Chris Tyas Business Services and Supply Chain Director Nestlé UK & Ireland Richard Widdowson Senior Director of Replenishment Wal-Mart Canada Corporation
European vs. U.S. Distribution
Grocery Distribution The UK v the USA CHRIS TYAS Supply Chain and Business Services Director Nestlé UK & Ireland Co Chair ECR UK Vice Chair GS1 UK
Visitors To The UK 1. Never Been 2. Yes, but once was enough 3. Several times 4. Yes, and I would like to move there
Four Objectives What the UK Retail and Grocery scene looks like in comparison with the US How this impacts the Supply Chain What the key developments in the Supply Chain are How they compare with the US and what can we both learn
How do our Countries Compare UK US Population 60.6m 302m Area 0.24m 9.6m Sq Kms Sq Kms Density/Km 250/Sq 31/Sq Km Km The UK is a small relatively densely populated island
The UK has prospered in recent years 2007e UK GDP Growth 2.8 2.2 US GDP/Head $69,000 $48,000 Inflation Consumer Prices 3.0% 3.6% Food Prices 1.5% 1.8% Unemployment 2.5% 4.8%
Grocery Retail Market Sizes 2007e Country Top 10 Global Markets Grocery Retail Market (US$bn) 1. USA 785.85 2. China 450.14 3. Japan 394.45 4. France 278.33 5. United Kingdom 249.2020 6. India 249.11 7. Germany 192.92 8. Russia 188.02 9. Italy 165.64 10. Spain 130.51 The UK market is 20% of the size of the US with 20% of the population and 2½% of the land mass
The UK has the highest fuel prices in the developed world 120 100 Fuel price, diesel (ppl) 80 60 40 20 0 2003 2004 2005 2006 2007 UK France Germany Italy Spain USA Source: AA, December 2007 Shows comparison of prices for diesel motor fuel, in UK currency, at exchange rates then applicable, for garages & supermarkets
Although UK mileages are low 40% of Product is sourced outside of the UK Eastern/Central Europe is a growing g supply centre Supply Chain is made more complex by: - Sea Routes - Different Pallet Sizes - Currency Changes - Different Transport - Regulation
The Top 4 Retailers have over three quarters of the Grocery Market 0.7% 1.8% 2.3% 2.7% 3.7% 3.9% 4.4% Tesco Asda 31.5% Sainsburys Morrisons Somerfield Waitrose Aldi 11.4% Lidl Iceland Netto Total Coops 16.4% 16.7% Others Source: TNS Worldpanel, 12 weeks to 30 Dec 2007
The Grocery Retail Market Supermarkets dominate but Convenience Grows Very Fast Other Forecourts/Convenience Hard & Soft Discount Superstores/Supermarkets Hypermarkets 9,000 8,000 7,000 62 81 105 124 145 162 Store Numbers 6,000 5,000 4,000 3,000 3,544 3,617 629 648 4,157 676 4,180 4,121 691 752 4,176 801 2,000 1,000 2,949 2,936 3,040 3,236 3,313 3,481 0 2002 2003 2004 2005 2006 2007e Source: IGD Datacentre Note: The Co-operative Group s and United Co-operative s pharmacy, travel and funeral businesses are excluded
Growth in convenience brings additional pressures The convenience sector is growing rapidly The major multiples are driving this growth through format expansion Specific pressure on availability & congestion
Selling Space has to Work Hard in the UK UK Sales/Square/foot $40/sq foot $10/sq foot US
High Selling Space Density has particular Challenges Store stock turns are high Back room space in store has almost disappeared Direct to Store is limited to fresh milk only M i t i i h lf il bilit 24/7 h i i Maintaining on shelf availability over 24/7 shopping is particularly difficult
Home Shopping Still Growing Strongly in the UK 1.8% of Total Grocery Sales worth $4.7bn Top 3 Players all involved (Tesco, Asda, Sainsbury) plus Waitrose Ocado Two Different Models Pick from Retail Store Tesco, Sainsbury, Asda Specialist Picking Centres Ocado
The UK is still Primarily a Promotion Led Market 40% Plus Sold on Deal BOGOF (Buy One, Get One Free) and 3 for 2, Price Bundling Common Managed on a replenishment basis, not fixed volume buy Multiple Displays Common Promotions usually short term 2-4 weeks and variable volume - needs a reactive Supply Chain - close collaboration retailer/suppliers - good use of technology
The Environment has placed our Industry in the Eye of Media, Consumers and Politicians Carbon emissions from food transport continue to soar Food miles soared by 31% in a year How far does your vegetable travel? Pollution through food imports increases
DEFRA (Department Food Environment Rural Affairs) Food Industry Sustainability Strategy FISS Based on: Grocery Industry responsible for 25% all environmental cost Average Industry Vehicle Utilisation is 50% Main Challenges 20% reduction in Environment costs by 2012
