Woolworths breaks ground on new $135m distribution centre

Woolworths has commenced building works on the supermarket’s new Melbourne Fresh Distribution Centre (MFDC) in Truganina, Melbourne.
The multi-million state-of-the-art facility, which will be built by Vaughan Constructions, will store and deliver fresh produce and chilled products to hundreds of Victorian supermarkets, create 200 jobs during construction and 300 permanent new jobs when it opens in late-2020.
The custom-designed facility will replace Woolworths current operations at Mulgrave, and provide the leading national retailer with a market edge in terms of supply chain dynamics. The MFDC will be co-located with Woolworths’ meat supplier Hilton Meats’ production facility.
Co-location with Hilton and closer proximity to more fresh food suppliers will take up to 600 trucks off the West Gate Bridge each week and a further 3,000 truck movements off Melbourne roads each year.
“This development will help us deliver top quality fruit and vegetables to our customers fresher, faster and more efficiently than ever before. At one-and-a-half times the size of the MCG field, the distribution centre will provide a significant uplift in capacity to support our continued growth in Victoria. We’re proud to be investing in a best-in-class supply chain network in Victoria – delivering fresher food to our customers, taking trucks off Melbourne’s roads, and creating hundreds of new jobs,” Woolworths Chief Supply Chain Officer Paul Graham said.
At full capacity more than one and a half million cartons a week will move through MFDC bringing customers fresh fruit and vegetables and chilled goods from more than 500 suppliers.
The $135m investment on the MFDC is majority funded by landowner Charter Hall, with Woolworths signing an initial 15-year lease on the site. This builds on an extensive national relationship between Woolworths and Charter Hall across both industrial and retail properties.
The commissioning of the MFDC will take around 600 truck movements off the West Gate each week as Truganina is located closer to more Woolworths suppliers than Mulgrave. Co-location with Hilton Meats will take a further 3,000 truck movements off Melbourne roads each year as it eliminates shuttle runs between Mulgrave and Truganina.
The MFDC is also targeting a Five Star Green Star rating from the Green Building Council of Australia, with a solar panel system on the roof, charge points for electric trucks, and fuel savings of more than 400,000 litres each year from transport efficiencies. The Mulgrave Produce DC will continue to operate until the MFDC opens in late 2020.

Last week, Woolworths has announced that it will be divesting Endeavour Drinks alongside the ALH Group within half a year after successfully merging the two businesses.

Woolworths divests Endeavour – preparing for Kaufland?

Last week, Woolworths has announced that it will be divesting Endeavour Drinks alongside the ALH Group within half a year after successfully merging the two businesses.
Now called Endeavour Group, it has been measured to be the largest combined segment that spans both the drinks and hospitality sectors. Woolworths is expected to continue holding an 84% stake in the business during the second half of the year, but will eventually just hold a minority stake after demerging.
The decision was said to be for the sake of simplifying and streamlining Woolworths’ core grocery business and it was certainly a good move as far as its shareholders see.
However, retail analysts and thought leaders are also noticing that the grocery giant is actually exhibiting a familiar pattern of behaviour.
“We already had the demerger of Coles from Wesfarmers. Now, Woolworths’ streamlining its operations in a likewise manner,“ said Phil Chapman, director of retailer lease consulting firm Lease1. “It is clear that the Big 2 are preparing for the new wave of competition from foreign giant Kaufland. Retailers who rely on supermarket traffic need to be aware that the pressure is building.”
Kaufland is part of the fourth largest grocery conglomerate in the world and made its move into the Australian market back in March earlier this year. Industry analysts have observed that its arrival has prompted immediate response from the country’s famed Big 2 in the form of ramped up efforts to streamline their respective businesses. These include simplifying their organisational structure and preparing for more digitisation across several areas of their company.
And without a doubt, this may extend to retailers who position themselves close to the Big 2’s many giant supermarkets. Kaufland’s inevitable clash may require them to either seek new ways to depend on getting foot traffic outside with less dependence on grocers or reposition themselves to gain from Kaufland’s arrival.

