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.

Australian retail turnover fell 0.1 per cent in April 2019, seasonally adjusted, according to the latest ABS Retail Trade figures.

Retail continues to struggle, back on the slide

Australian retail turnover fell 0.1 per cent in April 2019, seasonally adjusted, according to the latest Australian Bureau of Statistics (ABS) Retail Trade figures.
This follows a rise of 0.3 per cent in March 2019.
“There were mixed results across industries,” said ABS director of quarterly economy-wide surveys Ben Faulkner. “We had falls in Household goods retailing (-0.9 per cent), Cafes, restaurant and takeaway food services (-0.7 per cent), and Clothing, footwear and personal accessory retailing (-1.2 per cent), which were offset by rises in Other retailing (0.8 per cent), Department stores (1.8 per cent), and Food retailing (0.2 per cent).”
In seasonally adjusted terms, there were falls in New South Wales (-0.4 per cent), Victoria (-0.4 per cent), the Northern Territory (-0.5 per cent), and the Australian Capital Territory (-0.2 per cent). There were rises in Queensland (0.7 per cent), South Australia (0.6 per cent), Western Australia (0.1 per cent), and Tasmania (0.3 per cent).
The trend estimate for Australian retail turnover rose 0.2 per cent in April 2019, following a 0.2 per cent rise in March 2019. Compared to April 2018, the trend estimate rose 2.9 per cent.
Online retail turnover contributed 5.7 per cent to total retail turnover in original terms in April 2019, which was unchanged from March 2019. In April 2018, online retail turnover contributed 5.4 per cent to total retail.
More detailed industry analysis and further information on the statistical methodology is available in Retail Trade, Australia (cat no. 8501.0).

Women-shopping-in-supermarket-retail

Retail rises 0.3% in March

Australian retail turnover rose 0.3 per cent in March 2019, seasonally adjusted, according to the latest Australian Bureau of Statistics (ABS) Retail Trade figures.
This follows a 0.9 per cent rise in February 2019.
“Cafes, restaurants and takeaway food services (1.4 per cent) and Food retailing (0.4 per cent) led the rises,” said Ben Faulkner, director of quarterly economy-wide surveys. “Strength in food prices has contributed to rises, especially in supermarkets and grocery stores. Clothing, footwear and personal accessory retailing (1.2 per cent) and Household goods retailing (0.2 per cent) also rose. The rises were partially offset by falls in Department stores (-1.5 per cent) and Other retailing (-0.4 per cent)”.
In seasonally adjusted terms, there were rises in Victoria (0.7 per cent), Queensland (0.6 per cent), New South Wales (0.2 per cent), Tasmania (0.4 per cent), South Australia (0.1 per cent), and the Northern Territory (0.7 per cent). The Australian Capital Territory was relatively unchanged (0.0 per cent) and Western Australia (-0.7 per cent) fell in seasonally adjusted terms in March 2019.
The trend estimate for Australian retail turnover rose 0.3 per cent in March 2019, following a rise of 0.3 per cent in February 2019. Compared to March 2018, the trend estimate rose 3.0 per cent.
Online retail turnover contributed 5.7 per cent to total retail turnover in original terms in March 2019. In March 2018 online retail turnover contributed 5.1 per cent to total retail.
For the March quarter 2019, there was a fall of 0.1 per cent in seasonally adjusted volume terms. This follows a relatively unchanged (0.0 per cent) result in the December quarter 2018. The quarterly fall in volumes was led by Household goods retailing (-0.6 per cent), and Department stores (-1.2 per cent). Cafes, restaurants and takeaway food services (1.0 per cent), Other retailing (0.3 per cent), Food retailing (0.1 per cent), and Clothing, footwear and personal accessory retailing (0.3 per cent) all rose in seasonally adjusted volume terms.

Woolworths, Aldi increase their slices of the pie in 2018

Woolworths has increased its lead as Australia’s top grocery retailer, boosting its share of Australia’s total grocery market to 34% in 2018, up 1.4ppts from a year ago, according to Roy Morgan’s latest survey data contained within the Supermarket & Fresh Food Currency Report.
While Woolworths increased its market share, the newly independent Coles now has a share of 27.6% of the total grocery market, down 1.6ppts on a year ago. German supermarket Aldi has had a good year in 2018, growing its market share to 11.4%, up 0.5ppts from a year ago.
The other winners over the past year were Other Supermarkets outside the ‘big four’ such as 2018 Roy Morgan Supermarket of the Year Award winner Foodland, Foodworks and other supermarkets that increased their share of the total grocery market to 9.1% (up 1.2ppts), while IGA’s grocery share was down 0.4ppts to 7.1%.
 