What does this mean for the Grocery Supply Chain in the UK A highly competitive, highly efficient retail trade Labour is expensive and at a premium in many areas. Consumers expect high levels of availability across a wide product selection 24/7. Inventory levels are low throughout the Supply Chain driving frequent small deliveries Collaboration between retailers and major suppliers is high Congestion is high causing Supply Chain complexity and strong government and consumer pressure
Merchandising Formats are Key
Retail (Shelf) Ready Packaging has grown to cover some 80% of Grocery SKU s
Shelf Ready Packaging has been Built around 5 Industry agreed Easy to Principles Easy ID Easy Open Easy Replenishment Easy Dispose Easy Shop
Cross Industry Collaboration is high - Nestlé is a Leader in this Area High Levels of Customer Implants Full Time Nestlé Colleagues in Asda House, Tesco and Sainsbury s Head Office Significant business benefits, joint KPI s and improved mutual understanding High Levels of VMI/CPFR Forensic focus on Nestlé SKUs Forecast to Fixture Reduced Surprises High Levels of System Visibility Retail Link All the information i you need to manage your business FREE Tesco Link
Collaboration in the Distribution area is particularly high 28 million miles taken off the road in 2007 Manufacturer to Manufacturer collaboration on vehicle utilisation Retailer to Retailer collaboration on vehicle utilisation Retailer to Manufacturer collaboration on vehicle utilisation
Nestlé and Asda (Wal-Mart) have a very close working relationship which has brought strong Business Results Double digit i sales growth Improved Inbound Service and In-stock in stores Rd Reduced d Inventory levels l Trusted & Reliable partners
The UK v the USA Richard Widdowson Senior Director of Replenishment Wal-Mart
The UK vs. The USA cont Land Area 3,537,000 sq miles 93,000 sq miles Population Density 78 people/sq mile 640 people/sq mile Labour Cost (Gross Average) Land Cost (Indicative) $17,500 per annum $24,700 per annum $25,000 per acre >$440,000 per acre
Highest Sales per Sq/Ft 1. China 2. Japan 3. United Kingdom 4. United States
Top 10 Stores Sales per Sq.Ft? GLOBALLY 1. 2. 3. 4. 5. 6. 7. 8. UK UK UK UK UK UK UK UK 9. UK 10. UK
The US Supermarket An average store receives 3-5 trucks per day The UK Supermarket An average store receives 10 12 trucks every day:- 7-8 Asda trucks 3-4 Direct Deliveries
The US Network 147 Distribution Centers by the end of this year: 42 General Merchandise DCs 42 Grocery DCs 22 Sam s General Merchandise Cross-Docks 10 Walmart.com facilities 10 Import facilities WMT, Sam s, & Food 8 Professional Services DCs 7 Apparel DCs 6 Return Centers Over 100 million sq ft distribution space 90,000 associates Shipping over 5 billion cases of Food, Apparel and GM
The UK Current Network 8.2 million sq ft distribution space 13,200 colleagues 1,015 million cases of Food distributed per annum 245 million items of clothing per annum 87 million cases of GM per annum 917,000 store deliveries per annum
The Challenges High volume High cube Limited store backroom space Limited distribution space Frequency of Replenishment on the Shelf
Overcoming the Challenges..in an Environmental and Sustainable Way. Renewable energy and energy saving technologies DC Construction Transport
The Solutions Fewer Miles Greater, heavier vehicles Utilize the Cube 2 MILLION MILES SAVED A YEAR
The Solutions Fewer Miles Transport collaboration Primary Consolidation Established networks for LTL since 2003 Perishables, Frozen, Dry Grocery and General Merchandise 10% of Total Inbound now through Asda Consolidators 55% of Total Chilled Inbound through h Consolidators to Asda CDC s 6 MILLION MILES SAVED A YEAR
The Solutions Fewer Miles Transport collaboration Empty Miles 40% of Asda Outbound loads bring back reverse logistics 10% of Asda outbound loads collect a backhaul already Collaborate with us to take out empty miles:- Front-haul you deliver for us on your way home Back-haul we collect form you on our way home Consolidation for your LTL shipments
The Solutions Fewer Miles Logistics infrastructure design Food network re-mix in 2005 25% reduction in miles per case Now Non-Food New GM DC Re-mix in clothing networks Flexibility by design Reduced inventory Frequent deliveries Smaller shipments A FURTHER 4 MILLION MILES TO SAVE
Is there another way
Canadian Transportation Average distance from a DC to a Store = 675 km or 420 miles 120,000 store deliveries per annum 215,000 pick ups per annum On average 920 loads on the road at any time
Results to Date Sustainability scorecard Engaged Natural Resources Canada 3 Carrier & 3PL conferences Moved 16 stores from Road to Rail Savings of 7.5 million kilometers Insulated trailers Diesel generators to electric power Idling gprogram Bio diesel tests And more to come.
Is there another way
Is there another way
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