Scott Annan emphasises the urgent need for wholesalers to leave behind the ‘brown box’ mentality
Did Microsoft consider that the online bookshop Amazon would end up leading cloud computing? How did city taxi firms allow a Californian tech start-up to reduce their margins? And why did the global phone companies lose their domination of mobile communications to Facebook and WhatsApp? These businesses considered their direct competitors to be the threat and did not see the threat from other industries. Traditional wholesalers are aware of the challenges posed by market consolidation and the need to adapt to retain and gain customers. However, many grossly underestimate the risks posed to their businesses by Amazon, Co-op, Morrisons and Tesco wholesaling with lower pricing, fresher produce and proven demand for chilled & fresh food.
Those who signed the recent letter to the Competition and Markets Authority regarding the Booker/Tesco merger were perhaps hoping for a lifejacket for their current business model, described by one as “moving brown cardboard boxes for a margin”. These UK grocers are following a road well-travelled by Edeka Group in Germany and by the world’s two largest convenience retailers in Japan.
Amazon’s retail strategy is simple: use top-notch customer service and data to disrupt and disintermediate traditional industries to acquire all the value in retail, services and, increasingly, food. Disruption removes middlemen from supply chains by directly providing goods and services. The barrier between online and real stores ended with Amazon’s purchase of Whole Foods – Amazon Fresh invites us to shop with Morrisons, Whole Foods, Booths and local shops and markets.
Alibaba, the one company that Amazon fears, is yet to disintermediate UK wholesalers in the way that is commonplace in its big Asian markets. It may not be the one to do it here, but the ‘do it differently’ model is out there, so someone will.
Japan’s 50,000 convenience stores, 90% of which are independent retailers, moved in the 2000s from being supplied by wholesalers to dedicated retailer distribution centres and daily fresh food factories. Fresh food delivered three times a day is 50% of sales.
About 70% of fresh food sold by retailers in the Independent Retailer Owners Forum (IROF) is made in-store from directly sourced ingredients. Fresh food is highly profitable, as consumers want unique, local products served by engaged staff. However, too many wholesalers’ focus is selling and promoting packaged products, which are just 10% of store sales.
Convenience retailers have a thousand opportunities to sell food and drink to every one of their customers, as we all eat and drink every day. But customers abandon stores with poor fresh food, regardless of whether these shops have a curated household and laundry range. Packaged grocery products are increasingly conveniently purchased online and significantly cheaper elsewhere.
In October, the IROF will visit Sheetz, the leading independent US convenience retailer. Sheetz’s vision is ‘to create the business that will put Sheetz, as we know it today, out of business’. Sheetz is focused on ways to make its business even more successful. There is a big learning here for traditional wholesalers.
More independent retailers are producing their own proprietary food. Amazon is just getting started on ambient and fresh. To remain relevant, traditional wholesalers must get seriously fresh and leave the brown cardboard boxes to somebody else.