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Dominion's chief examines the buyer-supplier relationship.

Food retailing is in the final stages of an evolution which is returning to its original design. Twenty years ago, a Dominion store manager had considerable control over the merchandising and overall operation of his store. He knew his product mix, and how his customer wanted it merchandised. The majority of deal negotiations were handled at the snack bar by the manufacturer's representative and our store manager.

Customers knew the store manager by name and could communicate with him--unlike today where in most cases, it is difficult to find the store manager, and it is a definite no-no for a supplier to make a deal at store level.

Many analysts labeled this era as a period when the emphasis was on sales and not on marketing. It was argued that the customer was chasing product and all we had to do to be successful was unlock the door and man the cash registers. At Dominion, our thoughts moved in that same direction.

When i look back now to that time, I shake my head in disagreement with both our thinking and the analysts' thinking. This was a period of intense marketing principles, and sales were by no means guaranteed.

The personalized nature of each store, in itself, was the epitome of the marketing concept. It was just not as sophisticated as it is by today's standards. But it was the form of marketing at that time.

As the population grew rapidly, store opening reached record levels, and the industry was blinded by its own expansion. The emphasis turned to efficiencies and economies of scale, and away from the marketing concepts that were successfully employed at that time.

To control this growth, we turned toward a more centralized operation, and centralized decision making. Huge distribution centers emerged. Central buying and a stream-lined management approach evolved. This marked the end of the store manager as an entrepreneur and the beginning of mass production supermarkets.

This transition all began in the late '60s and early '70s. Ten years ago when I addressed the members of the Canadian Grocery Distributors Institute in Toronto, the subject of my talk was "Who Gets Hurt When You Say No to a Salesman." Here's an excerpt from that talk:

"I would say that the major reason the salesman at store level receives a 'no' is the simple fact that salesmen, with very few exceptions, are not authorized to call on our stores. One of the major reasons for this is the centralizing of our merchandising and buying. This change was made for a number of reasons. The obvious one, of course, is to relieve the store manager of this function, allowing him to devote more time to other areas of his store operations.

Secondly, all purchasing and merchandising with our company is done by our various merchandising offices across the chain. Because of this, we have trained our store personnel to rely solely on the information and instructions received from the merchandising points... By centralizing our merchandising in this way, it has virtually eliminated the need for salesmen calling on our stores."

During this same time we saw the emergence of what is now referred to as the diverse consumer--male shoppers, singles, singles living with singles, as well as a wide discrepancy in economic status within these groups, which forced us to review our perception of Mrs. Shopper.

These new lifestyles placed a premium on convenience and value. Food away from home increased dramatically. Convenience stores started up in every neighborhood and specialty shops took away sales dollars that traditionally went to supermarkets. Independents were getting stronger by the hour, taking advantage of the much lower cost curves through a non-union environment. Self-Examination

Mass merchandisers began selling product normally sold in grocery stores on a much larger scale. All this made it very difficult for a chain store to compete and still realize a satisfactory return. It was now time for the conventional supermarket to take a very good look at itself if it was to compete successfully.

During this period, Dominion Stores' image began to deteriorate, not only in the eyes of the consumer but also in the minds of our suppliers, as well as industry analysts. We, like many companies before us, had to assess the situation and establish long and short terms goals.

Now in terms of the market of today, we have a wide diversity in retail formats. We recognize that polarization has taken place and the conventional supermarket cannot successfully satisfy the needs of all groups at all times.

Given this scenario, we observe today the need to return to intense marketing principles with a renewed emphasis on target marketing. Managing a food retail operation is managing a portfolio of concepts, some new, some aging and some mature.

Two years ago, I predicted the life span of a basic, stripped down warehouse store to enter its decline in 1984 and I believe this is occurring now. Increased demand for specialty and service departments has led to the introduction of the European flavor, such as in delis, fresh fish counters, bakeries and non-food service departments. This rapid change of retail design is forcing us into a situation of constant modification to the merchandising mix that we present. This true market segmentation strategy requires a return to a more decentralized way of thinking.