Total grocery market – % market share 2017 cf. 2018. Source: Roy Morgan Single Source. Base: Grocery Buyers 14+, Jan-Dec 2017, n=12,312, Jan-Dec 2018, n=12,310.

Woolworths dominance is built on strong leads in key fresh food categories with the Sydney-headquartered retailer holding the largest market share in dollar terms for fresh meat, fresh deli, fresh bread and fresh fruit and vegetables ahead of Coles, Aldi and IGA supermarkets.
Over the last year Woolworths has grown its market share in dollar terms across all four fresh food sub-categories and increased its lead over nearest rival Coles. The two brands currently dominate Australia’s fresh food markets holding over 50% of each of the fresh food markets.
The December Supermarket & Fresh Food Currency Report is compiled from data collected as part of Roy Morgan’s Single Source survey, which involves more than 50,000 in-home, face-to-face interviews each year, including more than 12,000 detailed surveys of grocery and fresh food buying behaviour.
Roy Morgan CEO Michele Levine said the impressive performance of Woolworths over the last year has Australia’s leading grocery retailer in a strong position to deal with the entry of German ‘hypermarket’ Kaufland into Australia’s $100 billion+ grocery market.
“Australia’s leading supermarket chain Woolworths has increased its lead in the increasingly competitive grocery market in 2018, now capturing over a third of Australia’s total grocery spending in 2018 – up 1.4ppts to 34% from a year ago.
“The successful year for Woolworths has been built upon strong performances across the four key categories of fresh food. Woolworths has grown its market share in dollar terms for fresh meat, fresh deli, fresh bread and also fresh fruit and vegetables, and is the market leader in all four categories ahead of main rival Coles.
“The demerger of Coles Group from industrial conglomerate Wesfarmers in the December quarter of 2018 means Australia’s second largest supermarket chain now has the opportunity to refocus on its core business ahead of the imminent arrival of German retailer Kaufland.
“Kaufland has already bought six industrial sites in Melbourne at which it plans to open its successful ‘hypermarkets’ over the next two years before rolling out stores Australia-wide following in the footsteps of fellow German retailer Aldi. Aldi also had a good year in 2018 and grew its share of the total grocery market by 0.5ppts to a new high of 11.4%.
“In addition to Kaufland, the Australian grocery market is also anticipating a rollout of the ‘Amazon Fresh’ brand in the near future after the American Internet giant launched a food and grocery segment (although not yet fresh food) in the December quarter 2018.
“The increasingly competitive $100 billion+ grocery market in Australia means it is more important than ever for companies operating in the grocery and fresh food sector to track precisely where their customers, and future customers, live, work and shop,” Ms Levine said.
 

Smarts in retail: survey finds tablets useful

Survey finds two-thirds of retail store workers believe they can provide better customer service with tablets – less than 15% of shoppers completely trust retailers to protect personal data.
Zebra has revealed the results of its 11th annual Global Shopper Study, analysing the attitudes, opinions, and expectations of shoppers, retail workers and retail decision makers. The results show that two-thirds (66 per cent) of surveyed workers believe that if they are equipped with tablets, they could provide better customer service.
Fifty five per cent of surveyed retail store workers agree that their company is understaffed, and nearly one-half (49%) feel overworked. Store workers cite frustration with their inability to assist customers as 42% find they have little time to help shoppers because of pressure to get other tasks completed. Another 28% claim that it’s difficult to get information to help shoppers. Most surveyed retail decision makers (83%) and store workers (74%) concur that shoppers can have a better experience with technology-equipped sales workers.
Meanwhile, only 13% of surveyed shoppers completely trust retailers to protect their personal data, the lowest level of trust among 10 different industries. Seventy three per cent of surveyed shoppers prefer flexibility to control how their personal information is used.
“Our study reveals shopper expectations are on the rise,” said senior vice president and chief marketing officer at Zebra Technologies Jeff Schmitz. “While retailers are addressing fulfilment challenges, they also need to provide more trusted, personalised shopping that gives customers what they want, when, where, and how they want it.”
The study also identified diverging expectations on the impact of automation between retailers and store workers. Nearly 80% of retail decision makers – compared to 49% of store workers – agree that staff checkout areas are becoming less necessary due to new technologies that can automate checkout. Also, more than half of retail decision makers (52%) are converting point-of-sale (POS) space to self-checkout, and 62% are transforming it for online order pickup.
More than one-half of shoppers (51%) believe they are better connected with their smartphones than store workers. Retailers are investing in edge technologies to combat this gap. Nearly 60% of retailers plan to increase their spending on handheld mobile computers by more than 6%, and more than one-in-five retailers (21%) plan to spend greater than 10% on rugged tablets over the next three years.
The key regional findings in the Asia-Pacific were:

  • Sixty-two per cent of retail workers view their employer more positively if provided with a mobile device for work-related activities.
  • Nearly half (49%) of retail workers say that mobile point of sale (mPOS) devices help them do their job better.

