Supply Excellence — A Tale of Two Supermarkets

A Tale of Two Supermarkets

October 16th, 2008 · by Katie Boord · No Comments · best practices, spend analysis, supply management

Despite the economic turmoil, people still need to eat. And when times are tough, they’re naturally going to eat out less, cook more meals at home and even brown bag some lunches. So, you would assume that provides opportunity for supermarkets, but that might not always be the case.

Last week Safeway announced they had increased both same store sales and profits. Wall Street rewarded them with the 2nd highest S&P 500 gain (yeah, that’s right a gain!) for the day.

How did Safeway do it, given that according to their data, shoppers are still bargain hunting? They attribute the success to cutting costs and cutting theft. Spend management didn’t likely come into play much in cutting theft - unless of course Safeway used some sort of SPM to assess their security vendors’ performance and drive better results. But their cost cutting efforts reduced their spoiled produce, a significant cost to supermarkets that don’t 1) ensure the quality of product coming from their suppliers is up to snuff and 2) balance the shipping and logistics to keep fresh produce on the shelves.

Obviously, this process required a good working relationship with their supply base, as well as real-time data on the supply chain and demand for particular items in each store. In other words, they had to place a strong emphasis on data and technology to make things work smoothly for their vendors, store receipts and customers. No small undertaking, but the results seem to speak for themselves.

On the other side of the coin, you have wonder what the fate of more upscale supermarkets will be in a prolonged recession. Will a store like Whole Foods, which is sometimes referred to as “Whole Paycheck”, be able to cope with their rising costs at a time when people may be searching for lower cost groceries? Short of raising prices - a gourmet recipe for disaster right now - upscale grocers better figure out how and where they can cut costs.

Katie Boord is a Manager focused on strategic sourcing projects for major retailers in Ariba’s Spend Management Services group.

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