30 April 2018
Nichola Silveira, General Manager, Logistics, DP World UK
Last week was a good one for Jeff Bezos. Amazon’s founder owns 78.83 million share in the tech giant, which surged to new heights on intraday trading after its latest earnings beat expectation – gaining him $5 billion. Its big bricks and mortar rival Walmart has been under growing pressure. So, when the story around its proposed tie-up in the U.K. with Sainsbury’s, the second largest supermarket, some saw this as a retrenchment enabling Walmart to focus on home turf.
While Amazon’s $13.7bn acquisition of Whole Foods came out of the blue last year, the tie-up between Sainsbury’s and Asda, Britain’s second and third-largest food retailers respectively, is less of a surprise. The country’s embattled high street - and in particular, its low margin food retail sector - has struggled amid stiff competition and rising costs.
Asda, which Walmart acquired for £6.9bn in 1999, has around 630 U.K. stores, including 339 superstores – big box, out of town megadomes which are increasingly laying empty across the country. They’re more focused around the North while Sainsbury’s, with around 1,400 stores – half of which are smaller, convenience outlets – has a greater presence in the South. The combined business will employ around 330,000 people, across a network of 2,800 Asda, Argos and Sainsbury’s stores, creating one of the UK’s leading food, general merchandise and clothing retailers.
Real estate is by far the biggest assets these companies have. The potential, however, lies in the store locations, where Sainsbury’s convenience store network would be crucial for the company to find a proper footing in online retail – much like with its acquisition of Argos which saw an almost overnight revival in fortunes thanks to its network. While this morning’s announcement states there are no plans for store closures, the large sites in inner city areas can undoubtedly become profitable logistics hubs, serving huge amounts of urban customers.
Although major American stores like Macy’s and British equivalents like BHS and Debenhams have collapsed alongside giants like Toys R Us, none focused on essential spending. While regulators and competitors may question the deal - which would combine the 16% shares that both Asda and Sainsbury’s have in the market, surpassing Tesco’s 28% - grocery demand is soaring.
According to IGD, Europe’s grocery retail market will grow by a compound annual growth rate (CAGR) of 3.7% between 2017 to 2022, adding €377.6 billion to the global market. It will be worth a staggering €2,289 billion by 2022 – fuelled largely by growth in eastern Europe. The U.K. will grow from €216 billion to €250 billion.
While disposing of surplus real estate will be relatively easy, the question marks over integrating the chains’ logistics platforms will be harder to solve. The increased heft of the merged business will offer scale and enhance its buying power, provided the right efficiencies could be found in the way it predicts what inventory it needs, prevents waste and moves stock around. Yet, to truly lead the charge, the company needs to use its logistics network and capacity to reimagine its offering for customers.
In an world where connectivity is a major driver of business efficiency, the post-merger company will need to create a single omnichannel offering, providing a seamless shopping experience where its online and physical operations are fed by the same data, informing its customer intelligence and giving it a vital edge in the market. Right now, no supermarkets combine the two, making customer profiles almost useless.
By aligning data systems, customer demand data can be used to manage inventory, helping to predict peaks, product demand cycles and making best use of physical space across bricks-and-mortar stores. Putting customer demand data at the centre of your operation gives you unparalleled insight into many areas of consumer life – areas that marketeers have laboured over for decades. The value to be captured here cannot be underestimated.
While customer offering is integral to the success of any retailer, a company cannot become a stalwart without a lean and robust logistics network. For retailers in the age of omnichannel, the supply chain is where efficiencies are gained and value created. Both Sainsbury’s and Asda have grown up through a string of mergers, before the internet. Their real estate holdings, and the supply chains that cater for them, are inefficient but are still a vital part of their profit and structure.
Re-aligning how they move goods around from A to B will take bravery but will ultimately give them a competitive advantage. The new management team will have to scrutinise every aspect of their supply chain legacy, identifying where inefficiencies can be squeezed out and where new gains can be made. As the demand for groceries continues to soar, and customers demand a greater number of goods for every corner of the global, retailers will need logistics partners with port operations that can shave hours, minutes and seconds off their supply chain.
Intermodal port capabilities, much like those that the DP World network possesses, can help retailers get their fresh produce off ships, onto rail or road and then onto shelves in a much shorter time than many legacy networks. This, combined with demand planning capabilities and yard transparency, gives retailers extra capacity in the areas they need it and the actionable expertise to create a competitive edge within the market.
As the Sainsbury’s and Asda deal unfolds, an opportunity to reimagine the customer offering of food retailers, and the supply chain that makes it possible, will present itself. The victors will be the ones that scrutinise their legacy networks, compress their operations, embrace cutting edge technology and choose the right logistics partners. With grocery demand only going one way, it’s all to play for.