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Major French cold storage operators just say 'no' to transporting frozens.

Major French Cold Storage Operators Just Say `No' to Transporting Frozens

Faced with a 20% cut in service rates received, it just doesn't pay to take on long distance distribution jobs. Meanwhile, some speculate that only FF transport specialist will survive.

As 1993 approaches, the internationalization of trade is increasingly on the minds of the leaders of all aspects of French industry. Frozen food transportation and storage companies are taking steps to prepare for the promised single European market at the same time as they cope with current problems.

At present those specializing in distributing frozen food are struggling, because the rates they receive have declined 20% in the last two years, Guy Labeyrie, secretary general of Union Transporteurs Europeens (UTE), told Quick Frozen Foods International (QFFI). The reduction results from the large percentage of the distribution business that is carried out for hypermarkets and the fact that chains are forcing prices down, reported Bruno Vallee, executive officer of the Compagnie des Entrepots et Gares Frigorifiques (CEGF). Labeyrie claims that all industries, not just the hypermarkets, are bringing about a lowering of rates.

The major French cold storage companies are refusing to involve themselves greatly in transportation because it does not pay an adequate return. Vallee believes that it is necessary to say "no" to contract offers that entail working for unacceptable compensation even if "no" means that someone else will get the business. "Turnover isn't everything," he said.

Christian Cartier, head of logistics for Frigorifiques de l'Union, reported that his firm normally subcontracts long distance hauling although it does handle local distribution. "We do a little transportation, dossier by dossier. If a dossier is good, we take it on."

Because of the low freight rates, many small and medium-sized transportation companies are being forced to sell themselves to a major transportation group or to a financial concern.

Cold storage firms in France are experiencing difficulties, to the degree to which they have become dependent on government-purchased agricultural products to fill their warehouses. The state is presently buying little meat, and has not bought butter from farmers since 1985, Vallee said. CEGF, the largest cold storage operator in Europe, lost money in 1989 because its turnover dropped 20% as a result of the government's lack of active support for farmers.

STEF, second in size to CEGF, has been less dependent on government storage than has CEGF, according to Cartier. His own Frigorifiques de l'Union, third in size, filled a maximum of 10% of its space with government food, thus enabling it to be able to adjust to the change in policy.

The pending single European market is not expected to bring increased governmental support for European farmers, Vallee reported. On the other hand, certain other conditions that affect transportation and storage firms will change. An end to customs inspections and charges will facilitate trade. And the increasing concentration in large companies of the production of food on the one hand and its sale to retail customers on the other will, at the very least, mean that cold storage and transportation firms will have fewer clients to deal with.

To counter the withdrawal of government purchases CEGF, for one, is building up business with private firms. Although the company will store surplus meat when it comes along again, plans call for prioritizing relations with the private sector, and working with a variety of types of industrial partners rather than depending on a single source of income such as hypermarkets.

CEGF began seeking new customers a year ago, and its campaign is said to be going well. In fact, Vallee does not think that his firm will lose money in 1990. New clients include additional processors of frozens, makers of pet food who require storage of raw material, and producers of canned items who stock ingredients. Half the contents of a canned or chilled macedoine start out frozen, because the vegetables that make it up do not ripen at the same time, Vallee pointed out.

The firm is, in addition, obtaining an increasingly large volume of business from France Glaces Findus, a long-standing major client.

Diversification of services is considered by CEGF and other major cold storage companies as essential for survival in the years ahead. At its depot in Valence, STEF began freezing and packaging a year or two ago and is increasingly orienting itself in this direction, Guy Emery told QFFI.

Frigorifiques de l'Union is freezing and packing food at Boulogne and Marseille, and needs to add more services, advised Herve de Robien, marketing director.

At its cold stores in central Brittany, CEGF provides an example of partnership with a major producer. Gelagri, which specializes in vegetables, works with all five of the warehouse operator's depots, but its relationship is particularly close at Loudeac. Here Gelagri prepares raw vegetables, gives them to the cold store for freezing and storing, and then takes them back for cooking. Afterwards CEGF freezes and stores the finished products.

