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Consumers will determine the future of retail distribution: panel


MISSISSAUGA, Ont.–This year’s Surface Transportation Summit, held in Mississauga, Ontario October 14, featured a panel of shippers and industry consultants who discussed the future of retail distribution in Canada.

Moderated by Dan Goodwill, of Dan Goodwill & Associates, the panel examined trends and changes that will shape both retailers’ and carriers’ strategies for delivery in the near future.

Starting with the consumer, what’s happening with the retail consumer these days and what are some of the biggest changes seen in their buyer behaviour over the last few years?

Serge Carestia, vp Supply Chain, with Home Depot Canada, said the box stores used to dictate what everybody was going to buy-now it’s completely the opposite.

“It’s in the hands of the consumer. Retailers struggle to constantly find out what the customers really want. Now customers are telling us what they want, where they want it and how they want it delivered. So they don’t necessarily want to come into the store anymore.”

“There’s no longer a product out there, where it’s ‘stack it high, let it fly’-now it’s really figuring out what the customer wants and delivering it.”

“We’re seeing an aging population, and that’s going to pose some unique challenges, both on the Shoppers Drug Mart side and on the Loblaw side,” said Robert Wiebe, SVP, Supply Chain, Loblaw Companies Ltd.

“There’s a lot of drug reform, provinces that also understand that because of the aging population we’re going to have to control costs-that could be a big thing for us from a margin perspective. We’re also seeing customization: people want what they want, when they want it. If they want one specific olive oil from Italy, we have to find a way to get it to them, and not blow our brains out from an inventory perspective.”

Urbanization is yet another trend, Wiebe noted.

“We’re seeing smaller delivery sizes, more frequent deliveries, and more deliveries going into smaller stores,” he said.

Looking at some of the docks in these smaller locations, it’s can be a challenging delivery system, Wiebe said.

“We’re going to see more and more of that. We have 14 pilot stores right now that would be 50% food, 50% OTC (over the counter).”

These pilot stores, with their perishable foods, and located in densely populated neighbourhoods in urban, downtown locations, have no back rooms and need daily deliveries.

“There’s a tremendous amount of pressure brought to bear by that dynamic,” said Wiebe, vs. the Superstore environmenst in which they typically schedule a 53 ft. linehaul delivery. said Wiebe.

“What’s interesting is to think about the challenge described by Serge and Rob, and recognize that’s coming from organizations with a very high degree of sophistication and being able to diagnose, understand and respond effectively to the challenges. Consumers’ expectations are being set today on a local basis. Customers are after that phenomenal customer service. It’s about being able to offer the consumer the price points and channels, because we are in a very long term, low growth environment,” said Stephen J Brown, National Consumer and Industrial products industry leader, with Deloitte.

How are supply chains adapting to meet these changing needs?

It’s not so much about the online world replacing the brick and mortar, at least not in Home Depot’s case, said Carestia.

“In our world we are trying to figure out how to integrate our online with our (brick and mortar) stores so that you could buy anywhere in the world. What we’re trying to do is if we are able to integrate our associate online with the customer, whether the customer is at home, or in the parking lot. We have a lot of small contractors that do a lot of small renovations. They are in their truck, mobile, ordering product all the time. By integrating those two we make our stores even more relevant, because we don’t only have the product, we have the knowledge,” Carestia said.

“When you think about the aging population, they often need to call someone to do it for you. The younger population might try and fix it-you’re probably going to want to call someone and get instant service-where do I get that part? We see a world where there is a Home Depot person that is helping you online to fix that problem,” he said.

“We don’t want to take away any information that our store associates need to compete. We just want to empower them,” he added.

With the integration of the Loblaw’s, and Shoppers Drug Mart’s supply chains, said Wiebe, “What we’ve tried to do is focus on channel and velocity, and keep the highest movers with the highest volatility to demand in your closest market. Where you have super slow movers, and low demand volatility, those items, we house them nationally. Our level of reliability has to be incredibly high from a carrier, and transparency to where a load is and when it’s going to arrive. This reliability will be more and more important for us,” he said.

The company wants to draw from the supply chain strengths of both the Loblaw and Shoppers stream.

“Loblaw would typically be very strong on case picking, where Shoppers is stronger on getting products straight to shelf, and keeping inventory levels low,” he said.

“The downtown Toronto pilot stores are very much 50% food, 50% what you would see in a typical Shoppers store,” Wiebe added.

“Supply chains are getting increasingly complex and you’ve got the dimension of this trade-off between in-store and online,” said Brown. “When we do scans on some of the most innovative practices going on in the retail space, this notion of having an unlimited assortment available online and the threat that that poses from a company like Amazon cannot be underestimated and so these companies are figuring out how to combat a fundamentally different business model and that is now easy. How? It’s about figuring out ways to make things effective and simpler for your clients, because it’s not simple for them. Don’t just think about your piece of the puzzle, think about what is going on upstream and downstream given the objectives that they’re trying to drive and if there isn’t a unique customer experience there it’s either convenience or cost, and those are generally pretty easy competitive hurdles to overcome,” he said.

“From a transportation perspective it is dramatically changing. Inventory could be anywhere, depending on the product, and connecting all that together so consumers can get what they want when they want is very complicated. What that means is if they want home delivery you need to get it to their house and I think the traditional transportation has to get more dynamic and more flexible. We tried a number of things in the market. We’ve tried to deliver flooring at home within 48 hrs or on the same day. Linking that up in a traditional way is very, very tough,” Carestia said.

Because customers are extremely smart, and they can sniff out where they can get items like a shed shipped free, now you have to make it profitable.

“We need the transport companies that work with us to adapt, to be flexible, to understand what our customer wants, and that includes delivering it to their house,” Carestia said.

With the Loblaw supply chain handling some $3 billion worth of inventory, “Inventory and working capital become very big levers in our business,” said Wiebe.

With regard to the various tiers of service offered by Amazon, what are some of the thoughts on how they are trying to approach things from a transportation perspective?

“Amazon has the flexibility to do these things because they don’t have the fixed cost infrastructure of the network. It’s interesting to hear them talk about bricks and mortar, but strategically it would be a mistake to try and out-Amazon Amazon. That’s not a good strategy. So you figure out who you are targeting and make choices around delivering the best job that you can do for the right value for your customers. That doesn’t mean that you don’t try and innovate in your own way. I’ve heard it said around innovation that there’s no one organization that has all the smartest people in the world. The best ideas may be coming from some unexpected places. Today at the rate of change, it’s important to be curious and outward looking, and to spend some time developing an ecosystem of innovative, small, hungry companies that can offer things that you can incorporate in your business,” said Brown.

“What I’m seeing is trying to develop maybe not a unique way of doing it but trying to develop a whole delivery model in some way. How can carriers help us figure out how to deliver differently?” said Carestia.

Canada’s challenges lie around its demographics, lack of penetration in the online world, lack of density that the US works with, long distances-all are factors that need to be considered.

“I’ve tried to whiteboard it, in terms of all the data and touchpoints, and while we have the overall delivery capacity at Home Depot, it’s just they’re all separate delivery models and pieces of equipment. I put that challenge out to every transportation company that works with me, and I have not seen a model yet. I would challenge the transportation community-how do you help us?” Carestia said.


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