Serving up a logistical philosophy

As the grocery trade watches its slice of the food market slowly being eaten away, gurus are serving up a new philosophy – ECR. Some marketers claim its restructuring powers will bring greater efficiency and even promote growth – but cynics fi

A dramatic reorientation is under way in the UK grocery industry. Psychologically, it’s got something to do with the fact that many of the old guard – pivotal people like Sainsbury’s Tom Vyner, Tesco’s Sir Ian MacLaurin and Safeway’s Sir Alistair Grant – will all be retiring in the next year or so.

More fundamentally, a once-in-a-generation sea change in attitudes is sweeping the industry’s leading players. As Bird’s Eye sales director Tony Pearce remarked last week, “there’s a buzz in the air”.

He should know. With Tesco’s Graham Booth, he co-chairs the initiative that’s bringing the strands of change together, and is already becoming a symbol of the industry’s spectacular change of heart, which has become known as Efficient Consumer Response (ECR).

Last week, the Institute of Grocery Distribution formally launched the UK’s ECR initiative at a packed conference in London. Over the next six weeks, a strategy group – including retailers such as Sainsbury’s, Tesco, Safeway, Asda, Somerfield and Marks & Spencer, and manufacturers like Procter &Gamble, Lever, Heinz, Nestlé, Kraft Jacobs Suchard, Mars, Johnson & Johnson and United Biscuits – will be launching a series of pilot projects. They will be designed to prove that not only can ECR principles make the UK grocery industry more efficient but – the holy grail – that it can actually power business growth.

Traditionally, ECR has been seen as something for the logistics boffins. If the UK initiative works as planned, its core focus will be marketing and category management. In other words, how to make promotions more profitable for both manufacturer and retailer, how to cut the failure rate of new product launches by working together, and so on.

Cynics say ECR is just a fashionable buzz word, consultant-speak for the same old initiative that surfaces every few years under a different guise. But they miss the point. ECR’s power lies precisely in its capacity to bring previously isolated pieces of the jigsaw together to create an integrated picture.

Take a simple example. No Marketing Week reader has actually done it, of course, but sometimes the lean, mean, just-in-time logistics boys have been so brilliant in their efficiency drives, and marketers so excellent at their promotions, that they end up slapping each other in the face. Ultra-lean inventory, plus a super-successful promotion, equal an out-of-stock disaster. Two separate projects, both of which score ten out of ten when viewed in isolation, manage to score minus 20 when put together.

ECR’s “total system perspective” is designed to tackle this sort of problem. And crucially, both sides of the divide must work together. It was intriguing to hear Tom Vyner lecture the IGD’s manufacturer-dominated audience last week about the need for common databases for better forecasting and “more honest, open and accurate” communications.

If that’s really on the agenda, every brand manager, marketing director and conference organiser will soon be jumping on the bandwagon. But before ECR becomes the industry’s most hated and over-used acronym, take a pause for thought.

First, in a sense, it is nothing but a belated echo of the partnership sourcing, just-in-time and total quality management (TQM) theories that transformed other industries long ago. The concepts are old, not new. Indeed, ideas like organisational responsiveness and agility don’t fit easily with long-term strategic partnerships, argue some gurus. Likewise, turbulent markets and lean supply chains don’t always mesh. In Japan, Toyota – the arch-exponent of just-in-time – is now increasing its stock levels, not cutting them.

Second, in the UK at least, the leaders of the ECR initiative could be biting off more than they can chew. In other countries, companies have targeted the low-hanging fruit of logistics in order to build working relationships and trust. The US Food Marketing Institute (FMI) has set a target of a 30-day supply chain inventory by 2005 compared with today’s average of 104. At 28 days, the UK has already beaten that target. Here, the real benefits will only flow when the more remote fruits of marketing are reached. Yet this is precisely where most of the conflict and mistrust lies.

Third, by concentrating too much on ECR, marketers are in danger of having their horizons narrowed, not widened. The FMI suggests that while today’s grocery industry is focused almost entirely on efficient store replenishment, the real issue as far as consumers are concerned is efficient home replenishment.

That opens up a whole new can of worms, only one of which is “home shopping”. In the US, over half the total consumer spend on food is now spent outside the grocery trade, through channels such as fast food, home delivery, restaurants and office canteens. This, according to the Coca Cola Retailing Research Group’s new report, The future of the food store, is “a near crisis-level loss of market share”.

In Europe, there is a similar trend. Some marketers, such as Nestlé, are tackling it. Its food service division – once regarded as a third-class citizen compared with brand management – is now the subject of a strategic push. The idea is to offer Nestlé food and drink “whenever, wherever” consumers want it.

Yet most marketers are either mesmerised by those conference charts that show the increasing concentration of power within the grocery trade, or they spend their time fiddling with Internet sites and congratulating themselves for being at the cutting edge of “innovation”. Meanwhile, the real innovators in other, more consumer-friendly, channels whip the rug from under their feet.

ECR is one response. It recognises, a decade or so late, that brand manufacturers and retailers need to row in the same direction. At least you get somewhere that way. Which is why it’s essential that brand marketers get to grips with it – fast.

But don’t let hype take over. For brand and retail marketer alike, it’s not a panacea.

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Multiples now hold 70 per cent of the fresh-food market, and this will continue to climb as a result of demographic changes. By Giles Shapley. Giles Shapley is client services director at Taylor Nelson AGB