Following the performance of the national economy, key performance indicators for wholesale grocers and retail supermarket chains are mixed for 2003. The cost per mile of fleet operation rose three cents to $2.15, and the cost per stop rose $3 to $222, but the cost per route dropped to $469. These slight changes resulted in the cost per delivered case remaining at 33 cents for wholesale grocers, the same that it was in 2002. Perhaps the best news in the major cost categories is that cost as a percent of sales dropped slightly to 1.67% for 2003. This data is reported in the 2003 Food Industry Transportation and Fleet Maintenance Report prepared for the 2003 Productivity Convention & Exposition sponsored by the Food Marketing Institute. The conference was held in Nashville from October 26 to 28, 2003.
Cost per mile, which had gone up through most of the decade of the 1990s, began falling in 1997 to $2.19 per mile after reaching a 10-year high of $2.23 in 1996. In the ensuing four years, cost per mile dropped to $2.14 in 1998, $2.04 in 1999, and $2.00 in 2000 before jumping sharply to $2.28 in 2001, mostly as a result of rising fuel costs. Relative stability in the oil market seems to have produced stability in cost per mile as well with that cost factor standing at $2.15 for 2003, up three cents from $2.12 in 2002. Data for this cost survey was collected and analyzed by Richard H Kochersperger of the Food Marketing Group in Wallingford, Pennsylvania. Previously, he has served in executive positions with Supervalu and in academia as Gerald Peck research scholar for wholesaling and retailing and director of the Center for Food Marketing of St Joseph's University in Philadelphia.
The transportation and fleet maintenance report differentiates between wholesale grocery and retail chain operations. The data usually shows that retail chains operate with a significantly lower cost structure than wholesale grocers. Apparently the customer service aspects of wholesale grocery delivery drive costs up far beyond the level experienced by retail chains that exercise tighter control over delivery operations. In the past, retail chains have delivered larger orders at each stop, traveled fewer miles per route, and spent less time handling merchandise at stores.
However, operating results for wholesale grocers and those for retail chains are much more similar for 2003, the report says. Many of the wholesale grocers responding to the survey now operate high volume distribution centers with the capacity to handle sales volumes of $1 billion or more a year. These distribution centers serve many high volume stores, including both independent grocers and retail chain stores. The higher volume for wholesale grocers has resulted in operating results in 2003 much more akin to retail chains than in previous years.
However, differences still exist. Retail chain fleets operate at a lower cost per mile, maintaining that cost factor at $2.07 for 2003, the same as it was for 2002. Retail chains have experienced a slight increase in cost per mile in recent years with this cost category rising from $2.05 in 2001, which was an increase from $2.00 per mile in 2000. In earlier years, this cost factor has varied widely, rising to $2.40 per mile in 1999 from only $1.80 in 1998. Kochersperger explains that such large shifts are probably more a reflection of which chains contributed data for the survey than any basic change in the underlying cost of retail supermarket distribution.
Benchmark data for wholesale grocers in 2003 show a mixed cost picture. Cost per mile in 2003 rose three cents to $2.15 from $2.12 per mile in 2002. This cost factor remains well below the $2.29 level reported in 2001, but is still above the most recent low of $2.04 in 1999. Cost per route fell $32 to $469 for 2003, down from $501 per route in 2002. In the past two years, cost per route has dropped a total of $60, almost down to the recent low level of $464 set in 1999 and almost $100 below the record high of $574 set in 1992. Cost per delivered case has stabilized at 33 cents for 2003, the same level as 2002. These two years represent the lowest cost per delivered case in 10 years, down from a recent high of 39 cents per delivered case in 2001.
Delivery cost as a percent of sales dropped to 1.67% for 2003 after remaining stable at 1.72% for 2002 and 2001. This is the lowest delivery cost as a percent of sales in 10 years. The recent high point for this benchmark was 2.03% in 1995, and it has dropped every year since except 1999 when delivery cost as a percent of sales rose to 1.93%, up from 1.9% in 1998.
Cost per stop rises
Cost per stop rose $3 to $222 for 2003 after falling for two straight years in 2002 and 2001 when this benchmark was $219 and $221 respectively. The most recent high for cost per stop has been $239 in 2000, and the 10-year low was $196 in 1999.
