US Grocery Supply Chain - Progressive Grocer

1

US Grocery Supply Chain

November 2019

Research for Research partner

2

Background & Research Methodology

Notes for the Analysis

Survey Results:

I. The Importance of Fresh

II. Demand Forecasting

III. Auto Replenishment

IV. Distribution Center Forecasting

V. Willingness to Invest in New Systems

VI. Competitive Environment

VII. Survey Participant Classification

VIII. Appendix: Comparison of Current State of Retail And Supply Chain Planning Systems

Table of Contents

3

Background

RELEX Solutions needed to quantify grocers’ supply chain challenges, opportunities, and current approaches. For example: How important is AI/machine learning to current planning. Is it on grocers’ horizon if they’re not currently using it?

Results will inform RELEX strategies for marketing and communications with current and potential customers. Additionally, content will be used in direct communications with retailers through the leading grocery industry publication, Progressive Grocer.

Research Methodology

EnsembleIQ conducted an online survey with grocers who met the following criteria:

• $250M+ in revenue

• Individuals in supply chain and inventory management roles

• Manager, Director, VP/Sr. VP, C-Level/President

• Work at or report into corporate office (not store level)

A total of 54 grocers participated, representing large grocers including, but not limited to:

Price Chopper Supermarkets

Publix

Ralphs

Stater Bros

The Save Mart Companies

Woodman’s Markets

Alberton’s

Giant Food

Houchens Industries

King Soopers

Market Basket

Meijer

4

• Grocers operating online only skipped questions that are not applicable to their business model. Additionally, language varied on some questions for online-only grocers. Question language is noted on applicable pages in this report. For further detail, please refer to the full questionnaire document.

• The first wave of this survey was conducted one year ago (2018). Though results for 2018 are not included in this report, it’s notable that in some instances, survey results in 2019 vary quite a bit from 2018, likely due to a number of factors:

1. 2019 only included grocers, while 2018 included some convenience store chains as well

2. Varying representation of grocer and participant characteristics:

• 2019 included more C-Levels/Presidents and Managers, while 2018 included more Directors and VPs/Sr. VPs

• 2019 included more participating companies with revenue between $250 million - $1 billion, while 2018 included a much higher number of companies with revenue over $10 billion.

Notes for the Analysis

5

The Importance of Fresh

6

It goes without saying that fresh products are important to the grocery business.

Q2. How important are fresh products to your business? (n=54)

fresh products are very important

60% 40%

fresh products are just as important as other product categories

7

But 2/3 of grocers are losing over 1.5% of their annual revenue to expired and spoiled fresh products.

Q3. In relation to your total revenue, what is the cost of expired and spoiled fresh products? (n=54)

9%

<1.0%

22%

1.0% - 1.4%

46%

1.5% - 1.9%

22%

2.0% - 2.4%

8

Demand Forecasting

9

Grocers with both online and brick and mortar presence most often pick orders from distribution centers, dedicated fulfilment centers, or dark stores, but half pick in store as well.

Q4. Which of the following describes your business? (n=54)Q5. Where are items picked for order fulfillment? (n=32)

60%

37%

4%

Combined

Brick and Mortar

Online Only

Participating Grocers

88%

orders are picked from distribution centers, dedicated fulfillment

centers, or dark stores

50%

orders are picked in stores

10

Store-Product-Day is a slightly more popular approach to forecasting sales.

Q6. On what level do you forecast store sales? (among grocers that are not online only, n=52)

52%

store-product-day store-product-week

46%

11 Q6. On what level do you forecast store sales? (among grocers that are not online only, n=52)

52%


46%

among combined brick and mortar + online who pick online orders in storen=16*

separate forecasts for in-store sales and online orders picked in the store

combined forecasts for in-store sales and online orders picked in the store

separate forecasts for in-store sales and online orders picked in the store

combined forecasts for in-store sales and online orders picked in the store

19%

19%

13%

50%

Totaln=52

*small base size, interpret with caution

And in particular, combined store-product-day is most commonly used among brick and mortar + online grocers who pick orders in store.

12

However, store-product-week is most commonly used among combined brick and mortar + online grocers who do not pick orders in store.

