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

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

The persistent demand from the end consumerfor 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 bynon-competing suppliers working together. Supply Chain best practices are now lookingtowards collaborative logistics, with non-competing suppliers consolidating their loads,from pallet to consignment level, affording the retailer overall savings throughout theSupply Chain from logistics to store operations. The retailers’ distribution networks areincreasingly serving as cross-docking stations. Suppliers can no longer be protectiveabout their service agreements with their customers. Cost savings throughout the SupplyChain have typified the outcome of these initiatives. Improved service levels to thecustomer have been realized through the availability of a shared logistics infrastructure.

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

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

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

Penetration of electronic enablers remainsstrong in both sectors. E-mail and EDI continue to be the most likely forms of technologyin which companies have invested. Last years’ Survey saw EDI and e-mail being rankedhighly in terms of business importance; this trend is reinforced by the results this yearwhich show the continuing importance that companies place on these technologies. Only lastyear, companies were placing low emphasis on intranet and extranet technologies. In just ashort time, this trend appears to have shifted, with focus moving towards thesetechnologies. The internet is offering increasing opportunities for branded suppliers toreach their consumers directly, regardless of the retail channel through which the brandis 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 includesoftware that enables business to plan and forecast jointly, and to monitor new productdevelopment. When end consumers are ranking service and good range above cost and valuefor money (A. C. Nielsen Homescan Survey 1997), there will be increasing pressure from allchannels on suppliers to continue to invest in new product development.

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