We wish to maintain the efficiencies of centralization, but we want to merchandise in a decentralized fashion, and out of necessity our supplies must try to keep abreast of these changing philosophies.

Retailers and manufacturers both must change their way of thinking to survive the next decade. I am not suggesting that we throw caution to the wind, but that those who fail to invest in their strengths will quickly fall behind those who adopt an aggressive stance.

It is not sufficient to merely recognize that market requirements are changing. It is imperative that we invest in our operations to create our niche in the marketplace.

Unfortunately, we at Dominion have been lax in this respect during the past few years and have suffered the consequences.

I need not remind manufacturers what happens when an aging product or retail concept is presented to a market which is no longer interested. The Bright Side

So let's look at the more favorable aspects of tomorrow's economy. Corproations are now beginning to report higher profits than in previous years. Concentration on productivity and internal efficiency is paying off. The effect has been a return to greater flexibility in generating investment capital internally.

Tomorrow's successful retailers will be the ones who are able to continually monitor their strengths and weaknesses and marry these strengths to the existing and future market demands.

These market demands will become increasingly diverse, leading to a departure from traditional forms of retailing. We can no longer attempt to be all things to all people with one concept and expect to experience future growth.

The winning retailer of tomorrow will be the one who is able to blend planning, positioning and technology in a way that less successful companies cannot.

Our customers have always been value conscious. This, however, does not mean that they are always shopping for the lowest price. They are shopping for the highest perceived value.

For some, value means convenience, regardless of price. To others, value means quality and service. Some look for the lowest prices while others are looking for a product mix which matches the lifestyle that appeals to them.

So proper positioning is the main element which will determine successful retailers down the road. We can no longer present a homogeneous product to our customer base, because the customer is more demanding than ever before. Changing lifestyles have put a high value on convenience, nutrition and quality. The diverse nature of the population has led to the creation of a wide variety of consumer wants and to be successful the retailer must aim to fulfill these wants.

The concern of manufacturers must be related to how their product mix fits with the retail concepts we will be presenting.

To begin with, widespread distribution of their products may become the exception rather than the norm. An upscale specialty shop environment will not list the same product as the stripped down warehouse discount store. Their products will be chasing our customers, not our customers chasing their products.

I would like to see a return to a more marketing oriented approach to sales presentations. Tomorrow's distributions will be fragmented to different retail concepts. Will manufacturer sales people be aware of our targeting markets and have the appropriate product mix to go after them?

Shelf space will continue to go at a premium and there will be little tolerance for products that do not fit the mold. This mold is not simply case movement but profit and return on investment.

This trend toward the various types of retail outlets may force all of us to rethink the overall distribution strategy. Specialized products aimed at specialized markets may not carry sufficient volume for centralized distribution centers.

There is now a move on the part of retailers to upgrade the back door delivery systems and overall store level information support networks. The installation of these techniques is partially due to the recognition of this gradual shift toward more direct door delivery, but also because of the movement of retailers toward more sophisticated business management practices. The Info Explosion

This shift to sophistication has been mostly a result of the need to make assets more productive and, secondly, it is due to the wealth of information that has now become available.

The information explosion of today and tomorrow is probably the number one influence of the future direction of retail marketing. Information support systems will become so refined that instantaneous answers to management queries will be the norm rather than the exception. With a concentration on productivity, the C.E.O. will be able to review his asset base and look for warning signs of unproductive investments.

One observation I have regarding the information explosion is that there is an overload problem, both presently and in the future. Tomorrow's technology offers new and sophisticated measures for the food distribution industry, but it must be properly directed. Information itself is useless until it is acted upon. There will be a move within the retail operation to restructure itself to obtain the maximum benefit from this revolution.

At Dominion, we have recently reorganized our merchandising department in response to this specific need. Retailers are simply becoming more sophisticated in their planning.

On the other side of the table, manufacturer sales staffs will need to become more knowledgeable about what it is we are measuring and how they should react to it.

