Retailers need to better predict demand and automate replenishment decisions for competitive advantage.
Fresh product availability and supply chain were put firmly under the spotlight last week as leading UK supermarkets began rationing vegetables and salad products due to bad weather in the Mediterranean.
Floods, snow and storms in southern Spain, where many of the UK’s vegetables are sourced during the winter, have impacted supplies.
Both Tesco and Morrisons put caps on the number of iceberg lettuces shoppers could buy per visit (three), while Asda followed suit by banning bulk buying of broccoli, courgettes, cabbages and aubergines.
Grocers also blocked online sales of vegetable and salad products to better manage supplies to their stores, protecting their key selling channel.
The lack of availability has seen prices rocket in the UK and also on the Continent. In Germany, for instance, broccoli was retailing at nearly €4.00 per bunch last week, three times the usual price.
In the UK, the price of iceberg lettuces has increased by 29% from January 2016 (£0.87) to January 2017 (£1.12), according to a survey of 500 convenience stores, who use Epos Now technology.
And, with supplies of Mediterranean vegetables not expected to return to normal until April, grocers could struggle to keep their brand promise on price and availability; with price rises dinting customer trust and short supply driving shopper promiscuity as people decide to shop around.
But product rationing and the curtailing of shoppers’ purchases via price increases need not be the answer, especially in a key category such as fresh which drives 40% of grocery revenues, according to a recent McKinsey report.
Instead, retailers should turn to machine learning technology to improve their demand management capabilities; especially on complex assortments like fresh, where balancing availability and waste needs more precision in order to compete profitably.
“Fresh inventory is always finite,” explains Matt Hopkins, VP Retail Industry Go-To-Market at Blue Yonder. “Retailers need to rapidly respond to customer demand on fresh assortments daily, while maintaining control of key KPIs such as wastage and availability. Currently, they are either rationing through poor customer demand predictions or throwing products away, which is the flip side of the problem.”
According to Hopkins, the ‘courgette crisis’ (UK retailers lost over £2m in courgette sales during January, the latest IRI data shows) has highlighted the importance of fresh assortments to grocery shoppers; while the recent supply chain issues have underscored the need for investment in next-generation supply chain capabilities for fresh replenishment. In addition, the challenge of supply variability is being compounded by increased competition and ever-changing customer demand. “Every day grocery retailers deal with a finite amount of fresh supply,” says Hopkins. “Retailers need to manage customer demand and replenishment decisions at store level with more precision in order to effectively control local fresh assortments, while also managing wastage and profits.”
Blue Yonder Replenishment Optimization, an industry-leading machine learning solution, can simultaneously optimize availability and wastage, while automatically considering other demand factors such as weather, prices, promotions and seasonality, to drive even greater profit increases in every fresh item replenishment decision. In the challenging grocery market environment, where leading retailers are competing on availability and price, and especially in fresh foods, this will be key moving forward. The growing consumer trend to healthy eating and interest in food provenance and traceability will also increase the pressure on retailers to get this right in the longer term.
“The supply chain for fresh must be fit for purpose and for that you need to calibrate customer demand with trading KPIs in every decision. Machine learning will be a key enabler in creating competitive advantage going forward,” Hopkins says. “The retailers who get fresh replenishment right will be the winners in these challenging times.”