient chain globally. However there is further scope for improvement in this sector. The demand for fresh fruits and vegetables in the UK has been consistent. With a CAGR of (2.32) % for fruits and (0.77) % for vegetables, the demand for fruits has increased by 3.20 % in 2006 and by 1 % for vegetables in 2006. The market is expected to grow at a steady rate with occasional drops in demand. With this growth and an emerging trend of healthy diets, there is an increased competition in the grocery market from new entrants in form of fresh fruit and vegetable distributors and suppliers. With less margins of around 1.5-2 %, the challenge remains for the grocery operators to sustain the price wars and whilst maintaining consistency in the quality of the fruits and vegetables.
Perishability remains a key concern for stocking and selling especially for products like fresh fruits and vegetables, thus the focus of the grocery store is keen on minimizing the time taken for the product from growth point to selling point.
The channel used for supplying depends on the market or market segment in which a product is being distributed. There are different channels that can be used however it remains critical to select the optimum and most efficient channel for fruits and vegetables given their specific features.
Integrating a Transport Management System and Warehouse Management System would facilitate collaboration between the grocery and the supplier and provides information if a supplier has a particular product that could be backhauled. With the increase in the number of SKU's, these IT management systems will help increase efficiency.
Over the past few years, RFID has also been in the news which has a longer lifespan. Along with other industries, grocery is evaluating how the technology might be applied to its unique problems. Spanish supermarket chain Mercadona recently implemented an RFID solution in the dry, fresh and frozen goods areas of a new logistics center near Madrid. Instead of a bar code, Mercadona integrated a reusable RFID tag into the permanent system pallets used. The tags will be used to locate pallets in the AS/RS and track them on conveyors.
Some of the major trends we are witnessing in the supplying of fruits and vegetables would be:
Increased focus on freshness. This requires that fruits, vegetables and semi processed (ready to eat) salads must be presented to consumers in immaculate condition while maximising shelf life to avoid costly waste. Proliferation in fruit and vegetable product variety. Along with meeting increased demand for organic and imported specialty fruits and vegetables, retailers must be able to secure high quality local and imported products all year round. This requires wholesalers to act as both local agent and a value added sourcing specialists. The future role of business to business e-commerce in fresh produce is particularly unclear given the perishable nature of the products and differences in quality and volumes both intra- and inter-seasonally. The system never functioned in the fresh produce sector, which operates more through personal relationships rather than automated procurement systems.
Still, as buyers grow, there are compelling reasons to streamline fresh produce procurement and firms are beginning to attempt to treat fresh produce like other food commodities with more stable pricing and volumes. The recent emergence of retailer- shipper procurement contracts is a part of this process and demonstrates the introduction of supply chain management methods in the US fresh produce system. E-commerce platforms tailored to the fresh produce sector have the potential to become successful alternatives to EDI.
By purchasing more volume, retailers hope to lower the per-unit cost of goods by negotiating lower prices. In return, retailers may develop partnerships with preferred suppliers, concentrating volumes with these firms, potentially benefiting suppliers with more predictable firm level demand. When demand and supply are more closely coordinated buyers and sellers can work together to stimulate sales, and achieve more consistent volumes and quality. On the other hand, as price takers in a low margin business many shippers feel that they have little ability to absorb lower fob prices, reporting that volume discounts are not cost-justified for commodity-based fresh produce shippers (as opposed to shippers of value-added produce like packaged salads).
Retailers also expect reduced marketing and selling costs as a result of relationships with preferred suppliers. Suppliers and distributors are being asked to help retailers with the design and provision of category management, effective design of promotions, promotional allowances, and special packaging. To make this type of marketing support function effectively retailers should share sales data with suppliers in order to better evaluate promotions, seasonal effects, price responses, and other characteristics of consumer demand.
It's a fee where suppliers are charged for access to shelf-space, usually for new products. Its common to manufactured grocery products, have not traditionally been used in fresh produce departments.
