As Wal-Mart, Target and other major retailers continue to expand their market share with hard-to-match prices, it’s more difficult than ever before to survive as a mid-size grocery retailer. Without the comparable buying power of Wal-Mart, stretching already razor-thin margins further just doesn’t impact the bottom line like it used to.
Survival and a return to profitability—the hard reality for many mid-sized retailers—is a constant uphill battle.
These urgent business pressures make it impossible for companies to source “the way it’s always been done.” The most successful and forward-thinking organizations embrace innovation, powerful technologies and targeted processes to generate consistent results in cost reductions and efficiencies despite the innate challenges of grocery retail sourcing. To compete against the ‘big boys’ and profit in today’s volatile economy, mid-sized grocery retailers need to take a new approach to sourcing.
Find new pockets of savings
Retail sourcing teams are at a crossroads. In most cases, they feel certain that they have already exhausted all viable approaches to find savings within non-resale goods and services categories. Additionally, some believe that further cost reductions using traditional sourcing approaches will erode the quality of their non-resale items and services—resulting in a negative shopping experience for their customers. Many retailers also fear that long-term supplier relationships will be damaged beyond repair if they continue to hammer already razor-thin margins. In almost every case, these organizations base their convictions on traditional approaches to information collection, price discovery, negotiation and supplier management.
While not a new form of procurement, e-sourcing ‘done right’ gives the power back to retailers. They can gain visibility into the market and ensure they’re getting the best overall value on price, performance history and quality, and any other additional elements that support the buying decision. Not only that, but through e-sourcing they can do this while maintaining and even improving quality standards. By enabling suppliers to make their own bids, a collaborative relationship can be formed between buyer and supplier.
To find truly substantial cost savings, retailers need to think outside the box and well beyond the products that they sell. Some of the biggest e-sourcing wins come from non-typical categories in non-resale goods and services such as construction, employee benefits and facilities maintenance.
So what is the right approach to e-Sourcing? Grocery retailers can deploy the below practices to:
- Assure that all the critical elements within the sourcing project are addressed, including clear and concise specifications, adequate volumes and well-defined supplier expectations
- Create a fair and equitable experience for the participating suppliers
- Make sure your e-Sourcing partner does not have existing supplier relationships, pay backs, volume incentives or preferred status that hurts the integrity of the process
- Introduce new potential suppliers to create a competitive element
Create ‘the’ shopping experience
Today’s grocery retail consumers are primarily motivated by the three elements of price, product quality and the shopping experience. While the last two have been partly ignored for some time, some retailers—think Wegmans, Trader Joe’s and Whole Foods—made a habit of putting them first, and in turn, accelerated their growth as a result.
The problem for most retailers is the time and effort required to handle category reviews, which often leaves little or no additional resources for stakeholders to explore new and innovative products, services or strategies to improving the shopping experience and push their business forward.