Enter Eurofroid and FELS

A major aspect of diversification for cold storage companies is an increase in services to retail outlets, in particular hypermarket chains. This tendency has already influenced the creation of subsidiaries that can carry out specialized work for distributors. Frigorifiques de l'Union and a Belgian company that engages in international transport, Eurofrost, together created the French company Eurofroid in 1989. It was designed specifically to offer a complete line of services to distributors. TFE, the largest French transporter of fresh food, and CEGF together formed the Groupe FELS to put at the disposal of both producers and distributors a network of smaller firms specializing in the frozen food logistics. Each of the group's warehouses includes equipment for preparing orders for stores. (Because STEF bought TFE after the formation of Groupe FELS, STEF and CEGF, in most respects competitors, share a business undertaking.)

The big three storage companies are themselves offering special services to distributors. They include receiving and storing complete pallets and then breaking them down into numerous small units destined for individual stores; handling merchandise at storage centers on a first in/first out basis; filling orders rapidly; and making store deliveries at hours specified by retailers.

STEF's warehouse at Vitry is oriented toward distributors, according to Guy Emery. One of the clients served is the Picard chain of freezer centers, as Picard outgrew its own warehouse and can no longer meet all its needs. STEF also works closely with Sumadoc. Frigorifiques de l'Union has been involved with Picard for a year at Marseille, where Frigorifiques de l'Union is the dominant cold storage company. CEGF has developed service to a distributor chain particularly fully at its Toulouse warehouse.

In regard to distribution, the Toulouse storage center is the most modern in the world, according to Vallee. It serves 28 Casino hypermarkets and supermarkets and their affiliated cafeterias, as it handles 800 different frozen products. Fulfillment is its primary concern. In the evening the warehouse receives and processes computerized orders from individual stores. The computer center prints package labels with bar codes identifying the item, the number of units, and the store that is to receive them. A staff member applies the labels to the products and sends them on a conveyor belt to a laser that reads the bar codes and directs the packages on their way to various stores. Shipments are dispatched at around 10 A.M. and delivered by 2 P.M., less than 24 hours after receipt of the orders.

Previous to the construction of the new Toulouse facility, Casino hypermarkets and supermarkets in the area simply rented space from CEGF and handled their own distribution. Now Casino has a three-year, renewable contract with the cold storage firm, according to which CEGF administers but does not have financial management of the frozen food logistics program for the 28 stores and their cafeterias. (The warehouse operator, nevertheless, has the capacity to manage the financial side of logistics and does so for Burger King.) And Casino is reportedly finding its arrangements with CEGF financially rewarding. The new facility at Toulouse has been in operation for over a year. Because of its advances in technology, CEGF is able to pack the rolling racks that go into the trucks some 30% more densely than normal. As a result, Casino is saving 25% of transportation costs.

Expansion Abroad

At the same time as they are increasing services, the major French companies are at least contemplating expanding abroad. Since goods are normally stored near their point of production, CEGF expects to gradually build warehouses outside France as the major producers with which it works, including Gelagri and Bonduelle, enlarge their operations. It is already associated with a Spanish firm that works with Bonduelle. STEF has a depot in Cartagena, Spain, and recently entered into an agreement with a transport company to develop its position in that country. Frigorifiques de l'Union has approached businesses in Portugal and Spain.

Herve de Robien points out that because the clientele of a cold storage warehouse is generally local, the most satisfactory way of moving abroad may be by entering into a relationship with established firms in the countries of interest.

Due to the change in government policy towards agriculture, France has excess storage capacity at this time. Nonetheless, construction of new warehouses will take place domestically as well as abroad. Vallee theorizes that the French cold storage business is going to undergo the same type of change that retail stores underwent after 1965. Prior to that date selling was carried out by small, neighborhood stores. Then came the supermarkets and hypermarkets, situated where major roads cross.

At present France has many small cold storage centers. In the future it will have fewer; and, to take advantage of developments in transportation, they, like the hypermarkets, will be placed at strategic points along highways. For CEGF, which owns 55 warehouses, changing its system will be a major endeavor that will take five to eight years to accomplish. It will mean closing some of the current warehouses, enlarging facilities that are already strategically placed, and building others.