 

Coles signs on the dotted line for $950m automation project

Coles Group Limited has executed definitive contracts with WITRON Australia Pty Ltd to develop two new automated ambient distribution centres, one each in Queensland and New South Wales.
WITRON Australia is a subsidiary of WITRON Logistik + Informatik GmbH, the German-based builder of automated distribution centres that deliver improved product availability for customers and cost efficiencies.
Concurrently, Coles has also entered into agreements for lease catering for the development of the distribution centres at Redbank in south-west Brisbane with Goodman Group, and Kemps Creek in western Sydney, with a joint venture of Goodman and Brickworks Limited.
The term of each lease will be 20 years.
The agreements with WITRON, Goodman and Brickworks are subject to the satisfaction of certain property related conditions precedent including development approvals.
Coles CEO Steven Cain said: “With the signing of these important contracts, Coles is one step closer to implementing a key element of its supply chain modernisation strategy. This will provide a safer working environment for our team members, lower supply chain costs, enhance our overall business competitiveness and make life easier for our customers by having the right offer in the right location.”
The total capital expenditure relating to Coles’ supply chain modernisation project for the two automated distribution centres is approximately $950 million over six years.
Coles also said it will recognise a pre-tax provision of $146 million in its 2019 interim result as a significant item, relating to lease exit costs and redundancies for existing distribution centres that will be closed over a five year period.
 
 

Online disappointment: 53% deliveries are late

More than half of Australians (53%) have been left disappointed during the festive season after online orders failed to arrive on time, new research from location mapping company HERE Technologies has revealed. West Australians are the worst off with three in five left empty handed, while Tasmanian shoppers are the least likely to be left hanging during the festive season (41%).
With retailers and logistics companies struggling to meet booming digital shopping demands, late deliveries (47%) or inaccurate estimated delivery times (39%) topped the frustrations of online Christmas shoppers. The trauma of waiting for parcels to arrive before a festive event has caused stress and anxiety for 43% of buyers, and one in five has had to rush in-store for a last-minute gift when an online order failed to arrive on time.
“Order tracking in the last leg of the purchase is a crucial issue for retailers to address, as there is a clear mismatch between what customers expect and what is currently provided by retailers,” said head of Oceania at HERE Technologies Daniel Antonello.
“We know shoppers want to have more visibility and real-time information on their online orders, in fact 90% want to be able to track their parcel in the same way they can see where a Deliveroo or UberEats driver is with their dinner.”
“Given most of the frustrations faced by shoppers relate to shipping challenges, there is a huge opportunity to improve supply chain management and customer service with tracking technology, which our research shows customers would be willing to pay a premium for.”
Ensuring a seamless delivery could also boost sales for retailers, given three quarters (76%) highlighted punctual delivery as the most important consideration when shopping online during Christmas, and almost a fifth (19%) would pay more for an item from a store that they trust to deliver on time.
Despite the risk of late deliveries, many Australians still opt to do their festive shopping online. Over a third (36%) of Australians split their Christmas shopping list between online and instore, with almost twice as many men (21%) choosing to do their shopping exclusively online than women (12%). Some shoppers also opted to take things into their own hands by using ‘click and collect’ (38%), of which millennials were the most likely to decide to head instore to pick up their online purchase (18-35, 44%).
The research was based on a survey conducted by PureProfile of 1,004 participants between the ages of 18 to 65 across Australia.
Other key research findings include:

  • Top shopper frustrations when doing Christmas shopping online include:
    • Delivery is late (47%).
    • Inaccurate delivery date/time (39%).
    • Retailer does not provide regular updates on my order (34%).
    • Inability to track my order like I can for a Deliveroo/UberEats order (29%).
  • To avoid the frustration of a late festive delivery, shoppers have:
    • Completed online shopping earlier (71.9%).
    • Chosen to click and collect (37.9%).
    • Paid more for an item from an online store they trusted would deliver on time (18.5%).
  • When looking into the millennial shopper, findings revealed:
    • 1 in 5 millennial shoppers would pay more for an item from an online store they knew would deliver on time.
    • A quarter of 26-34 wanted to be updated when stocks were replenished.
    • Younger millennials (18-24) most likely to pay for express shipping (31%).
    • The younger the shopper, the more likely he/she would only do his/her festive shopping online.
      • 27% (18-24)
      • 24% (25-34)
      • 15% (35-44)
      • 8% (45-54)
      • 8% (55-65)
    • Older consumers (55-65) more likely to double check an item instore first before deciding to purchase online (48%).

 

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