With the threat of Amazon’s Whole Foods business on their minds, executives at Wal-Mart and Kroger, two of America’s largest grocers, are focusing on driving down costs so they can better compete on price.
To increase efficiency, the grocers are targeting late deliveries.
According to the Food Marketing Institute, grocers are losing $75 billion a year in sales thanks to out of stock products and other unsalable items. That makes suppliers The Wall Street Journal reports:
The country’s biggest grocers are increasingly demanding their suppliers deliver on time, imposing fines for late shipments as they try to keep customers satisfied and better compete with online retailers like Amazon.com.
Kroger Co. is fining suppliers $500 for every order that is more than two days late to any of its 42 warehouses, and Wal-Mart Stores Inc. is charging suppliers monthly fines of 3% for deliveries that don’t arrive exactly on time, according to the retailers. They began issuing most fines in August.
Retailers used to give suppliers more leeway, since any number of factors—bad weather, a surge in demand, technology malfunctions—can foil deliveries. But sales of some $75 billion a year are lost because products are out of stock or unsalable for other reasons, according to the Food Marketing Institute, a trade organization. That is about 10% of annual grocery sales industrywide at a time when margins are squeezed and sales growth is hard to come by.
“It’s a massive opportunity from a financial and customer standpoint,” said Robert Clark, senior vice president for merchandising at Kroger, the second-largest U.S. grocer by sales.
The issue is a costly one for suppliers, as making necessary improvements to meet tighter delivery windows is time-consuming and complicated. Sellers, such as Kraft Heinz Co. ,Hershey Co. and Procter & Gamble Co., have made significant investments in their supply chains that in some cases are squeezing profits in the short term.
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