The long-running battle for the commanding heights of the British grocery trade is entering a new, and possibly decisive, phase. Its outcome could well depend on one of the latest retail methodologies developed in the US.
Across the Atlantic, Efficient Consumer Response (ECR) is all the rage. It depends on stronger links between supermarkets, their suppliers, and their suppliers' suppliers. At the checkout, the purchase of a can of beans triggers a replenishment decision in the supplier's warehouse, plus orders for more raw beans, cans and labels further up the line. The overall effect: inventories tumble while stockouts become less common. Better information about what customers are actually buying enables trends to be spotted more quickly and 'category management' techniques implemented more precisely.Instead of running their own complex stock replenishment systems, retailers can farm out the whole problem to their suppliers. All they need do is build the data links between the barcode readers at the checkouts and the computers at the suppliers' - and tell the suppliers' executives that inventory management is their responsibility from now on. The US government is reportedly so concerned about the economic effect of the wholesale slashing of stockpiles that it is keeping a close watch on the technique's take-up.
Right across the US, retailers and suppliers are scrambling to board the bandwagon. British companies have so far been rather cooler about ECR. 'They may yet change their minds,' says Alan Waller, a partner in Coopers & Lybrand. But Waller sees several problems with adopting ECR in the UK. One is the high incidence of own-label goods, which complicates matters by making retailers, in effect, their own suppliers. Another is the level of partnership involved, and the need for open exchange of electronic point-of-sale data. But the biggest difficulty may be that UK retailing is 'already world class' - at least by the standards of the US, where pipeline inventories can exceed 100 days' worth of sales.
The only major UK retailer to experiment with the concept is Somerfield, the re-badged Gateway chain, which has launched a pilot project with a number of suppliers including Bass, Cadbury, Kraft Jacobs Suchard, Nestle and RHM Foods. 'We're in catch-up mode,' admits supply chain director Karen Myers, pointing out that Somerfield, with around four weeks' worth of inventories, probably has the highest stocks of any of the Big Six supermarket chains. Nevertheless, Myers is careful to distinguish between the vendor-managed inventories of ECR-proper and the jointly managed approach of Somerfield and its partners. 'We are not handing over full responsibility to our suppliers,' she says.
It's almost inevitable that the future of ECR in the UK will be decided by the two supermarket giants, Sainsbury and Tesco. Sainsbury's response has been decidedly muted. A spokesperson primly explains that, although the company is aware of the concept, it 'doesn't use it, has no plans to use it, and feels (its) own systems to be superior - although we naturally take all new developments into consideration'.
Tesco is more positive. The company now trumpets some of the logistical skills that have boosted its recent growth. Last year, for instance, just-in-time supply allowed it to add an extra 35,000 sq ft of sales space to its stores simply by cutting out stockrooms. ECR is now being carefully examined for the further benefits that it might bestow, according to Barry Knichel, divisional director of stock management.
Pointing out that Tesco's inventory is already two weeks' worth of sales - against the four weeks being touted as a target by ECR's proponents in the US - Knichel considers that the debate over who manages the inventory is probably a red herring. 'Suppliers would rather respond to our inventory requirements than manage them,' he says. It's the subtleties of the technique that attract Tesco: the slicker category management and the opportunity for speaking to suppliers with one voice. 'We are now a diversified organisation and so are many of our suppliers.'
So will ECR catch on? Only time will tell. UK manufacturing has learned - the hard way - to consider new ideas carefully before rejecting them. The survivors can be accused of jumping on every new bandwagon, but they've seen the consequences of regarding themselves as above it all. Process innovation has been somewhat rarer in retailing. The flexible response of Somerfield and Tesco could serve better than Sainsbury's isolationism.