Today's supermarket buyer can consider a product's profit contribution, space productivity, return on investment, and even labor costs in addition to the standard measurement of until movement and gross margin. If you think that competition for shelf space and product exposure was intense in the past, the future guarantees an even tougher battle. The retailer is now in a position to act on poor product performance almost immediately. The bottom line is that those who cannot justify their shelf space will be weeded out from those who can.

Recently I had a discussion with a fellow from the trade who expressed concern that we had more information on his products' performance than he did. This made him feel somewhat uneasy and perhaps rightfully so. Clearly, this points to the need for supplier representatives to become more marketing oriented in presenting background information on their products. The ability to justify one's product claims and attributes from market and demographic studies will continue to grow in importance. The Salesman's Role

Scanning information is allowing us to re-establish the entrepreneurial aspect with our store manager. The idea of the neighborhood grocery has gained considerable appeal over the last few years. A true segmentation strategy must allow for individual merchandising flair and style to match the neighborhood's marketing needs.

Acknowledging the fact that a few years ago I asked manufacturer sales representatives not to visit our stores, only our offices, we now see the need for their sales teams to give greater support at store level.

There has been a communication gap developing over the years between our suppliers and ourselves. Although we still want communication at head office, we also want a return to the store level contact.

ur move toward centralized decision making left our store managers rigid and inflexible, and it is going to take a while to loosen the controls. However, we aim to loosen them and hope for a return to the entrepreneurial flair. A lot of valuable information was once traded over coffee at our snack bar and we would like to see a return to this.

I would also like to look more closely at the high price, high deal syndrome which has crept into the market during the past few years--that is, the spread between the deal levels offered by many suppliers in relation to the regular price of the product.

I have no doubt that in the majority of cases the regular costs are inflated to assist in financing such dramatic short term dealings.

This has created problems, both for the retailer, and for the manufacturer. From the retailer's point of view, it has allowed more non-food outlets to use food related items as deep cut specials or loss leaders, without supporting the entire line from the supplier. This is done in order to lure shoppers into their stores, while the food retailer, on the other hand, has to compete with these non-food outlets in terms of featuring these products at the same low retails.

In order to attract customers into their stores, it is necessary for food retailers to also deep cut products such as milk and butter which are not normally carried by mass merchandisers. This forces food retailers to increase the overall retails on the other products carried. This action literally destroys brand loyalties and regular price credibility. It expands the switch shopping element and causes the manufacturers of products that are not high velocity, high impact and impressionable items to subsidize the low margin return on the other products.

While this is happening, the restaurant industry continues to expand because of the umbrella that has been created on high regular retails of products that are not on special. In many cases today, you can probably eat cheaper at a fast food operation than you could if you purchased the products at the supermarket and spent the time preparing a meal.

It also creates inefficiencies in distribution and warehousing because of the movement of huge volumes in bursts rather than equal quantities over time.

I am not denying the right to healthy competition, but I am questioning the motive behind this type of activity. I fail to see how it creates additional sales, but I do know that it disrupts sales objectives considerably. What I am saying is that we must bring some sanity back to the marketplace.

Everyone in the industry is affected by the erosion of food sales away from the traditional supermarkets. We must bring credibility back to the food industry, brand loyalties back to the manufacturers that have invested millions of dollars in establishing quality lines of products, and bring regular pricing down to a more reasonable level in relationship to specials so that supermarkets are not cherry picked to death.

Fundamentally, it is still a day-to-day business which can only base its successful track record on one thing--and that is value.

So, when I am asked how the retailer will change in the future, I have to say that he will not do anything differently tomorrow than he does today or did yesterday. The goal is always consistent. The question whcih always must be asked is whether or not we are providing the maximum value to our customers. The retailer/consumer relationship is based on this premise and the buyer/supplier relationship is based on this premise as well.
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Author:Toma, John
Publication:Progressive Grocer
Date:Oct 1, 1984
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