With growing consumerism and fierce competition in food & beverage retail space, companies can gain competitive advantage by adopting modern supply chain technologies
A report titled “Retail 2020: Retrospect, Reinvent, Rewrite” published jointly by Retailers Association of India and Boston Consulting Group states that India’s retail market is expected to reach US$1 trillion in 2020 from US$600 billion in 2015. The same report further suggests that while the overall retail market will grow at 12% per annum, modern retail will grow incredibly at 20%. While food & beverage retailing constitutes the lion’s share, i.e. 69% of the retail market pie, the organised food & beverage retail companies constitute a meagre 3% and the unorganised retailers comprise 97%. This means there is a huge scope for organised food & beverage retailing in India to grow and capture the market.
Given the demographic dividend in India with reference to urbanisation, rising incomes, brand-consciousness, mobility, and connectivity, Indian retail industry in general and food & beverage retailing in particular will experience a high octane growth trajectory. Whether these retailers run offline or online business, the success of their business largely depends upon how they enhance consumer shopping experience. This can be achieved by delivering the goods at the right time at the right place apropos the customer requirements. Simple though it may sound, it needs appropriate technology enablement so that they can predict consumers’ demand and deliver products without delay or disruption in the supply chain. It’s thus critical for them to focus on supply chain efficiency as well as understand the various supply chain challenges and plan to mitigate those.
Supply Chain Challenges Faced by F&B Retailers
From farm to table, the food raw materials passes through processing to warehouse and then to retail stores. Stakeholders including farmers, wholesalers, food manufacturers, distributors and retailers play a significant role while ensuring uninterrupted supply of finished products to consumers. Let’s understand how certain supply chain challenges impact the business.
Food & beverage products have short shelf life. If retailers add excess inventory, it not only increases the capital expenditure but also the risk of perishability slashes profitability. In India, the unavailability of integrated cold storage chains also play a critical role in food & beverage retail business. When products are transported from a distant cold storage warehouse, the duration of transit can sometimes become so long that when products reach the retail stores their shelf life nears expiry. If the products are not sold before expiry date, the chance of wastage of foods increases.
According to World Economic Forum (WEF), almost 95% of food waste arises from supply chain inefficiencies in poorer countries. A WEF report suggests that supply chain inefficiency contributes to 1.3 billion tonne of food loss every year. This indicates why modern food retailers should focus on improving their supply chain efficiency and reduce losses.
Merchandising is an important aspect of food & beverage retailing. Maintaining thousands of stock keeping units (SKUs) along with various permutations and combinations make it more complex. Sometimes, retailers fail to ensure the right products in right quantity at stores. When consumers realise that a retailer does not satisfy their needs they shift to another retailer. This increases lost sales. When retailers maintain store availability in excess, their inventory cost rises, which in turn impacts business competitiveness.
While it’s not quite difficult to mitigate the supply chain challenges, it’s required by food & beverage retailers to understand how they can build and increase supply chain efficiency.
How Supply Chain Efficiency Can Be Created?
Supply chain efficiency stems from the collaboration amongst various retail stakeholders. For example, retailers can gather purchase information from customers by accumulating transaction data. These data sets enable retailers to access smart business insights, which helps them respond quickly to customer demand. To optimise information flow between stores and warehouse, they can rely upon PoS, bar coding, and merchandising data.
Retailers can rely upon collaborative planning, forecasting, and replenishment (CPFR) model to enhance supply chain efficiency. The sharing of forecasting and collaborative planning data between retailers and suppliers (or manufacturers) improves operational efficiency. Collaborative distribution with multiple suppliers can reduce the replenishment period and improve sales growth.
How supply chain efficiency can boost business growth is evident from a report published by WEF. According to this report, 25 global MNCs in food & beverage domain have increased their revenue by 20% and reduced supply chain cost by 16% by adopting sustainable supply chain management practices. For instance, Nestle and PepsiCo have integrated their warehousing, co-packaging and outbound distribution of fresh food products to reduce cost and improve service level agreements.
Supply Chain Technology Enablement and Benefits
While the success of supply chain efficiency is a matter of how stakeholders in food & beverage industry collaborate amongst themselves, the retailers can explore new technologies that provide supply chain innovations in their enterprise resource planning (ERP) system. It’s also important for them to adopt and follow the industry best practices such as technology standardisation and business process integration across the various supply chain nodes. Here are some positive outcomes that food & beverage retail companies can expect from technology enablement:
?Improve store efficiency and enhance consumer shopping experience through effective merchandising: From numerous successful retail supply chain solution implementations in food & beverage industry, Tectura observes that supply chain innovation through technology enablement can provide the visibility and control over every aspect of retail business. With a smart and flexible retail solution, retailers can plan and execute an effective merchandising strategy that ensures the right products are available in the right channel, at the right time. An effective merchandising strategy not only enhances store efficiency but also enhances consumer shopping experience. Whether it’s online or offline shopping, easy discovery of products reduces lost sales and increases add-on sales.
?Optimise inventory by improving replenishment: While replenishment is a critical aspect of retail supply chain, many retailers fail to understand its contribution to growth of top line and customer satisfaction. According to a report published by Retail Economics, 1% out-of-stock results in 0.5% lower turnover. Retailers can integrate an advanced replenishment module with their enterprise resource planning (ERP) system thereby empowering their purchasing personnel to provide informed decisions. They can also optimise inventory levels and lower holding costs and improve replenishment speed, making consumers satisfied.
?Increase sales through targeted marketing: It’s a well-established fact that analysis of web traffic data can help retailers influence their in-store purchases. This data can accelerate more targeted marketing campaigns and would boost higher sales.
?Reduce product wastage: Supply chain efficiency reduces demand-supply disruptions and ensures the products required by the consumers reach them before expiry. A first-in-first-out (FIFO) model can help retailers maintain the shelf life of products efficiently and minimise product wastage.
Conclusion
Whether it’s organised or unorganised retailing in food & beverage industry, the opportunity for businesses to capture the largest pie of US$1 trillion Indian retail industry is promising. What they fundamentally need is to adopt modern supply chain technologies and embrace industry best practices to keep them competitive. Eventually the success in food & beverage retailing depends upon retail companies perceiving consumers’ expectations and becoming responsive to meet those with technology adoption.
