Bucking the effects of a down economy, key performance indicators for wholesale grocers and retail supermarket chains improved in 2002. The cost per mile of fleet operation fell 17 cents to $2.12, and the cost per stop dropped $2 to $219, which in turn, helped drop the cost per route $28 to $501.
These lower costs are reflected in a drop of six cents in the cost of a delivered case to 33 cents. With all these improvement, however, distribution costs as a percentage of sales remained at 1.72%, the same as it was in 2001. This data is reported in the Food Distributors International Wholesale/Retail Transportation and Fleet Maintenance report prepared for the 2002 Food Industry Productivity Convention and Exposition.
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 three 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 allowed cost per mile to drop again to $2.12 for 2002. Data for this cost survey was collected and analyzed by Richard H Kochersperger, a consultant in private practice. 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 Food Industry Productivity Conference and Exposition is sponsored by the Food Distributors International and Food Marketing Institute. Food Distributors International is the umbrella organization for the National American Wholesale Grocers Association and the International Foodservice Distributors Association. Other organizations sponsoring the Food Industry Productivity Conference included the National Grocers Association, the Canadian Council of Grocery Distributors, the Grocery Product Manufacturers of Canada, the General Merchandise Distributors Council, the National Food Processors Association, and the United Fresh Fruit and Vegetable Association. The conference was held in Atlanta from October 20 to 23, 2002.
Wholesalers vs retailers
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. Specifically, retail chains deliver larger orders at each stop, travel fewer miles per route, and spend less time handling merchandise at stores.
This tighter control of distribution is indicated by a lower cost per mile. Although the cost per mile for retail chains is lower than that for wholesale grocers in 2002, retailers actually experienced an increase of two cents per mile to $2.07, up from $2.05 in 2001 and $2.00 in 2000. However, the data has varied widely in the recent past with retail cost per mile rising 60 cents from $1.80 in 1998 to $2.40 in 1999. Kochersperger explains that these large shifts are probably a reflection of which chains contributed data for the survey more than any basic change in the underlying cost of supermarket distribution operations.
Benchmark data for wholesale grocers in 2002 shows decreased costs in all but one category. Cost per mile dropped 17 cents to $2.12 from $2.29 in 2001; although this figure still is higher than the $2.09 posted in 2000 and well above the low point of $1.98 per mile in 1992 — the lowest cost per mile in the past 10 years. Cost per route dropped $28 to $501 for 2002, down from $529 per route in 2001. While this benchmark is well above the most recent low of $464 per route reported in 1999, it still beats the 10-year high of $574 set in 1992. After a two-year spike in cost per delivered case of 37 cents per case in 2000 and 39 cents per case in 2001, the cost per case benchmark returned to its slightly down trend line, which showed 35 cents per case in 1997 and 1998, 34 cents per case in 1999. The drop continued with cost per delivered case falling to 33 cents, a 10-year low, for 2002.
Delivery cost as a percent of sales for wholesale grocers remained stable at 1.72% for 2002 and 2001, remaining at the 10-year low and only marginally higher than cost as a percent of sales in 1980, the first year that FDI (then NAWGA) began recording delivery cost data. 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 drops
Cost per stop dropped again in 2002, this time $2 to $219 after falling $18 from $239 in 2000 to $221 in 2001. This benchmark seems to be returning to its normal historical range after falling to a 10-year low of $196 in 1999 followed by an incredible jump of $43 to $239 per stop in 2000. Previously, the high point for this cost category had been $238 in 1995.
Data for retail chain operators show a significant difference from that of wholesale grocers, posting lower cost figures in almost every category. Trends in the costs of retail chains are only beginning to emerge from the FDI data, because the association first began collecting data from chains in 1996.
Cost per mile data from retail chains appears fairly stable, moving up seven cents per mile from $2.00 in 2000 to $2.05 in 2001, and now up to $2.07 in 2002. This follows two years at $1.80 per mile in 1997 and 1998 and a surge upward to $2.40 per mile in 1999.
Cost as a percent of sales looks stable at 1.58% for 2002 and 2000, both above the 1.5% reported in 2001. All these results are significantly lower than the 1.7% figure reported by FDI for retail operations in 1998. This benchmark is uniformly lower for retailers than for wholesale grocers. Cost per stop rose $20 for retailers in 2002, reaching $188, the highest figure reported since retailers began to submit data to FDI. This increase follows a drop of $12 from $180 in 2000 to $168 in 2001. Previously, retailers reported a cost per stop of $178 in 1997, $169 in 1998, and $170 in 1999. Although the differential between retailers and wholesalers narrowed in 2002, 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 $23 to $447 in 2002. Retailer data from FDI shows a cost per route of $365 for 1997 and 1998 followed by increases to $396 in 1999, $439 in 2000, and $470 in 2001.
Retail chains and wholesale grocers have a comparable cost structure in cost per delivered case. In 2002, it cost retail chains 31 cents to deliver a case of goods, down two cents from 2001. This follows an increase of one cent per delivered case from 32 cents per case in 2000. Previously retailers showed a large jump from 25 cents per case in 1999 to 32 cents per case in 2000. In 2002, wholesalers paid 33 cents to deliver a single case with the differential between the two groups decreasing from six cents per case in 2001 to only two cents per case in 2002.
