Retail

Grocers Hold Food Suppliers To On-Time Deliveries

In the wake of success for online firms like Amazon, grocers are cracking down on late shipments to ensure items are restocked quickly and to keep customers coming back. They’re also attempting to win back some of the $75 billion lost each year to unavailable or out-of-stock retail products.

According to news on Monday (Nov. 27) from The Wall Street Journal, grocers like Walmart and Kroger have levied fines against food suppliers for late deliveries, charging 3 percent and $500, respectively, for every order that arrives outside the specified delivery window.

“It’s a massive opportunity from a financial and customer standpoint,” noted Robert Clark, senior vice president of merchandising at Kroger. “If it was an occasional issue, it wouldn’t have been worth the time and effort [to police deliveries].”

While retailers have previously been more forgiving about delivery windows, the sales lost to a late arrival have had a large impact on the industry. Imposing fines on late deliveries could save as much as 10 percent of total annual grocery sales, according to data from the Food Marketing Institute.

“An out-of-stock [notice] on an important can product can lead to thousands of lost customers in a given day,” said Ken Goldman, a food analyst at JPMorgan Chase.

Logistics technology has also been a big part of the decision. With new tracking capabilities involved in shipping and receiving, and GPS and software available to allow drivers to change routes as needed, grocers are expecting more out of food suppliers’ drivers.

Those same innovations could also negatively impact suppliers as grocers issue fines, many of which have made costly investments to improve supply chains but may not yet be seeing a significant return on investment. Grocers appear to be serious about imposing the fines, though, with firms like Walmart notifying its suppliers that companies’ allotted shelf space could be at risk if they do not comply with its on-time delivery rules.

As many companies work to improve their logistics — investing in technology, restructuring operations, closing and opening enhanced warehouse facilities, adopting new practices and more — some suppliers do not have the capital or warehouse infrastructure to comply with grocers’ requests 100 percent of the time.

“Shipping complete orders on time is a completely reasonable request, but it turns out it’s harder than it sounds,” said Steve Matthesen, chief executive officer at consumer packaged goods sales and marketing agency Acosta Inc.

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