Western Europe and the US are in a period
of economic consolidation. In the countries surveyed, grocery retailing is typically the
most important component of retail sales; spending on food and beverages however is under
competitive threat from other leisure activities. Market growth in grocery retailing is
slowing, with consumers looking to alternative channels. Given this, the relative power of
grocery retailers is not likely to change as they become increasingly skilled and
challenged to provide innovative services to their customers. In turn, these changes will
force suppliers to be increasingly flexible in terms of production and delivery, able to
service a growing number of retail formats and channels from an improving cost base.

The mix of merchandise sold through grocery
retailers is changing rapidly. The last few years have seen unprecedented growth in the
market for chilled and convenience foods. As consumers in developed economies across the
world are subject to increasing pressures, this trend is unlikely to reverse. The pressure
is on for suppliers to be increasingly responsive, particularly in the chilled food chain.
Success in these markets for the supplier involves advanced forecasting methods, tightly
controlled production costs, high levels of traceability and innovative and rapid new
product development.

The persistent demand from the end consumer
for value for money is forcing both retailers and suppliers to work more closely together.
This is happening not just in the traditional buyer/supplier way, but increasingly by
non-competing suppliers working together. Supply Chain best practices are now looking
towards collaborative logistics, with non-competing suppliers consolidating their loads,
from pallet to consignment level, affording the retailer overall savings throughout the
Supply Chain from logistics to store operations. The retailers’ distribution networks are
increasingly serving as cross-docking stations. Suppliers can no longer be protective
about their service agreements with their customers. Cost savings throughout the Supply
Chain have typified the outcome of these initiatives. Improved service levels to the
customer have been realized through the availability of a shared logistics infrastructure.

As Figure 1 shows, adoption of Efficient
Consumer Response/ Efficient Response (ER) continues to be relatively high in the
countries surveyed. ER is considered the strategy most likely to deliver efficiencies and
benefits throughout the Supply Chain. There is little surprise that the adoption profile
by country is closely aligned with the adoption by country on the retailers’ side of the
demand:supply relationship. Later in this report, we will see that many companies have
some way to go before their ER strategies are fully implemented. Although, for most
businesses with an ER strategy, implementation is beyond the planning stages, with several
countries, notably the US, UK and Australia, having more than 20% of businesses
approaching full ER implementation.

Companies in all sectors, both
manufacturers and distributors/ wholesalers recognize the importance of investment in
manufacturing systems. The Survey this year has focused on two areas: quality management
in the form of hygiene and traceability, and plant floor control. During the past few
years, products from several manufacturers have been the subjects of recalls, a process
that is costly to all involved. Hygiene and traceability systems and plant floor control
systems both have an important part to play in managing quality.

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By GlobalData

Recent focus has turned to potential risks
associated with Genetically Modified Organisms (GMOs). Retailers are coming under
increasing pressure to highlight the presence of GMOs to customers; suppliers will face
increasing pressure to be able to trace the ingredients of all food and beverage products
to meet consumer pressure and legislation in this area. In some countries, consumers are
calling for a moratorium on the use of GMOs, in others, there is a call for genetically
altered food products to be treated in a similar way to drug products, undergoing the same
level of research and development. During the coming months, the decisions made in this
area will have a significant impact on manufacturing processes both in terms of cost and
especially in the sourcing and tracing of raw materials from field to refrigerator.

Penetration of electronic enablers remains
strong in both sectors. E-mail and EDI continue to be the most likely forms of technology
in which companies have invested. Last years’ Survey saw EDI and e-mail being ranked
highly in terms of business importance; this trend is reinforced by the results this year
which show the continuing importance that companies place on these technologies. Only last
year, companies were placing low emphasis on intranet and extranet technologies. In just a
short time, this trend appears to have shifted, with focus moving towards these
technologies. The internet is offering increasing opportunities for branded suppliers to
reach their consumers directly, regardless of the retail channel through which the brand
is sold.

Companies are beginning to invest jointly,
and over the medium to long-term in collaborative tools that use the internet as a medium.
For suppliers and customers working in close partnership, these tools typically include
software that enables business to plan and forecast jointly, and to monitor new product
development. When end consumers are ranking service and good range above cost and value
for money (A. C. Nielsen Homescan Survey 1997), there will be increasing pressure from all
channels on suppliers to continue to invest in new product development.

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