In contrast, fresh produce commodities are generally produced seasonally, often by different suppliers in different seasons, intra- and inter-seasonal quality and sizing may vary, weekly volumes may be inconsistent, and individual shipper volumes may be low relative to retailer needs meaning that retailers often can't procure all of their volume from one supplier. Furthermore, as price takers shippers have less ability to incorporate slotting and other types of fees into their cost/pricing structures so incentives are low to offer slotting fees as a strategy for capturing market share from competing suppliers. Several of the above factors also act as disincentives to retailers charging slotting allowances for most fresh produce commodities, as retailers are accustomed to using multiple suppliers for the same commodity, rather than locking in shelf-space for a specific supplier on a year round basis.
On the other hand, over the last decade the introduction of fresh-cut and branded fresh produce has stimulated the emergence of slotting fees in this segment of the fresh produce department. Value-added produce is produced and marketed much more like other manufactured grocery products, requiring dedicated year round shelf-space. Therefore, these items lend themselves to slotting fees, both from the perspective of retailers and suppliers that may find their usage helpful in market share battles with competitors. Hence, despite the current high profile of slotting allowances in the fresh produce industry trade press, they are not prevalent beyond the fresh-cut category where they may be supplier as well as retailer induced.
Some of the critical factors for selecting an appropriate supplying channel for fruits and vegetables are to:
- Maximize sales opportunities and product availability - The optimum channel should be selected to ensure that the right product is in the right place at the right time. It should be ensured that the right fruits and vegetables are present at the appropriate place. Geographies with a skewed population of a certain race may have higher demands of a particular fruit or vegetable.
- Achieve high levels of customer service - The importance in channel selection lies in the degree to which suppliers / manufacturers / distributors / retailers agree on the levels of service to be achieved and maintained. The chosen distribution channel needs to be able to deal with: stock availability; frequency/reliability of delivery; product quality; presentation; packaging and accuracy of order; number of returns and complaints; convenience and promptness of refund procedures
- Minimize costs - Usually every channel through which the product passes adds value to it in some way and hence an increase in price. Thus the channel chain is expected to be shorter thus cutting on distribution costs. Each channel should be selected and managed in such a way as to reduce unnecessary costs.
- Information feedback - As goods and materials flow outwards along the channel, so information on that flow, and on trends and developments flows back. There might be certain complaints on the quality of fruits or vegetables which the customer may wish to address to the supplier etc.
- Physical aspects of the distribution chain - Attention to detail at the operational level is necessary to ensure that the fruits and vegetables are in the most edible condition, minimizing damages like squeezing or crushing of these products which may directly cause losses.
The evaluation and selection of our channel strategy is also dependent on the following factors, which are specific to fruit and vegetable.
- Product - The physical nature of fruits and vegetables is important at point of sale. Thus more room is required for the products which can be available where there is more control over the supply chain by the grocery store.
- Market - The market for fruits and vegetables in this case is wide spread which expands the transportation from the exporting country, thus care should be taken to increase cubic space for the products while distributing to different stores.
- Channel - Since this case requires the products to be imported from another country, air ways is the best channel available for quick delivery and better condition.
The need for depots is minimal here as being perishable products the shelf life of these fruits and vegetables is too short to store them in depots. Trunking costs are also decreased with the less number of depots, and delivery costs decrease.
Choosing Air as the mode of transportation enhances the speed of delivery which is important for fruits and vegetables along with safety and security as airports have substantial security. Air transport would also be immune from weather fluctuations like rainfall or excessive snowfall or traffic congestion. Cost is however one of the disadvantages here.
Thus we feel that Manufacturer - wholesale warehouse - retailer is the best supply chain model for supplying fruits and vegetables.
Recent distribution changes (policies and practices) have affected this traditional well-established distribution channel as wholesalers have moved into the area of physical distribution. Examples are the grocery sector etc.
References and Bibliography
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