The current financial problems of firms that concentrate on transportation as opposed to storage are being satisfactorily countered by a number of companies that are managing to remain both independent and solvent by joining together. Each is an expert in its own region. Together in 1989 they formed the Union Transporteurs Europeens (UTE) and put into operation a databank at the European level. By tracking the group's trucks throughout the Continent and by matching vehicles with orders from France and abroad, the number of kilometers that trucks travel empty or with only partial loads is decreased. Because freight rates are higher in other European countries than in France, external business gained helps the members keep operating. Currently the group has one foreign member, a Dutch company. According to Guy Labeyrie, the setup is the only such transportation databank for Europe as a whole. UTE members carry frozen food, but it is not their specialty.

Without being specific Guy Labeyrie predicted that next year there will be only one transportation company in France specializing in frozen food, because of the rapidity of business consolidations. Christian Cartier suggested that the firm Labeyrie must have had in mind is CGM, owner of STEF and TFE and therefore a part of the Groupe FELS. He himself believes that in the future there will be one huge French company and many small concerns, but no medium-sized outfits specializing in frozen food transportation.

As regards transportation, Cartier feels that the French are not well placed to compete with companies in other European countries. West Germany and Holland have large, solid companies that seem to organize long-distance transportation better than the French, he said. These concerns will provide stiff competition, and the Spanish are becoming increasingly involved in long hauling. The French are hampered by regulations on matters like rest periods for drivers that are stiffer than the rules in other countries. Despite trying, the various nations have thus far failed to reach agreement on a single international set of regulations.

In the realm of warehousing the French are in a better position, as they are at least the equals of foreign companies, when it comes to cold storage technology.

France will never have only one storage company, however, Harve de Robien told QFFI. Although CEGF and STEF could eventually get together, it is thought that Frigorifiques de l'Union, a family-owned business, will not allow itself to be bought out. He is convinced that even after the unified European market goes into effect, there will be a need for small cold storage companies. Frigorifiques de l'Union has flexibility that larger firms lack, he said. Each warehouse manager is free to conduct business as he sees fit.

Whether or not the enormous retail chains of the future will develop their own cold storage and transport systems instead of working with specialized companies is not yet clear. The current situation as regards hypermarkets and supermarkets is confused and often unsatisfactory, Vallee pointed out. Some chains have their own distribution centers and logistics systems. Some rely on producers to deliver frozen food, while others turn to storage and transport companies. Those who work with specialized firms are likely to do business with small companies that charge low rates, Therefore, as the consumer magazine Que Choisir reported in a recent issue, the cold chain is frequently broken in France.

It's Up to Them

CEGF would like to expand its business with hypermarkets, but whether it will be able to take on other clients such as Casino will depend on whether the chains learn that high quality service is expensive and agree to pay the price, Vallee said.

Cartier believes that a couple of factors will work against chains storing and transporting frozen products themselves. One is the high cost of engaging in these tasks. Chains may prefer to invest in opening additional outlets rather than tying money down in storage chambers and trucks. Also, retailers may be able to economize by going to specialists who handle an enormous volume of frozen food.

Another point, not directly mentioned by Cartier, is that the technology involved in building and operating storage centers is becoming so high-level that it can be handled best by specialists.

The frozen food producers are concerned about the direction that storage and transportation companies take as fruition of the single European market comes closer. According to Infotrans, logistics, which accounts for up to 20% of the price of products, is one of the last areas through which producers can still increase their productivity.

PHOTO : All frozen food cases leaving CEGF warehouses are bar-coded to identify the item, number of units, and the destination they are going to.

PHOTO : Retail chains are forcing rates down, says Bruno Vallee of CEGF.

PHOTO : CEFG runs this large warehouse for Bonduelle in France, while it is also associated with a Spanish firm that works with the European vegetable giant in Iberia.

PHOTO : Guy Emery points out that STEF, which began freezing and packaging at its Valence depot a few years ago, continues to diversify its services.

PHOTO : Low freight rates have forced many food transportation companies onto the block, says Christian Cartier (l), head of logistics for Frigorifiques de l'Union. But on the warehousing side, French companies are holding their own, points out Herve de Robien (r), director.

MARY B. DAVIS QFFI Special Correspondent
COPYRIGHT 1990 E.W. Williams Publications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Warehousing World
Author:Davis, Mary B.
Publication:Quick Frozen Foods International
Date:Oct 1, 1990
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