Q6. On what level do you forecast store sales? (among grocers that are not online only, n=52)

52%


46%

among combined brick and mortar + online who do notpick online orders in storen=16*

63%

40%

38%

55%

Totaln=52

*small base size, interpret with caution

among brick and mortar only grocersn=20*

13

59% 56% 56% 54% 52%44%

Fresh products Holidays Seasonalproducts

New products Local events* Promotions

About 6 in 10 grocers are confident in forecasting sales of fresh products, but perceptions of efficiency and accuracy are low overall, particularly for promotions.

Efficiency/Accuracy in Forecasting (Top 3 Box)

Mean 7.617.70 7.39 7.46 7.35 7.02

Q7. Please rate how efficient and accurate your forecasting is for each of the following. (*’local events’ among grocers that are not online only, n=52; n=54 for all other forecasting scenarios)

14

While ERP systems/add-on modules are the most popular system for demand forecasting, a variety of systems are being used...

9%

33%41%

17%

<1 year 1-3 years 4-7 years >7 years

Q17. What is the current state of your retail and supply chain planning systems?: Demand Forecasting – Type/Vendor & When Implemented (n=54)

Spreadsheets/ No system

17%

Best-of-breed system24%

Developed in-house

26%

Part or add-on module to the ERP system

33%

…And a majority of grocers have been using their system for several years.

When System Implemented – Demand ForecastingType of System/Vendor – Demand Forecasting

15

Only about 6 in 10 grocers are satisfied with their system and about 8 in 10 have plans to develop or improve their system.

Q17. What is the current state of your retail and supply chain planning systems?: Demand Forecasting – Overall satisfaction (1 to 10) Top 3 Box & Plans for 2019-2020 (n=54)

Mean= 7.63

59%

Overall Satisfaction with Demand Forecasting System (Top 3 Box)

Plans for Improvement –Demand Forecasting System

19%

11%

33%

37%Upgrade current system

Minor development

Investigate replacement system

No plans

16

Specifically, grocers want their forecasting system to…

Q8. Regarding forecasting, what would you like your current system to do that it doesn’t do at present? (n=54)

44% Automatically estimate the effect of cannibalization for non-promoted products

44% Take advantage of machine learning

35% Take advantage of weather data and weather forecasts

70% Automatically consider all relevant factors, such as price change, promotion type, product category and in-store display / and product category, when forecasting promotional uplift *

63% Automatically consider weekday-related variation in demand at the store-product level / product level *

50% Automatically estimate the effect of stock-outs on demand through calculating lost sales

2% None of the above

*Question text varied for online only stores versus all others

17

Auto-Replenishment

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Most retailers claim to have implemented automatic store / distribution center replenishment

re-order points or min-max limits for most of their product range39%re-order points or min-max limits for some product categories 30%forecasts for some product categories17%forecasts for most product categories7%

93% Have implemented automatic store / distribution center* replenishment based on…

Only 7% have not implemented automatic store / distribution center* replenishment and place orders manually.

Q9. What is the state of your [store/distribution center] replenishment? (n=54)


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64% 64%58% 56% 56%

New products Fresh products Center-store /Ambient products*

Seasonal products Promotions

Efficiency/Accuracy in Automatic Replenishment (Top 3 Box)

Mean 7.827.76 7.52 7.82 7.34

Q10. Please rate how efficient and accurate your automatic [store/distribution center] replenishment is for each of the following. (among those who have implemented automatic store replenishment, n=50)

…and those grocers are most confident with replenishment of new and fresh products. Still, there is quite a bit of opportunity for them to increase efficiency and accuracy of auto-replenishment overall.


20

In-house solutions are the most popular type of system used for automatic store replenishment...

10%

33%27%

31%


Q17. What is the current state of your retail and supply chain planning systems?: Automatic Store Replenishment – Type/Vendor & When Implemented (among grocers that are not online only, n-52)

Developed in-house

40%


23%

When System Implemented –Automatic Store Replenishment

Type of System/Vendor –Automatic Store Replenishment

…And many systems are very old

Best-of-breed

system17%

Spreadsheets/

No system19%

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Only about 6 in 10 grocers are satisfied with their automatic store replenishment system, and 85% have plans to develop, upgrade, or investigate replacement solutions.

