Logistics strategy for your market.
An interesting question was recently asked of Sir Terry Leahy, the retired chief of British retailer Tesco. The question related to the penetration of private label items as a percentage of total sales.
His response was that in the UK, private label had acquired a reputation with consumers, through the policy of retailer Marks and Spencer, which is to provide 100 per cent private label of high quality. As other retailers in the UK incorporated private label into their product range, so consumers accepted the approach. However, Leahy noted that for supermarket retailers located in many countries, only between 30 and 50 percent of total sales was possible for private label items; the actual amount would depend on consumer acceptance of the policy.
A retailer that sells 100 per cent branded product lines, expects the owners of brands to do all that is necessary to maintain shelf space. This influences the relationships between suppliers and the retailer; the resulting supply network will inform the logistics strategy of the retailer.
When a private label policy is introduced, the suppliers of these items become an extended part of the retailer. These businesses are integral to the retailer’s reputation. It means that the retailer and suppliers must work together in getting product to the shelf for sale.
From the retailer’s logistics perspective, this means involvement in the business of suppliers. Examples of being involved are in design of protective packaging, suppliers’ S&OP process, optimisation of inventory through the supply chains and payment cycles. In short, a private label policy forces a change in the retailer’s logistics strategy.
The question is, at what level of private label business does the logistics strategy change and are consumers willing to accept that level? If not, the retailer is making an investment in logistics that will not provide a sufficient return.
This example illustrates your approach to the logistics strategy for your business – it must be yours. Not defined by what your competitors are doing, nor by that promoted in the media as ‘best practice’ – its only best for the company that is implementing it!