Although the differences are not as great for 2003 as for previous years, retail chain operators still posted lower cost figures than wholesale grocers in almost every category. Trends in the costs for retail chains are only beginning to emerge from the survey data, because the first data was collected from chain fleets in 1996.
Cost per mile data from retail chains appears relatively stable, staying at $2.07 for both 2003 and 2002, up from $2.00 in 2000 and $2.05 in 2001. This stable level is quite a bit higher than the $1.80 reported by retail chains in 1997 and 1998, but significantly lower than the $2.40 reported for 1999.
Cost as a percent of sales dropped to 1.47% for retail chains in 2003, down from 1.58% in 2002. The recent high in this category was 1.7% in 1998. Cost per stop for retail chains has stabilized for 2003, rising only $3 to $191 after rising $20 from $168 in 2001 to $188 per stop in 2002. Although the differential between retailers and wholesalers narrowed in 2003, it still costs a wholesale grocer $31 more to make a delivery stop than it costs a retail chain operator.
After rising steadily from 1998 to 2001, the cost per route for retail chains dropped for the second straight year, down from $447 per route in 2002 to $438 in 2003. Recent highs and lows in this cost category show a high of $470 in 2001 and a low of $396 per route in 1999.
Retail chains and wholesale grocers have a comparable cost structure in cost per delivered case. In 2003, it cost retail chains 30 cents to deliver a case of goods, down one cent from 2002 and down three cents from 2001. Previously retailers had shown a large jump from 25 cents per delivered case in 1999 to 32 cents in 2000. In 2003, wholesale grocers paid 33 cents to deliver a single case, a reduction to three cents per case in the differential between retailers and wholesalers, down from a differential of six cents per case in 2001.
Although costs for wholesales are generally higher, route productivity for retail chains and wholesale grocers is roughly equal. Wholesale grocer route productivity continues to grow while route activity remains relatively flat for retail chains. Wholesale grocers gained 397 pounds of payload per route to 31,131 pounds in 2003 after gaining 1,400 pounds of payload to 30,734 pounds in 2002, up from 29,321 pounds per route in 2001. This benchmark shows a steady increase starting at 26,467 pounds in 1998, 27,958 pounds in 1999, and 28,841 pounds in 2000.
Weight per route for retail chains has been lower than that for wholesalers for two straight years and has risen only 341 pounds per route since 2001. The data show a gain of 219 pounds per route to 30,814 for 2003, up from 30,595 pounds per route in 2002, which was up 122 pounds per route from 30,473 in 2001. The most recent low point for this benchmark occurred in 2000 for retailers and in 1999 for wholesalers with retailers shipping 30,444 pounds per route at the low and wholesalers reporting a payload of 27,958 per route at their low. This data does not suggest that retailers are less productive than wholesalers. Rather it shows the gains made by wholesalers in catching up to and actually surpassing their historically more productive colleagues.
The average weight per delivered case seems to indicate that retailers and wholesalers continue to sell products packaged as single servings or as prepared convenience foods. Case weight as delivered by wholesale grocers started the past decade at a high of 22.78 pounds and reached a 10-year low of 20.5 pounds in 1998. The average weight per case reported by wholesale grocers in 2003 is 21.85 pounds, up slightly from 21.52 pounds in 2002 and 21.56 pounds in 2001. In contrast, average case weights from retail chains first appeared in the FMI survey results at 23.39 pounds in 1996 and fell steadily to an average of 20.38 pounds per case in 1999. The weight per case has shifted in both directions since 1999, rising to 21.83 pounds in 2000 and falling to 20.89 pounds in 2001. The average weight per case delivered by retailers was 21.02 pounds in 2003, down slightly from 21.11 pounds per case in 2002. Although workplace regulations designed to prevent repetitive motion and stress injuries are unlikely to be imposed again, average case weight probably will not change much as manufacturers concentrate on convenience foods.