Graph stock held by manufacturers and retailers, as measured by Days of Supply in Inventory (DSI), has actually risen over the past ten years

Inventory levels booming, not receding

It could be assumed that several decades after supply chain management practices such as ‘lean’, ‘build-to-order’ and ‘just-in-time’ became accepted across industry, inventory levels would have seen a steady and inexorable decline.
However, the latest report by Transport Intelligence, Inventory Benchmarking Vertical Sector Trends, has found that the stock held by manufacturers and retailers, as measured by Days of Supply in Inventory (DSI), has actually risen over the past ten years.
This data, based on the financial reports of 187 manufacturers and retailers located around the world reveals that, on average, companies in 2017 were holding ten more days’ stock than in 2008: increasing from 80 to 90 days.​ The research also found that the retail industry operates with the lowest average DSI: 33 days in 2017. At the other end of the spectrum, the pharmaceutical sector operates with an average of 186 days.
One of the authors of the report Professor John Manners-Bell said this indicates that reducing inventory levels is just one of a number of competing goals for many companies.
“Despite the textbooks telling us that inventory reduction should be the main goal for supply chain managers, the present market environment requires a far more sophisticated approach, balancing a range of important objectives,” Professor John Manners-Bell said.
Examples of this new approach include Walmart, which now regards the availability of stock to purchase by consumers as a major factor in its existential battle with Amazon, despite the inevitable consequence of higher inventory.​ Lenovo and Hewlett Packard took a similar approach to building up inventory in order to maintain product availability in physical stores in contrast with Dell’s lean inventory strategy.​ Risk is also a factor, as companies seek to avoid the supply chain problems they faced after a number of high profile disruptive events in the early part of the decade, such as the Thai floods and Japanese tsunami.
Co-author Andy Ralls added: “A focus on achieving an appropriate amount of inventory is and always will be hugely important to efficient supply chain management. However, as our research shows, competing priorities, be they driven by e-commerce, changing customer demands, product development, risk or even regulatory requirements, have caused many companies to fundamentally assess their supply chain strategies.”

About Inventory Benchmarking Vertical Sector Trends

A critical benchmark for inventory management, Inventory Benchmarking Vertical Sector Trends compares many of the world’s leading manufacturers and retailers against key financial supply chain metrics.
In particular it:

  • Defines the key ratios available from financial disclosures.
  • Conducts a by-industry vertical sector analysis of inventory management and benchmarking data for the high tech, automotive, retail, pharmaceutical, fashion and consumer goods industries.
  • Examines the supply chain and inventory management strategies of selected blue chip companies with reference to these benchmarks.
  • Where available, examines the different types of inventory held by these companies and how these have changed.
  • Compares and contrasts the performance of these companies.

More information is available here.

Australian retail: officially in recession

Phil Chapman

“GFC-level terrible.”
Those were the words of NAB group chief economist Alan Oster when commenting on the state of the retail sector during an NAB Economics podcast. This was in light of a recent leading business survey declaring that the sector was “clearly in recession.”
The dire situation, however, seems to have actually escalated in just the past few months compared to the last two years. Firms behind popular retail brands like Focus on Furniture are, going into administration while company closures in the sector have become increasingly rampant.
The recent disruptions due to e-commerce, coupled with the slow growth of the Australian economy, were already doing enough damage to the sector but retailers are now officially calling it a crisis.
To better understand how this decline had accelerated, one can also look at how retailers were behaving four years ago. Another retail survey by Macquarie Wealth Management notes a very steep contrast, as evidenced by the radical shift in attitude towards expanding floor space in stores.
“Retailers are far less bullish on their space requirements today than they were five years ago, when we first conducted this survey. Only around 7% of large retailers currently intended on increasing space on a one-year view. This compares to around 61% back in 2014. In fact, 24% expect to decrease space over the next 12 months,’’ the report says.
With recession now on the minds of many business and thought leaders in retail, there has been increasing sentiment that rent reductions need to follow.
Finally, someone is saying the R word about Retail Trade- recession. The other Rs are rent reductions.”
But while rent reductions may ultimately be the only way out, finding the means to enable to those reductions will not be easy with rent rises deeply rooted in the current leasing system. Only time will tell if landlords will cave to the pressure of retail recession woes.
Phil Chapman is the director of retail leasing specialist Lease1.

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