Q17. What is the current state of your retail and supply chain planning systems?: Automatic Store Replenishment ––Overall satisfaction (1 to 10) Top 3 Box & Plans for 2019-2020 (among grocers that are not online only, n-52)

Mean= 7.38

60%

Overall Satisfaction with Automatic Store Replenishment System (Top 3 Box)

Plans for Improvement –Automatic Store Replenishment System

15%

25%

29%

31%Investigate replacement

system

Minor development

Upgrade current system

No plans

22

Specifically, grocers want their automatic store replenishment system to…

45% Automate store replenishment of ingredients used in products manufactured on-site in stores considering the products’ bills-of-material

45% Level out incoming deliveries to stores for more efficient in-store goods handling

33% Dynamically adjust safety stock levels in accordance with weekday-level variation in demand to maximize on-shelf availability and minimize spoilage of fresh goods

31% Use the same replenishment system for center-store and fresh products

49% Drive orders through all levels of the supply chain based on store inventory needs

47% Automatically consider planogram data in replenishment planning to account for visual minimums and shelf capacity

45% Get timely and accurate alerts of upcoming issues, such as forecasted out-of-stocks or risk of spoilage in stores

45% Have the system automatically select the most appropriate batch size, such as case pack or pallet size, per product and store based on demand


Q11. Regarding automatic store replenishment, what would you like your current system to do that it doesn’t do at present? (among those who have implemented automatic store replenishment and are not online only grocers, n=49)

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Distribution Center Forecasting

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Distribution center forecasts are most often based on planned or projected store orders, but are also frequently based on historical outbound deliveries from the DC or store demand forecasts.

planned or projected store orders

Q12. What are your distribution center forecasts mainly based on? (among grocers that are not online only, n=52)

40%

historical data on outbound deliveries

from the DC

29%

store demand forecasts

31%

25

Distribution center inventory management systems vary...

7%

44%

26%22%


Q17. What is the current state of your retail and supply chain planning systems?: Distribution Center Inventory Management –Type/Vendor & When Implemented (n=54)


24%


Developed in-house

28%


26%

…and tend to be relatively newer systems.

When System Implemented - DC Inventory ManagementType of System/Vendor – DC Inventory Management

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Only 46% of grocers are satisfied with their system and 80% have plans to develop or improve their system.

Q17. What is the current state of your retail and supply chain planning systems?: Distribution Center Inventory Management –Overall satisfaction (1 to 10) Top 3 Box & Plans for 2019-2020 (n=54)

Mean= 7.20

46%

Overall Satisfaction with DC Inventory Management System (Top 3 Box)

Plans for Improvement – DC Inventory Management System

20%

26%

26%

28%Minor development



No plans

27

Specifically, grocers want their distribution center inventory management system to…

46% Automatically consider supplier-related order restrictions, such as full truck load orders, minimum order values or agreed minimum number of pallets, when calculating order suggestions

46% Automatically produce multiple order proposals within a day when needed, based on near real-time inventory management

44% Automate replenishment of ingredients used in manufactured products (e.g. sandwiches) considering the products’ bills-of-material*

57% Automatically consider the effect of planned changes in the stores’ replenishment schedules or assortments on the DC forecasts*

48% Automatically consider batch-level expiration dates and forecasted spoilage for fresh products when calculating order suggestions

48% Calculate out-of-stocks in stores and at DCs caused by supplier availability or delivery issues


Q13. Regarding distribution center inventory management, what would you like your current system to do that it doesn’t do at present? (n=54; except where * notes question was not asked among only grocers, n=52)

28

Space & Assortment Planning

29

Store assortments are most commonly based on store size and customer demographics.

Q14. What are your store assortments based on? (among grocers that are not online only, n=52)

58% 58%

48%42% 40% 38%

Store size Customerdemographics

Store format Store location Other clusteringof stores

Stores can offersome localproducts

Store Assortments are Based On…

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And while few are ‘highly compliant’, a majority are at least 75% compliant with planograms.

Q15. What is the level of planogram compliance in your stores (i.e. to which extent are planograms implemented in your stores)? (among grocers that are not online only, n=52)

About 1 in 3 grocerswould like their system to monitor planogram compliance

4%

69%

23%

4%

> 90% 75 – 90% < 75% We do not useplanograms

Planogram Compliance

31

11%

31%37%

20%


Q17. What is the current state of your retail and supply chain planning systems?: Assortment Management –Type/Vendor & When Implemented (n=54)

Spreadsheets/

No system13%

Developed in-house

28%


41%

…And many grocers have been using their system for several years.

When System Implemented – Assortment ManagementType of System/Vendor - Assortment Management

Best-of-

breed system19%

ERP systems/add-on modules are the most popular system for assortment management...