Respondents determine data
Survey results continue to illustrate how much the data depends on which companies respond. The survey notes that data for 2003 came from the largest number of distribution locations in the history of the report but that the number of companies participating is down significantly. In particular, the survey points out that data from Fleming is not available following the bankruptcy and sale of that company, and it says that new management at Roundy's decided not to contribute data. In addition, the survey is missing data from C&S Wholesale, Wakefern, White-Rose, A&P, Price Chopper, and Associated Grocers/Baton Rouge — all companies that have submitted data in the past.
Illustrating the variable nature of the data, miles per route for retail chains shows extreme fluctuation from 1996 to 1998 followed by small change in 1999 and another large change in 2001 with that pattern repeating for 2001 and 2002. Meanwhile the number of miles per route for wholesale grocers rose to a 10-year high in 1999, fell through 2001, moved up slightly for 2002 and back down again for 2003. The average miles per route for wholesale grocers, at 217 miles for 2003 is still above the 10-year low of 210 miles per route set in 1996. Miles per route — an important factor in reducing total distribution costs — is down 12 miles per route from 229 miles in 2002. Among wholesale grocers responding to the survey, the average mileage per route has not changed by more than 25 miles since 1996.
Route mileage for retailers rose 12 miles for 2003 to 214 miles per route, up from 202 miles in 2002, but still below the recent high of 225 miles per route in 2001. The 2003 average is well above the all-time low of 177 miles per route reported in 1996. A changing sample from year to year is the best explanation for the swings in the average mileage per route. One factor remains constant, however. Wholesale grocers run more miles per route than retail supermarket operators, but the differential in 2003 is only three miles per route.
In the past, the number of stops per route has been relatively stable, and wholesale grocers ordinarily made more stops per route than retail chain fleets. That situation has been reversed since 2000 when the number of stops for both groups reached parity. For 2003, retail chains made more stops per route, 2.23, than wholesale grocers whose trucks stopped 1.93 times per route. This is a wider differential than in 2002 when retailers delivered 2.31 stops per route compared to only 2.17 stops on a wholesale grocery route. In 2001, retailers made 2.45 stops per route and wholesalers made 2.57 stops per route. In previous years, the difference in wholesale and retail operations was much more evident with wholesalers making 2.47 stops per route in 1999 compared to 1.79 stops per route by retailers in the same year. The 1.93 benchmark for 2003 represents a 10-year low for wholesalers, down from a 10-year high of 2.75 stops per route in 1995. The average of 2.45 stops per route in 2001 is an all-time high since retail chain data was added to the FMI survey. The all-time low for retailers of 1.79 stops per route was reported in 1999.
Conventional thinking has long held that retail chains delivered many more cases per stop than wholesale grocers. Beginning in 2000, that changed with retailers delivering fewer cases per stop than wholesalers and has remained so for four years. In 2003, retailers delivered an average of 658 cases per stop, up from 629 cases per stop in 2002 and 562 cases per stop in 2001. In contrast, wholesale grocers delivered an average of 740 cases per stop in 2003, up more than 80 cases from an average of 658 cases per stop in 2002, and up significantly from 580 cases per stop in 2001. The average number of cases per stop for retailers rose in 2002 and 2003 after dropping for three straight years, falling from an all-time high of 834 cases per stop in 1999 to 562 cases in 2001 followed by an increase to 629 cases per stop in 2002 and 658 cases per stop in 2003.
This is the ninth year that data from retail grocery chains has been included in the transportation and fleet maintenance report. Retail chains provided 36 responses to the report questionnaire, down from the 46 responses in 2002. Among wholesale grocers, the number of respondents had remained fairly stable for years, but began dropping in 2000 with 72 fleet locations providing data. In 2001, only 59 wholesale grocery fleets participated, and in 2003, the number of wholesale participants has dropped to 40. A great deal of the survey data is from the midwestern states where Supervalu and Nash Finch are strong supporters of the report. The largest respondent had annual sales of $5.9 billion, compared to sales of $60 million for the smallest respondent.
