Retail Moves - Supermarkets are in Change Mode

[Keith Woolford]

This article provides some insight into why changes are occurring in the retail grocery business. To my mind, prices can only increase as a result.

Supermarkets are in change mode

Retail Moves

Sales, mergers, turns in the business model and more competition. The Panama that is transformed.

Yolanda Sandoval 11 Nov 2018 - 00: 00h

 

They bill close to $ 8 billion a year. They are indispensable and are present in everyone's life.

If you need to buy a razor, a pound of cheese, a dozen eggs, a card to recharge the cell phone, the medicine to calm the pressure; everything and for all exists in grocery stores and supermarkets.

This week it was officially known that Grupo Rey is being sold. At least 60% of its shares will pass to the Ecuadorian Corporación Favorita, through a public offering of shares. The value of the transaction, including the $ 287.6 million in liabilities of the company, would be $ 560.6 million.

What's going on?

Grupo Rey, of the Tagarópulos family, is not the only business in the league of changes. It was preceded by Super Xtra, which partnered with the investment fund Southern Cross Group.

Founded in 1998, Southern Cross Group is announced as a private equity fund with investments in the Chilean company Gas Atacama, the Brazilian company Solaris and the Argentine company Ultrapetrol.

Panama, specifically through Xtra, was constituted in the last regional move of this group. The supermarket of the Harari family is part of the investments of Southern Cross since 2017.

The details of this transaction and the influence that Southern Cross could have on  Xtra are unknown.

Meanwhile, Super 99 drives a turnaround in its business under the advice of the US consulting firm Kroll, which began by assuming changes in the direction of the chain.

Kroll specializes in risk mitigation, which has visibly increased with the legal status of the chain's founder, Ricardo Martinelli.

For its part, the chain El Machetazo, of the Poll family, decided to do the same and right now it is dealing with what they have called a transformation in its management model. They face this new stage in the hands of the local consultancy ABCO Global, in which the ex-administrator of the Canal, Alberto Alemán Zubieta, participates.

This newspaper learned that El Machetazo is working on the restructuring of its debt with the banks in the plaza, something that is paying off in agreement with the executives of the financial sector. "It is a business with solid guarantees and a guaranteed clientele, which is changing its model to be more efficient," said a banking source.

What is driving this change in direction?

Each of these businesses was born as small family stores and they are facing what they call the "pains of growth". Whether by will or forced by a fierce competition, they are taking a leap to be more corporate. They look for ways to be sustainable, invest in their processing centers to get a name linked to quality and be more efficient in their operations.

The service they provide is fundamental in this adult stage of their lives. Clients seek, in addition to good prices, satisfactory experiences in the midst of important changes in their consumption habits.

To make the improvements, some need external help. The consultants try to change, in many cases, an inefficient culture of purchases and inventory management. Business lines are sacrificed that were maintained without being profitable and focus on areas with greater potential.

Others, after stumbles and mistakes that cost millions of dollars, have already been part of that in-house work, but to keep growing they need the financial and operational muscle of a big brother. The arrival of a partner can shorten the path to face the competitive market. They have access to less expensive raw material. And when they sell only part of their shareholding, they receive an incredible amount of capital, with the advantage that they will continue to savor the future successes of the business.

Competition

The competition with each other and with the grocery stores, combined with the arrival of new players, would paint a scenario of more options for consumers. All supermarkets have embarked on a process of expansion to serve the suburbs of the city and the growing demand in the provinces. Riba Smith is a good example of this strategy. Until more than a decade ago they only had two branches, one in Bella Vista and another in Transístmica, and now they operate more than eight stores and a huge production center in Capira.

Colombian Justo y Bueno, which represents a choice between grocery stores and supermarkets, quietly arrived in Panama and already has 45 points of sale, ranging from Penonomé to Colón, according to its website.

The table is served!

https://impresa.prensa.com/economia/movidas-retail_0_5165483417.html

Edited November 11, 2018 by Keith Woolford

[Uncle Doug]

You can also make the argument that as these operations become more efficient, they can  undercut the competition with lower prices.

[Keith Woolford]

The big outfits certainly have an identifiable target.  "55% of the market is dominated by small grocers"  while  "45% is in the hands of supermarket chains".

Smaller grocery stores operated by Chinese seem to be in every corner of the Panamanian landscape.

Good supply chain management is critical. Anyone else remember when Rey and Romero were struggling with the implementation of an "order-to-shelf" system which led to a lot of empty shelves? 

I suspect it was after that debacle that Grupo Rey went looking for strategic partners with more expertise.

News>Retail & Financial

Why more retailers are using an order-to-shelf system to manage inventory

This old practice is gaining new attention thanks to Whole Foods and Target

Gloria Dawson | Jan 23, 2018

 

Whole Foods Market

Last week a Business Insider story took a close look at Whole Foods shelves across the country. And they came up empty. Or at least with empty shelves. The story revealed food shortages that employees blamed on a recently implemented inventory management system known as order-to-shelf.

Essentially, order-to-shelf is a “pretty old practice of the distributor replenishing the inventory at the retailer,” said Fangruo Chen, a professor at the Columbia Business School who studies supply chain management. It’s a practice historically carried out in manufacturing where it’s often called vendor-managed inventory. Distributors and suppliers usually deliver small batches of product and retailers keep little to no inventory on hand.

Whole Foods announced it was rolling out this “order-to-shelf” initiative in an earnings call last February. Order-to-shelf has the potential to reduce store labor and inventories, said John Mackey, then-CEO of Whole Foods.

Target has also said it would implement a similar system.

“Fundamentally, we are changing how we move product,” said Target CEO Brian Cornell during an analyst meeting also in February. “In the future, we know we’ll still have to move cases. But to move product faster and to manage the growing digital demand, we have to start moving individual items.”This inventory system was popularized by Toyota, said Chen. They called Just-in-Time manufacturing because suppliers sent small batches of components just in time to get them  on the assembly line.embly line.

Now retailers are trying out this system with mixed results.

“In order to make it work, it really [requires] a lot of coordination, and the retailer supply chain might not be used to this kind of close coordination,” said Chen. “So there's some learning that needs to be done.”

When there’s a communication breakdown between retailer and distributor, you can end up with the food shortage and empty shelves that have customers and employees up in arms. While retailers embrace the order-to-shelf inventory system because it can save space and the time it takes to organize and manage inventory, “if you run out of stock that potentially is much more damaging than keeping inventory,” said Chen.

Retailers need a sophisticated supplier to work with, and a small supplier might not be up to the task.

But the trend toward order-to-shelf is growing in retail for a number of reasons, said Chen.

For one, retailers are seeing how well the system works for manufacturers. “There's nothing really very different here,” said Chen. “The only thing different, I would say, is that retailers are facing customers directly and therefore the demand could be more volatile and unpredictable.”

Another reason for the move to order-to-shelf: Retailers are looking to compete with on-demand groceries, which often have the luxury of remote, low-cost warehouses.

Suppliers have also been affected by on-demand services.

“I think the other aspect is [due to] these on-demand deliveries, the logistics industry became much more sophisticated,” said Chen. “[Suppliers] learned how to do small batch delivery and that kind of capability makes it possible for the retailers to move to something like order-to-shelf.”

There are challenges ahead for retailers trying order-to-shelf, but reorganizing and eliminating costs can help retailers in the long run, said Chen.

“I think basically what we're saying here is that retailers have eventually woken up to the idea of supply chain management. And I think that's a good thing.”

https://www.supermarketnews.com/retail-financial/why-more-retailers-are-using-order-shelf-system-manage-inventory