Many executives today believe that the digital economy—buying and selling online—will destroy conventional retail. They fear that the devastation hammering department stores and shopping malls will also wipe out supermarkets and other grocery retailers.
However, the food sector’s saving grace is that, unlike other merchandisers, it supplies consumers with fresh meat, seafood, fruit and vegetables. Unlike hard goods and clothing, the food we eat requires highly specialized logistics services including temperature and environmental controls, special packaging and handling in order to distribute fresh, safe-to-eat products to retail outlets.
The food delivery supply chain just added another link after Target. agreed to pay US$550 million for grocery delivery start-up Shipt Inc. The acquisition follows the lead of Amazon and Wal-Mart, which introduced the service provided by industry leader, Instacart. Its personal shoppers purchase goods from a list of selected stores which it delivers to a specified address.
Since mid-November, Loblaws, Real Canadian Superstore and T&T store customers can request Instacart services. Shipt typically sells items at a small mark-up to in-store prices and charges a delivery fee for orders under $35.
Today, the grocery food supply chain no longer ends in warehouse or store but in a shopper’s home.
Conventional food retailers are under constant pressure to find suitable solutions. Amazon.com recently acquired upper-end food retailer Whole Foods for US$13.7 billion in cash. Not to be outdone, Amazon’s Chinese alter ego, Alibaba Group Holding Ltd. agreed to pay US$2.88 billion for a 36 per cent stake in China’s second-largest big-box retailer, Sun Art Retail Group Ltd. Such acquisitions further fuel the notion that the future of food retail will be a mix of in-store and online sales.
Speaking of Alibaba, Korean Airlines (KAL) as part of its weekly 18-hour charter, Boeing 777F service from Halifax Stanfield International Airport (HSIA) to Inchon, South Korea, recently delivered a load of fresh lobster from Nova Scotia’s Gidney Fisheries in Centreville to China for Alibaba’s Singles Day sale—their version of Amazon’s Black Friday event.
The rise in global food demand turns up the pressure on logistics professionals to develop effective solutions to handle the expanding universe of product delivery points and processes.
Closer to home, major U.S. retailers. have increased the pressure on manufacturers and carriers by charging them fines for late and incomplete deliveries. According to a recent Wall Street Journal story, The Kroger Co. is fining suppliers $500 for every order that is more than two days late to any of its 42 warehouses, and Wal-Mart, in August, started charging suppliers monthly fines of three per cent for deliveries that don’t arrive exactly on time.
Late deliveries run into real money. The U.S.-based trade organization, the Food Marketing Institute, estimates that food retailers lose US$75 billion a year because items are out-of-stock or unsalable for other reasons. That amounts to about 10 per cent of annual industry-wide grocery revenues at a time when the sector’s sales margins are shrinking and sales growth continues to slide.
So far, such penalties have not shown up in Canada, says Toronto-based Deloitte partner, Ryan Ernst “Since retail supply chains are often complicated, usually retailer have acknowledged these and included grace periods for late or lost deliveries without penalties. They are now introducing a flow model and automated warehousing systems to move products through the system more smoothly.
“Many of those tools and systems and solutions rely on modern track ‘n trace systems based on emerging block chain technology that provides a shared and verified view of the location of goods as they pass through the supply chain.
“As well, there are other tools that provide real-time data on the location and status such as the temperature of products throughout the supply chain. In addition, dynamic routing systems that rely on the latest analytics solutions involving algorithms to create more accurate inventory orders.”
Ernst also foresees that electronic vehicles and driverless trucks will help increase fuel efficiency and road safety and cargo security that will reduce overall transportation costs and hassles. But bringing such innovations to market will take time.
In recent news, PepsiCo Inc. has reserved 100 of Tesla’s new electric Semi trucks. In Canada, Loblaws has pre-ordered 25 of the vehicles, with transport company Titanium and fleet services provider Fortigo also placing orders.
As well, other game-changing systems are edging closer to reality than we realize. Electronic Document Data Integration (EDDI), is an emerging technology that enables smartphones to generate and share “Smart Documents.” These contain complex data required for customs filings and shipping records. By initiating an automated and globally secure workflow, they simplify the exchange of crucial data relevant to importers, exporters, carriers, freight forwarders and government regulators.
John Welsh, president and CEO of Toronto-based Omni EDDI Inc., says Smart Documents are like blockchain technology without the latter’s size limitations. They overcome that weakness by creating a “link-chain” whose transactions are traceable, transparent, repeatable and irreversible without requiring agreement and authorization of involved parties.
“We have selected a Caribbean country to test drive EDDI to help boost its economy by increasing trade opportunities and creating high-paying technology jobs,” says Welsh. “Our client’s Agricultural Ministry is eager to expand its fisheries exports. To do so, we will introduce a harvest-monitoring system through a smartphone app. It will enable fishermen at sea to photograph the catch, generate documents and send the data, directly to government regulators.