Drivers still account for the bulk of the cost of food industry delivery operations. The percentage of total cost attributable to drivers dropped slightly in 2003 to 55.99% of operating costs at $1.20 per mile, down one cent per mile from 2002 when drivers accounted for 57.72% of total costs at $1.21 cents per mile. Driver cost per mile has been dropping since 2000, when it hit $1.51 per mile. Operating expenses, including maintenance, tires, and fuel add another 50 cents per mile up from 48 cents per mile for operating expenses in 2002. Fixed costs, including licenses, insurance, depreciation, taxes, and leases add up to 31 cents per mile, up four cents per miles from 27 cents in 2002. Fixed and operating costs are lower in 2003 than in 2001, when fixed costs added 28 cents per mile to the total and operating costs were 51 cents per mile.
Increased mileage, fewer stops
The average wholesale grocery fleet ran fewer miles and served fewer customers per four-week period in 2003 than 2002. Respondents report an average of 306,402 fleet miles per four-week period in 2003 compared to 393,200 miles per period in 2002. This is significantly below the average of 405,414 miles per period posted by wholesalers in 2000. In 2003, wholesale grocers served 200 customers at 2,717 stops per period compared to 263 customers at 3,721 stops per period in 2002 and 334 customers and 4,226 stops per period in 2001.
In 2003, retail chains ran 747,564 miles to 7,776 stops at 163 store locations compared to 488,956 miles to 5,583 stops at 138 stores in 2002. The averages for 2001 were higher as well with retail fleets running 725,165 miles to 8,343 stops at 155 stores.
In 2003, the average wholesale grocery fleet ran 1,411 routes every four weeks to deliver 2 million cases weighing 43.9 million pounds. This data shows a decrease in routes from 1,716 per four-week period in 2002, a decrease in case count from 2.48 million, and a decrease in delivered weight from 53.5 million pounds from averages in 2002.
Fleets at retail chains were much more active in 2003 than wholesale grocery fleets, running 3,493 routes every four weeks to deliver 5.1 million cases weighing 107.6 million pounds, up from 2,421 routes with 3.5 million cases weighing 74.1 million pounds in a four-week period in 2002.
Sales per case rose to $19.64 for wholesale grocers and $20.17 for retail chains in 2003, up from $19.42 per case for wholesalers and $19.61 for retail chains in 2002. This indicator has been somewhat volatile with the value of a case reaching a high of $22.59 for wholesalers and $21.94 for retailers in 2001. Lowest recent case value for wholesalers was $17.35 in 1996 and $17.39 for retailers in 1998.
Route mileage for wholesale grocers dropped slightly to 217 miles per route in 2003, down from 229 miles per route in 2002. The recent high point for route mileage by wholesale grocers was 245 miles set in 1999. In grocery delivery, miles are a cost factor rather than a revenue producer as in for-hire trucking. With a 12-mile difference between 2003 and 2002 and a 19-mile differential from 2001, productivity has shown a small increase.
Retail chain fleets are expected to outperform wholesale grocery fleets in this productivity category, and they did in 2003, but not by much. After route mileage fell 23 miles to 202 miles per route in 2002 from 225 miles per route in 2001, average retail chain route mileage grew to 214 miles per route in 2003. For the second year since 2001, only three miles per route separate the averages of wholesale grocers and retail chain fleets.
Sales dept impacts fleet costs
Fleet managers responding for the 2003 transportation report said that the sales department has the largest impact on transportation costs. More than 62% of respondents say this is because sales has the power to dictate delivery times and conditions. The sales department also can add to transportation costs by demanding delivery of add-on orders late in the distribution cycle. As more retail chains are added to the survey, the impact of the sales department is seen as less important by a larger number of respondents. Warehouse operations are another department with a heavy impact on transportation costs. At most distributors, late deliveries, shipping mistakes, and product damage can be directly related to the warehouse personnel responsible for loading trailers. Warehousing also can impact transportation productivity by handling backhauls slowly. Failure to unload backhauls in a timely manner raises costs because trailers are being used for storage rather than transportation.
“Very few companies allow the transportation manager to charge other departments for costs incurred from special customer services such as product storage, extra trips, or special deliveries to correct buyer mistakes,” the FMI report says. “As a result, wholesalers often are making decisions about the business without the correct economic information. For example, if buyers were charged for trailer usage, less inventory would be purchased and fewer trailers would be used for temporary storage.”
