Many Rretailers Unprepared For Supply Chain Disruptions

Research performed by Debra Chanil

A new study from Progressive Grocer's Store Brands magazine study suggests that many of today's supermarket retailers are not well-prepared for a supply chain interruption related to their private label suppliers.

According to the survey-based study, which Progressive Grocer's Store Brands developed in consultation with BIGfrontier Communications Group, a Chicago-based food marketing consultancy and campaign specialist, only 51 percent of retailer respondents indicated that they contract a second supplier for the same product to ensure disruptions are covered. More than three-quarters of respondents (76 percent) said they sometimes work with brokers and/or distributors to locate an alternate source during an interruption, while 67 percent sometimes rely on warehouse inventory to fill in the gaps.

Chains with fewer than 200 stores are more likely to work with brokers and/or distributors to find an alternate source than are larger chains (84 percent vs. 67 percent), and also are more likely to rely on warehouse inventory (72 percent vs. 62 percent). Larger chains, meanwhile, are more likely than smaller chains to have a second supplier already in place (62 percent vs. 42 percent). See Table 1.

Supplier innovation not so important

And although many of today's retailers have been talking up the importance of innovation on the store brand side, that attribute came up second to last in importance when respondents were asked to rank a list of seven attributes related to private label supplier selection. Only merchandising support ranked lower. Meanwhile, the respondents counted product quality as the most important attribute in supplier selection, followed by price. See Table 2.

When asked to rate their current suppliers' delivery on each of the attributes, product quality once again came out on top, followed by price. But although respondents chose "achieving sales volume goals" as the third-most-important attribute in supplier selection, they rated existing suppliers much lower on their ability to deliver here in comparison to product quality and price. See Table 2.

We also asked respondents to compare their private label suppliers' performance to the national and regional brands on delivery of the same attributes. They gave much higher marks to the private label suppliers on price, with 78 percent saying they do a better job than the national and regional brands here. They also gave store brand suppliers a slightly higher rating than the national and regional brands on inventory maintenance. But the respondents said the national and regional brands do a better job than store brand suppliers in delivering the other five attributes — particularly in the areas of product mix, merchandising support and innovation. See Table 3.

Satisfaction varies by category

Not all store brand suppliers are equal in terms of attribute delivery; those in some categories perform better than those in other categories. When asked to rate their current private label suppliers by category (with a choice of nine commonly offered store brand categories), respondents gave the highest marks to canned fruit and vegetable suppliers, followed by refrigerated dairy product and ready-to-eat cereal suppliers. The lowest ratings went to paper goods, coffee and tea, and salty snack suppliers.

With the exception of the canned fruit and vegetables and shelf-stable juices categories, respondents representing chains with 200 or more stores scored suppliers higher than those representing chains with fewer than 200 stores. See Table 4.

Perhaps not surprisingly, respondents selected "looking for better product quality" as their top motivation for looking for a new store brand supplier, with "needing new products/specifications that the current supplier does not offer" coming in second. But although respondents ranked price second in importance among the list of attributes critical to supplier selection, that attribute came in dead last as a motivation for changing or adding new suppliers. And chains with fewer than 200 stores were much more likely to list a better price as a motivating factor than chains with 200 or more stores (92 percent vs. 67 percent). See Table 5.

The study was performed during the summer of 2012; respondents represented areas across the United States and were almost evenly split between retail operations with more than 200 operating units and retail operations with fewer than 200 operating units. For a copy of the complete report, contact Steve Lundin, research director of BIGfrontier Communications Group, at [email protected].