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Canadian executive tells suppliers to get with computer program or else.

Canadian Executive Tells Suppliers To Get With Computer Program or Else Integrated information technology is fast becoming basic to sales, says Provigo chairman. Those packers not going electronic will be de-listed or charged for inefficiencies.

The fact that standardization is over and market segmentation has become the norm in Canadian food retailing is crystal clear to Pierre Lortie. But what is just coming into focus is the common realization that powerful information technologies are paramount in helping contemporary suppliers and supermarket operators tap into emerging niches.

"Many sectors of the retailing industry have matured," said the Chairman and CEO of Provigo Distribution, Inc. during an address before the Canadian Frozen Food Convention. "Industrial economics tell us that historically, when industries mature, they begin to segment at an increasingly rapid pace. When this happens, the environment becomes extremely competitive. In our case, the winners will be those who will be best able to recognize and cope with the specificity of retailing socio-demographics and the growing shift towards a segmented marketplace while remaining cost competitive."

The Montreal, Quebec-based executive predicted that overall Canadian retail growth will rise only 6.6% this year compared to 7.6% in 1988 and 9.8% the year before, with room for only slight nominal and real term improvements in the 1990s. Hence, rationalization of business practices will become all-important.

A greater reliance on Direct Product Profitability (DPP) methodology was cited as one way to improve bottom lines. The food professional explained his point in a way that frozen food manufacturers and merchandisers could readily appreciate:

"When I joined the industry I was told that frozen food was great because margins were higher. What I was not told was that transportation costs to our stores was 2.5% of sales versus about 1% for dry grocery products; that the cost per square meter for the warehousing or shelving in the store was about three times greater for frozen than for dry grocery; that frozen food took a lot more energy, etc.

"When everything is taken into account, what is the relative profitability of frozen foods? DPP provides us with the tool to measure the contribution to profit of each product and answer this very simple question. The tighter markets we will be facing in the coming decade leave us with little choice other than integrating DPP into our normal mode of operations."

Lortie cited EDI computer linking between distributors and suppliers as another example of information technology which will better equip food marketers to move more products. By 1990 Provigo hopes to traffic 90% of its line in this manner.

Expressing dismay over the "snail's pace" at which many manufacturers have joined the electronic data communication system, he issued a blunt warning: "In the not too distant future, those suppliers unable to transact with us through EDI will find themselves de-listed or will be charged the cost of the inefficiences they impose upon the distribution system. These costs are substantial. For example, we find that between one-third and one-half of the warehouse number vouchers processed contain errors --such as differences between the inventory records and the supplier invoice--which must be manually checked."

Lortie continued: "We are a far cry from the zero-defect objective. This incredibly high error rate--or sloppiness--can only result from a lack of discipline in the system and stems to a large extent from the fact that the procedures within the industry have simply not sufficiently evolved."

Good Frozen Future

Complaints notwithstanding, the Provigo chariman voiced optimism about the future of Canada's frozen food industry. Referring to an A.C. Nielsen Company report, he said that frozen food was ranked as a solid growth category. Among the products singled out for particular expansion were drinks and juices, pre-cooked desserts, meals, breakfasts and entrees. Most canned goods, on the other hand, were recording steady or decreasing growth rates.

The increasing number of working women in Canada should continue to have a positive influence on the frozen food industry as the common denominator among such consumers is significantly reduced time available for getting meals on the table. A recent study suggests the following:

A typical working woman allocates 210 minutes per week for meal preparation, of which 75 are spent shopping. This means that she has two hours and 15 minutes to prepare seven breakfasts, seven dinners and two lunches (figuring that the mid-day meal is eaten away from home on work days). Assuming further that one-quarter of all meals are consumed outside the home, as is the case in Quebec, this leaves an average of 12 minutes per meal. In such a context, the appeal of time-saving products such as frozen food is obvious.

"The conclusion that emerges from this overview is that demand is strong for frozen products in general. These are easy to prepare and in terms of freshness, are often heads above the other types of prepared foods typically found in supermarkets," said Lorti. "I stress the words typically found in supermarkets because innovative products are emerging in direct response to market demand for convenient foods."

Chill in the Air

But by new innovative products--formulated largely to take on restaurant competition--the Provigo chairman was not exactly talking about frozens. "Let's face it, frozen foods are not an adequate substitute for a good meal in a restaurant. Hence the need for fresh prepared meals."

He pointed to so-called new technologies developed in Europe to prolong the shelf life of prepared foods. [Editor's note: Actually not really new at all, of late they have been under increased fire and close scrutiny for health safety reasons in England. See story by Ken Webb on page 138. Lortie suggested that Canada should be the port of entry into North America for chilled systems because many of them have not yet received the blessing of the U.S. Food and Drug Administration.

"Some of these new technologies challenge well-entrenched assumptions within the industry. I am thinking in particular of the refrigerated products and the cold chain developed by Marks & Spencer in the United Kingdom. We have taken a pretty hard look at their technology and we are confident their system can be implemented in North America. They obviously feel the same way as demonstrated by their recent acquisition of a supermarket chain in the U.S.," commented the Provigo chief.

The Montreal-headquartered food executive concluded his remarks by identifying environmentally-conscious consumers as an emerging--and potentially very large--market segment. Based on study results that Canadians are willing to pay 10%-15% more for "environmentally-friendly" products, he said that both federal and provincial level governments are initiating schemes to reduce and reverse environmental threats.

"For example," noted Lortie, "the federal government intends to introduce a system, modeled after the highly successful West German one, whereby products that have been selected by a jury as environmentally -friendly would carry a special label touting their environmental appeal. Business is also beginning to take initiatives in this area."

Packaging has also been caught up in the "green movement" as last year the Quebec Ministry of Environment awarded a special prize to Swanson for its elimination of excess packaging in a frozen food breakfast item.

"I can assure you that this sort of preoccupation will not stop at packaging," concluded Lortie. "In the future, consumers will pay more attention to the way foods are prepared."

PHOTO : Pierre Lortie, Chairman/CEO, Provigo Distribution, Inc.

PHOTO : Provigo suppliers who don't join the electronic revolution in food distribution may well

PHOTO : become ex-suppliers.
COPYRIGHT 1989 E.W. Williams Publications, Inc.
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Title Annotation:includes related article on Canadian; Pierre Lortie
Publication:Quick Frozen Foods International
Date:Apr 1, 1989
Previous Article:Prof contemplates '2001, a food odyssey': he's seen the future, and it's eat and run.
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