The number of food distributors and retailers continues to shrink as the industry consolidates in search of economies of scale. In the past year, the bankruptcy of Fleming put sales worth $15 billion in other hands. Some of this went to C&S Wholesale Grocers, which purchased Fleming assets to move into California and Hawaii. C&S promptly sold some of the Fleming assets to Associated Wholesale Grocers in Kansas City, Associated Grocers of Baton Rouge, and Grocers Supply Company in Houston. In addition, C&S traded Fleming's midwestern operations to Supervalu in exchange for Supervalu divisions in New England.
Wal-Mart's growth remains the biggest influence on food distribution in North America. In only 12 years of selling food, Wal-Mart has become the largest food retailer in the US with food and consumable sales of $90 billion in a total sales package of $265 billion annually.
Wal-Mart continues to open supercenters as fast as they can be built and projects increasing their number by at least 200 per year for the next several years. These megastores impact the sales of every retail food outlet within 20 miles of the supercenter, the FMI report says. Every supercenter opening removes more than $400,000 in sales from traditional retailers in the competitive marketplace. Wal-Mart now has several mature supercenters that report weekly sales in excess of $2 million.
Slow-growth sales pattern
The result is slow-growth sales pattern, the report says. The significant increase in competition from such alternative sales formats as drug stores and take-out food outlets coupled with corporate restructuring has created a difficult business environment. In the future, executive efforts will continue to focus on squeezing out unnecessary expenses in all aspects of wholesale grocery operation. This new business philosophy is putting more pressure on the transportation department to reduce costs and to become more efficient.
Transportation costs seem to be under control, but are still rising. Eight factors seem to play a large part in keeping costs under control. Fuel cost is probably the most obvious. (1) Fuel costs remain high as a result of national policies and OPEC efforts to control supply. Although fuel economy gains have been made by equipment manufacturers, wholesale grocers and retail chain fleets have been unable to take full advantage of the increases in the face of urban traffic congestion. Food fleet fuel economy in 2003 is 6.37 miles per gallon, down from 6.39 mpg in 2001. One indicator of the impact congestion has on fleet performance can be seen in average fuel economy dropping from a recent high of 6.47 mpg in 1998. In addition, new engines designed to meet the original 2004 emissions standards have been mandated for early release and are reported to produce roughly 3% to 5% lower fuel economy. (2) The cost of worker benefits continues to grow; although, many companies have introduced programs to limit the growth in insurance and worker compensation expenditures. (3) Labor contracts are being negotiated for longer periods of five to six years at higher wage and benefit levels, driving up labor costs. Labor costs become more significant as qualified drivers become harder to hire in some parts of the country. In response to the driver shortage, many food distribution companies have begun to outsource fleet operations to the logistics arms of large for-hire truckload carriers. (4) Wholesalers are controlling costs by charging customers for the real cost of delivery. This includes unloading incentives and charging for lost time resulting from operating inefficiencies. Many offer flat-fee delivery incentives that encourage customers to purchase as much product in a single load as possible. Manufacturers have begun to pay incentives to distribution centers to turn inbound equipment more efficiently. More technology, including routing software programs and on-board driver productivity recorders, is being brought to bear on delivery costs. (5) Delivery equipment is designed to run longer and to operate at significantly lower costs. Many fleets are shifting their maintenance strategy from repair during long service life to preventive maintenance with repairs performed by vendors for equipment covered by extended warranties. Many fleets are purchasing longer trailers to reduce the number of trips per day. (6) Weight-per-case will continue to decline as manufacturers focus on ergonomically designed packaging to improve pallet patterns and reduce in-transit damage. (7) Distributors are adopting new technology such as global positioning to track equipment movement, radio frequency warehouse systems, and other sensors that help monitor equipment utilization and provide data for fleet forecasting. (8) Food safety concerns are finding their way into fleet design and purchasing decisions. Managers are facing the reality that proper temperature control for all products is necessary as retailers make stronger demands for order delivery condition. To meet these concerns, more fleets will begin to need multi-temperature refrigeration systems with positive temperature control in two to as many as four temperature zones.