32

A majority of grocers are satisfied with their assortment management system and about 60% have no plans or only minor development plans for modification.

Q17. What is the current state of your retail and supply chain planning systems?: Assortment Management –Overall satisfaction (1 to 10) Top 3 Box & Plans for 2019-2020 (n=54)

Mean= 7.93

72%

Overall Satisfaction with Assortment Planning (Top 3 Box)

Plans for Improvement – Assortment Planning

22%

17%

22%




No plans

33

13%

27%

37%

23%


Q17. What is the current state of your retail and supply chain planning systems?: Planogramming –Type/Vendor & When Implemented (among grocers that are not online only, n-52)


17%

Developed in-house

23%


33%

…And several of grocers have been using their system for many years.

When System Implemented - PlanogrammingType of System/Vendor - Planogramming


ERP systems/add-on modules are the most popular system for planogramming...

34

Just over half of grocers are satisfied with their planogramming system and 38% are planning an upgrade to their current system.

Q17. What is the current state of your retail and supply chain planning systems?: Planogramming –Overall satisfaction (1 to 10) Top 3 Box & Plans for 2019-2020 (among grocers that are not online only, n-52)

Mean= 7.52

52%

25%

15%

21%

38%Upgrade current system


Minor development

No plans

Overall Satisfaction with Planogramming System (Top 3 Box)

Plans for Improvement – Planogramming System

35

8%

40% 38%

13%


Q17. What is the current state of your retail and supply chain planning systems?: Macro space / floor planning –Type/Vendor & When Implemented (among grocers that are not online only, n-52)


17%

Developed in-house

31%

Part or add-on module to the ERP

system25%

…And most grocers have been using their system between 1-7 years.

When System Implemented -Macro Space / Floor Planning

Type of System/Vendor –Macro Space / Floor Planning


A variety of systems are used for Macro Space / Floor Planning...

36

About 6 in 10 grocers are satisfied with their macro space / floor planning system and a majority are planning either minor development or an upgrade to their current system.

Q17. What is the current state of your retail and supply chain planning systems?: Macro Space / Floor Planning –Overall satisfaction (1 to 10) Top 3 Box & Plans for 2019-2020 (among grocers that are not online only, n-52)

Mean= 7.63

60%

23%

12%

31%




No plans

Overall Satisfaction with Macro Space / Floor Planning System (Top 3 Box)

Plans for Improvement – Macro Space / Floor Planning System

37

Specifically, grocers want their space and assortment planning system to…

42% Planogram all fixture types (including promotional displays and customized fixtures)

35% Use forecasts rather than past sales as the basis for planogramming

35% Monitor and report planogram compliance in the stores

54% Recommend localized store-specific assortments

52% Automatically produce localized planograms based on store-specific sales data or forecasts and store fixtures

50% Get store-level recommendations concerning how much space to allocate to the different product categories

48% Cluster stores per product category based on local shopping patterns to optimize local assortments 6% None of the above

Q16. Regarding space and assortment planning, what would you like your current system to do that it doesn’t do at present? (among grocers that are not online only, n=52)

38

Willingness to Invest in New Systems

39

Despite overwhelming desire for features of new retail and supply chain planning systems, complexity of current systems and budget issues are major barriers to investing.

59%56%

52%46%

39%

Investment tied up in in-house developed

legacy systems whichare complicated to

improve

Budget issues Complexity of theproject

Other higher prioritiesexist in the business

Investment tied up inmajor ERP systems

which are not flexible

Q18. What are the main things that would stop you from investing in new retail and supply chain planning systems? (n=54)

Factors that Would Prevent Investment

40

Competitive Environment

41

The primary ways grocers are addressing the ‘Amazon threat’ is focusing on improving operational efficiency while increasing urgency and tech budgets.

54% 52%48% 46% 44%

41% 39%

Increasingfocus on

operationalefficiency

Increasingurgency andbudgets for

new initiatives

Increasingtech budget

Implementingan online

channel (if notalready

available)

Leveragingexternal

partners (techvendors,

suppliers, CPGfirms, etc.)

Helplessbecause ofAmazon'smassive

resources

Stay focusedon our

strengths, nobig changes

Q19. What best describes your company's reaction to the threat of Amazon in grocery? (n=54)

42

Focus on technology and the threat of Amazon are big challenges in the grocery landscape, but also open up new opportunities. Fresh and convenient continue to play a role for the shopper while omnichannel is becoming more and more essential to the grocery channel as well.

