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Big growth in warehouse club stores offers business opportunity in bulk.

Sam's main man for coordinating warehousing, consolidation and transportation of temperature-sensitive products gives manufacturers and coldstore operators alike some tips on how to win a piece of the robust club market.

Just when some wishful-thinking members of traditional channels of grocery retailing in the USA are beginning to foresee a leveling off of membership warehouse club store expansion within the next few years, one very knowledgeable voice from Arkansas begs to differ. Fasten your seat belts, he advises, the ride has just begun.

"If you are selling to the clubs today, be prepared to triple your business in five years. The club industry is projected to reach $83.5 billion in 1997, which will represent a 176% increase over 1992."

That's what Richard D. Hill, chairman and CEO of Daymark Foods, Inc., told delegates attending the American Frozen Food Institute-sponsored Physical Distribution Conference in Kansas City, Mo., last month. He is in a pretty good position to assess the growth capabilities of clubs, since his Russellville, Ark.- based company manages warehousing, transportation, consolidation and distribution services for Sam's Club. The Wal-Mart unit ranks No. 1 in the membership club store business, with some 285 units likely to ring up $16.5 billion in sales this year.

Daymark's fleet of 225 trucks and 350 refrigerated trailers handle 1,200 loads in and out of five contracted public refrigerated warehouses each week. The coldstores are strategically situated in Arlington, Texas; Atlanta, Ga.; Rochelle, Ill.; York, Pa., and Indianapolis, Ind.

"We create a partnership with the PRW and maintain an office on site to assist in the process," said Hill. "This has worked well and has proven to be less costly than owning and operating our own distribution/consolidation facilities. By working with PRWs, we are able to take advantage of a known cost, and they are able to manage the variation in inventories through the public side of their business."

Streamlining a Must

The Daymark president suggested that the low margin realities associated with club store discount shopping have made distribution streamlining a necessity. As more retailers incorporate just-in-time programs into their systems, downsizing of excess food inventories -- now estimated to be between $30- and $40-billion, or 41% of total current stocks -- will result.

Hill said that "buy-ins" and "forward buys" by retailers are increasingly being regarded as an unnecessary added cost. "The same results can be obtained through the negotiation of price and terms. The control of inventories would then be left to the one who is best qualified -- the manufacturer."

Meanwhile, Daymark has found a number of ways of its own to reduce or eliminate unnecessary costs from the distribution pipeline while still maintaining an on-time/accuracy delivery rate of 99.98%. For example:

* The elimination of LTL (less than load) shipments through consolidation. All deliveries to club stores are in full load quantities. And an efficient back haul program holds expenses down even further.

* A computer-controlled system permits the use of EDI technology throughout the entire process. This includes order entry, load consolidation, order selection, inventory control, driver communications, routing, invoicing, etc.

Hill emphasized that food manufacturers can also do things to help cut costs in the distribution chain. And the effort should begin with packaging.

"If you are currently selling to the warehouse clubs, or plan to enter this market, I suggest that you visit their facilities and see how the various products are merchandised and handled," he advised. "Does the size of your pack meet the unit sale criteria that is required by the clubs? Is your package different from the one found in the retail store?"

"A club pack must look and be different," he continued. "They do not merchandise or price products like a typical supermarket. They handle approximately 3,500 SKUs (stock-keeping units) compared to 28,000 to 30,000 in a typical supermarket, and 400,000 to 500,000 in a typical department store."

Since master containers are usually the selling case in clubs, they should be designed to withstand the rigors of handling throughout the distribution process and still be presentable when the ultimate customer makes his or her buying decision.

Manufacturers ought to remember that the case and the product package are the only "point of sale" materials that can be used in clubs. Hence graphics on a well-designed white master case is recommended. Some of the better formats feature a case within a case.

Shipping container-scannable bar codes is very important. In fact, the adaptation of the UCC 128AI (application identifier) bar code applied at the point of production can do more to lower the cost of the product throughout distribution channels than any other single measure. It provides all the information that a manufacturer would need, but the assignment of a unique case number (sometimes referred to as a "license plate," or a "one up" number) is probably the most valuable. Individual cases can then be tracked throughout the entire distribution process.

When the 128AI bar code label contains a unique case number, an order selector equipped with a special hand scanner can select by merely pointing a finger. No case can be scanned twice. This allows the receiver, be it a consolidation warehouse or the actual customer's facility, to scan all the necessary information including sell-by dates, lot numbers, product numbers, variable weights, etc. It not only speeds up the process, but insures accuracy.

"Daymark uses radio frequency scanning at all of our distribution centers," said Hill. "Unfortunately, we are able to take advantage of only a small amount of the savings available because most manufacturers are not applying a code 128AI scannable label. When they do, receiving, order selection, shipping and invoicing is virtually error-free."

Hill offered a piece of advice for manufacturers looking to win club store accounts: "It takes a total commitment from the CEO down... You will never be successful selling the clubs if the person responsible for this business is also responsible for retail and/or foodservice sales. Clubs differ in their merchandising, pricing and packaging requirements. It's difficult to serve more than one master.

"Furthermore, know all there is to know about your customer. Understand the way they think. Be sure your product meets their needs, and be prepared before you ever make a sales presentation."

How Much Sales Clout Do Clubs Have, Anyway?

Just how big are frozen food sales in USA warehouse club membership stores? Volume of some $2.5 billion was realized in 1991, followed by 2.9% billion in receipts last year.

At least those are the numbers crunched by Larry Schaeffer, group vice president of Retail Insights, Stamford, Conn. Addressing the International Association of Refrigerated Warehouses convention in Tucson, Ariz., recently, he noted that club stores have grown from zero to 589 units in 16 years. And compound growth was put at 25%, compared to 5% for traditional supermarkets.

Here are some other data about club stores that he shared with the cold storage audience:

* The top four operators, led by Sam's, do 93% of the business.

* Some 32% of floor space is devoted to frozen and refrigerated products. This high profile is second to no other category.

* Dinners, meats, poultry and seafood account for half of all frozen SKUs.

* The rate of product turns is twice that of supermarkets.

Schaeffer's parting words to coldstore operators keen on doing business with the warehouse stores were: "Clubs work at slim margins (8-10%), and they want you to work at slim margins too."
COPYRIGHT 1993 E.W. Williams Publications, Inc.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:includes related article
Publication:Quick Frozen Foods International
Date:Jul 1, 1993
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