Retail Supply Chain Management. 3. Cold Chain for Grocery Items

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Retail 3. Cold Chain for Grocery Items page 1

Objectives Understand the importance of cold chain to retailers Learn the development and current status of cold chain in China Identify the major problems and opportunities in the development of cold chain in China page 2

Cold Chain in China 1 Cold chain is a temperature-controlled supply chain. Uninterrupted series of storage and distribution activities which maintain a given temperature range. It includes transportation, load and unload, processing, storage, and selling 1 : Information source: China Franchising & Chain Store Association (2009), Investigation Report on Supermarket Chains Fresh Food Supply Chain. page 3

Why Cold Chain? Some products needs cold or frozen storage Frozen food, milk, and tofu etc. Extend the shelf life of fresh food Prevent loss and improve food safety 20%-30% food loss occurs in transportation or storage page 4

The Relationship between Temperature and Shelf Life Product Transportati on Shelf Life (at 1 o C) Shelf Life (at 3 o C) Shelf Life (at 5 o C) Meat 2.5 days 7 days 5.5 days 4.5 days Sea Food 2.5 days 5 days 3 days 1 days Strawberry 2.5 days 10 days 7 days 3 days Salad 2.5 days 12.5 days 10.5 days 7.5 days page 5

Why Cold Chain? Increase sales and profit Jingkelong supermarket built up fresh food distribution center in 2006. The sales and gross profit of vegetable and fruits increased 50% and 5% respectively Gross profit of pork increased 4-6% page 6

page 7

Cold Chain in China Overview Integrated cold chain is rare in China Cold chain breaks when unloading products for 20-30 mins Food needs cold or frozen storage 90% retailers use cold chain. Cold chain is broken in some links. Fresh agricultural products Mostly transported and sold in normal temperature. The rotting rate is 35% for fresh food; 10%-15 % for meat and fish 5% in developed country; 3% in the U.S page 8

The Sources of Food Loss Others, 14% Upload & Unload, 14% Sort & Pick, 29% Transportation, 43% page 9

Treatment for Food Loss Re-processing, 29% Loss, 57% Return, 14% page 10

Centralized vs. Store Purchasing Store Purchasing, 7% Both, 4% Centralized Purchasing, 89% page 11

Sources of Fresh Food Farmers, 16% Both, 55% Wholesalers, 29% page 12

Temperature Check Others, 3.30% Touch and Sight, 35.16% Surface Temperature, 23.08% Refrigerated Truck Temperature, 21.98% Center Temperature, 27.47% page 13

Distribution Centers of Supermarkets No Fresh Food Distribution Center, 20% Fresh Food Distribution Centers are under Construction, 15% Already Have Fresh Food Disbribution Center, 65% page 14

Distribution Center Fresh Food Distribution Center Relatively small <5,000 m 2, 75% < 500 SKUs, 68% Short of high quality refrigerated warehouse Lack of functions No processing, 57% page 15

The Size of Distribution Centers 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% <1,000 m2 1,000-5,000 m2 5,000-10,000 m2 >10,000 m2 page 16

Transportation Mainly use suppliers or third party for distribution. 0.3% refrigerated trucks 15% fresh food was transported using refrigerated trucks in China; 90% in the developed countries 80%-90% fruits, vegetables, meats and aquatic products are transported using normal trucks. page 17

Transportation (Cont.) 29.67% retailers own refrigerated trucks 36.26% use suppliers refrigerated trucks 13.19% use the third party refrigerated trucks rented by suppliers. 5.34% use the third party refrigerated trucks rented by supermarket. page 18

Business Model for Selling Vegetables and Fruits Mainly Selfrunning, 43% Purely Selfrunning, 37% Mainly Jointrunning/for Rent, 15% Purely Jointrunning/for Rent, 5% page 19

Consumers Preference regarding Different Retail Formats 2008 46% 44% 7% 3% 2007 51% 42% 4% 3% 2005 28% 58% 8% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Hypermarket Supermarket Convenience Store Free Market page 20

Sales of Fresh Food/Total Sales >20%, 15% <10%, 40% 10%-20%, 45% page 21

Other Issues about Cold Chain in China No industry standard and regulation Management problems Low efficient in loading and unloading page 22

References Zheng, Zhigao and Xueling Yi (2006), A Comparative Study of Sino-Foreign China Retail Inustry, Journal of Guangdong Institute of Business Administration, 21(4), 66-69 China Supplier Research Center, 2009, A survey Report on the Survival Situation of Suppliers in China. Chinese Retail Research, 1(2), 109-131 page 23