46%43% 43% 43%

39% 39% 39% 37% 35% 35%31%

Technology ismore

essential thanever before

Amazon takesaway market

share

Faster pace ofchange thanever before

Newopportunitiesfor growth are

opening up

Morecompetitive

than ever

Grocery hasalways beencompetitive,no change

Shoppers aremore in

charge thanever before

Omnichannelis essential

Fresh andfood-to-go

areincreasingly

important

Opportunitiesfor growth areharder to find

More globalretailers areentering the

market

Q20. What is your assessment of the current competitive environment in grocery? (n=54)

These two data points demonstrate the polarity of perspective in the grocery industry

43

Survey Participant Classification

44

Job Profiles

Manager19%

Director35%VP / Sr. VP

20%

C-level / President / Owner

26%

100%SUPPLY

CHAIN/INVENTORY MANAGEMENT

46%MARKETING/SALES

44%STORE OPERATIONS

44%ECOMMERCE

JOB LEVEL FUNCTIONS OF INFLUENCE

S1. What is your level within your organization? (n=54)S2. Over which of the following functions do you have influence or decision-making responsibility? (n=54)

45

Company Revenue and Business Type

15%

6%

9%

28%

43%

Q1. What was your company’s revenue for the last completed 12-month period? (n=54)Q4. Which of the following describes your business? (n=54)

Combined brick and

mortar and online

59%

Brick and mortar

only37%

Online only4%

>$10 billion

$5 billion - $10 billion

$1 billion - $5 billion

$500 million - $1 billion

$250 million - $500 million

46

Appendix Slides:Comparison of Current State

of Retail And Supply Chain Planning Systems

47

Comparison of Type of System Used by Purpose

24%

17%

17%

17%

19%

13%

22%

27%

24%

27%

17%

19%

28%

23%

26%

31%

40%

28%

26%

33%

33%

25%

23%

41%

Distribution center inventorymanagement

Planogramming*

Demand forecasting

Macro space/floor planning*

Automatic store replenishment*

Assortment management

Q17. What is the current state of your retail and supply chain planning systems? *among grocers that are not online only, n-52; all else among total, n=54


Best-of-breed system

Developed in-house

Part or add-on module to the

ERP system

48

Comparison of System Implementation Timing by Purpose

7%

13%

9%

8%

10%

11%

44%

27%

33%

40%

33%

31%

26%

37%

41%

38%

27%

37%

22%

23%

17%

13%

31%

20%


Planogramming*

Demand forecasting




Q17. What is the current state of your retail and supply chain planning systems? – When implemented *among grocers that are not online only, n-52; all else among total, n=54


49

46%

52%

59%

60%

60%

72%


Planogramming*

Demand forecasting




Q17. What is the current state of your retail and supply chain planning systems? – Overall satisfaction (1 to 10), Top 3 Box*among grocers that are not online only, n-52; all else among total, n=54

7.93

7.38

7.63

7.78

7.52

7.20

Mean

Comparison of Satisfaction with System by Purpose

50

20%

25%

19%

23%

15%

22%

28%

15%

33%

35%

29%

39%

26%

38%

37%

31%

25%

22%

26%

21%

11%

12%

31%

17%


Planogramming*

Demand forecasting




Q17. What is the current state of your retail and supply chain planning systems? – Plans for 2019-2020*among grocers that are not online only, n-52; all else among total, n=54

No plansMinor

development


Investigate replacement

systems

Comparison of Plans to Modify System by Purpose

51

Corporate Headquarters

8550 W. Bryn Mawr Ave. Ste. 200,Chicago, Il 60631

Phone : +1 773-992-4450Fax : +1 773-992-4455

New Jersey, U.S.

One Gateway Center 11-43,Raymond Plaza West, 16th FloorNewark, NJ 07102

Phone : +1 201-855-7600Fax : +1 201-855-7373

Toronto, Canada

20 Eglinton Ave. West, Suite 1800Toronto, On M4R 1K8

Toll Free : +1 877-687-7321Fax : +1 888-889-9522

Montreal, Canada

1425, Boulevard René-lévesque OuestLocal 202, Montréal (Québec), H3g 1t7

Phone : +1 514-446-9580

US Grocery Supply Chain - Progressive Grocer

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