“Captured data includes GPS catch location, types of nets and their gauge, species caught and water temperature. By distributing such data to multiple recipients using different systems, EDDI can satisfy both domestic and foreign governments’ including Canada’s that the harvested fish satisfy all their food safety standards and environmental regulations.”
As a result, governments can confidently import the fish after seeing certificates that meet all domestic and international agreements. Without such certificates, Canada will not import the fish.
More important, EDDI is an outsourced solution that eliminates the need for any in-house IT infrastructure or staffing.
Such “tap-the-app” data tools pop up in other solutions. Ottawa-based Farm Boy is one of Canada’s fastest growing grocery chains with 24 fresh market stores in the province. But it is poised to expand into highly competitive Greater Toronto Area market. One of the keys to its future success is deploying a supply chain management system from Finnish-based Relex Solutions.
Says Shawn Linton, Farm Boy’s vice-president, supply chain & I.T., “Inventory management is key to enabling us to fulfill our corporate strategy in which freshness is king and the product best before date is the law. Since we are fanatics about best before dates on a box of crackers, we buy stock with store-shelf freshness in mind not just lower cost.
“Relex software helps us calculate the top level of safety stock—item quantities on hand. It deploys algorithms to calculate proper amount to meet future customer needs. Historically, most shortages are caused by suppliers’ miscalculations or other human error. Less than 10 per cent comes from system errors. Our entire business model is based on keeping an adequate quantity of fresh food products in store to meet expected consumer demand.”
Such an approach enables Farm Boy to build and maintain consumer loyalty. It also strengthens the bottom line since strict adherence to its business plan results in less waste from discarding stale products or selling them at discounted prices. Proper inventory management is also key to ensuring steady price points for customers as well as predictable revenue, costs and profit streams for food retailers which have traditionally struggled with low profit margins.
Farm Boy introduced Relex in 2016 for basic food items. Next on the list are produce, fresh meat and seafood. The store does not carry space-devouring, low-return household products such as detergent and paper towels. “People can buy them online,” says Linton.
Farm Boy currently has a modest online presence for specialty items such as party platters and a mobile app for salad club members. But its future plans include introducing click-and-collect services, since more and more shoppers dislike lining up at check-out counters to pay for their purchases.
Linton is enthusiastic about Relex’s “plug and play” approach. “It’s a lot like today’s carriers one day outsourcing deliveries to a service provider which actually operate and maintain driverless vehicles. The carrier has no capital tied up in equipment or repair and maintenance costs, which the service provider looks after. Nor do they have to worry about hiring or supervising drivers and mechanics. They just have to keep customers happy and earn enough money to pay the monthly service provider bill.”
Things are moving quickly but those vehicles are not quite on the roads yet. As Canadian consumers increase their appetites for Peruvian “superfoods” such as macca root, quinoa, camu camu and other dried fruits, the products still need to make the long trek up to Canada. For the past five years, North York-based Flo Trading has been importing such items after overcoming a handful of transportation and logistics challenges. These include proving that the imports meet all current international organic food quality standards. As well, to increase their acceptance by Canadian shoppers, Flo Trading ensures that such products also meet various food product fair-trade standards.
At trade shows such as the annual Alimentaria in Lima Peru, the largest food show in Latin America, and the Grocery Innovation Canada show in Toronto, many of the Peruvian food exhibitors are run by entrepreneurs. In addition, most of the growers are indigenous farmers with small personal plots of land. But by joining together with others to form cooperatives they can supply enough produce to satisfy overseas markets.
Flo Trading supplies the produce in bulk to food processors as well as offering private label packaged goods to independent food retailers. Such products are shipped in containers by sea from Callao, Peru’s major port through the Panama Canal to U.S. ports such New York and Philadelphia. The ocean voyage averages about 25 days. The recently widened Panama Canal cuts at least two days off the trip. From the U.S. ports of entry, the containers travel to Canada by truck or train.
However, Flo Trading president, José Labra prefers the longer and slightly more costly deliveries via the port of Halifax. “Shipments take about a week more than going through U.S. ports. But it is more convenient when they come through Halifax. U.S. Customs and food inspection officials often take more time to clear goods.”
The smoother entry of Peruvian goods into Canada may result from our free trade agreement with members of the Pacific Alliance—Mexico, Colombia, Peru and Chile. In the other direction, Canada exports are mainly grains such as wheat and lentils.
José Luis Peroni, director for the Trade Office of Peru, based in Toronto, says his country is looking to expand its food exports to Canada. “One of the high-end, fresh fish food items we will continue to promote is paiche (pronounced pie-CHEE).” Shipments arrive on Air Canada Cargo flights direct from Lima, he says.
As long as people continue to eat, there will be grocery stores. But to survive, they must first develop profitable in-store and online sales concepts and formats to meet ever-changing consumer appetites and buying habits.