Although costs for wholesalers are higher, route productivity for retailers and wholesalers is roughly equal. Wholesaler route productivity continues to grow while retailer route activity remains relatively flat. Wholesale grocers gained 1,400 pounds of payload per route compared to a gain of 122 pounds for retailers. Payload per route for wholesalers rose from 29,321 pounds in 2001 to 30,734 in 2002. This benchmark shows a steady increase starting at 26,467 pounds in 1998, 27,958 pounds in 1999, and 28,841 pounds in 2000. In contrast, weight per route rose only 122 pounds for retailers, moving to 30,595 pounds in 2002 from 30,473 pounds in 2001. This follows a gain of 39 pounds per route from 30,434 pounds in 2000 to 30,473 pounds in 2001. The low point for this benchmark occurred in 1998 for retailers as well as for wholesalers with retailers shipping only 28,568 pounds per route. This data does not suggest that retailers are less productive than wholesalers. Rather, it shows the strides made by wholesalers in catching up to their 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 2002 is 21.52 pounds, up slightly from 21.35 pounds in 2001 and roughly equal to the 21.56 pounds reported for 2000. In contrast, average case weights from retail chains first appeared in the FDI survey 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 21.11 pounds in 2002. Although workplace regulations designed to prevent repetitive motion and stress injuries are unlikely to be imposed again after a repeal of Clinton-era rules in 2002, 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. For instance, miles per route for retail chains shows extreme fluctuation from 1996 to 1998, a small change for 1999 followed by a large change for 2000, a small change in 2001, and another big shift in 2002. Meanwhile the number of miles per route for wholesale grocers rose to a 10-year high in 1999, fell through 2001, and moved up slightly for 2002. The average for wholesalers, at 229 miles per route in 2002, is still above the 10-year low of 210 miles per route set in 1996. Among wholesalers, the average mileage per route has not changed by more than 25 miles since 1996.
Route mileage for retailers dropped to 202 miles per route in 2002, down 23 miles from 225 miles per route in 2001. Although lower than average route mileage for 2001, the 2002 average is still 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.
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 2002, retail chains made more stops per route, 2.31, than wholesale grocers whose trucks stopped 2.17 times per route. Chains and wholesalers both report a falling number of stops per route compared to 2001 when retailers made 2.57 stops per route and wholesalers made 2.45 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 2.17 benchmark for 2002 represents a 10-year low for wholesalers, down from a 10-year high of 2.75 stops per route in 1992 and 1995. The average of 2.57 stops per route in 2001 is an all-time high since retail chain data was added to the FDI 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 three years. In 2002, retailers delivered an average of 629 cases per stop, up from 562 cases per stop in 2001. In contrast, wholesalers delivered an average of 658 cases per stop in 2002, up 78 cases from an average of 580 cases per stop in 2001. The average number of cases per stop for retailers rose in 2002 after dropping for two straight years, falling from an all-time high of 834 cases per stop in 1999. The most recent low number of cases per stop for wholesalers was 505 in 1998; the current average of 658 cases per stop in 2002 is the high point for wholesale grocers.
This is the eighth year that data from retail grocery chains has been included in the transportation and fleet maintenance report. Retail chains provided 46 responses to the report questionnaire, up from the 30 responses in 2001. Among wholesale grocers, the number of respondents had remained fairly stable for years, but dropped sharply in 2000 with 72 fleet locations providing data and again in 2001 when 59 fleets participated. In 2002, 69 wholesale grocers provided data, an improvement in participation to be sure, but still well short of the 100 or more who provided data in the years prior to 2000. Wholesale grocer data includes responses from large distributors such as Supervalu, Fleming, and Roundy's. The largest respondent had annual sales of $5.1 billion, compared to sales of $65 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 rose slightly in 2002 with drivers taking up $1.21 per mile of operating cost or 57.72% of the total. Although the percentage is higher, in actual amounts, driver cost per mile was down one cent from $1.22 in 2001. Operating expenses, including maintenance, tire, and fuel add another 48 cents. Fixed costs, including licenses, insurance, depreciation, taxes, and leases add up to 27 cents. Both fixed and operating costs were lower in 2002 than in 2001 when fixed costs added 28 cents per mile and operating costs were 51 cents per mile.
Increased mileage, fewer stops
The average wholesale grocery fleet ran more miles and served fewer customers per four-week period in 2002 than 2001. Respondents report an average of 393,200 fleet miles per four-week period in 2002 compared to 380,162 miles per period in 2001. Averages for both 2002 and 2001 are below the 405,414 miles per period posted in 2000. In 2002, wholesalers served 263 customers at 3,721 stops per period, down from 334 customers and 4,226 stops per period in 2001.
Comparable data from retail chains has been greatly different from that of wholesalers in past years, but in 2002, the figures were much more similar. In 2002, retail chains ran 488,956 miles to 5,583 stops at 138 store locations. In 2001, these fleets had run 725,165 miles to 8,343 stops at 155 stores. The averages for 2000 were higher as well with retail fleets running 719,985 miles to 6,651 stops at 195 stores.
In 2002, the average wholesale grocery fleet ran 1,716 routes every four weeks to deliver 2.48 million cases weighing 53.5 million pounds. This data shows a decrease in routes from 1,785 per four-week period in 2001, but an increase in case totals from 2.45 million and an increase in tonnage from 52.3 million pounds.
Fleets at retail chains were much more active in 2002 than fleets at wholesale grocers running 2,421 routes every four weeks to deliver 3.5 million cases weighing 74.1 million pounds. However, fleet activity was lower than that reported in 2001 when retailers ran 3,217 routes every four weeks delivering 4.7 million cases with a tonnage of 98 million pounds.
Sales per case dropped to $19.42 for wholesale grocers and to $19.61 for retail chains in 2002, down from $22.59 per case for wholesalers in 2001 and $21.94 per case for retailers. This indicator has been somewhat volatile with the value of a wholesaler's case reaching a high in 2001, rising from a 10-year low of $17.35 in 1996. Data for retail chains is more limited, but the benchmark of $21.94 per case in 2001 is the highest value per case reported since chains have been included in the report. Case value for retail chains reached its lowest point at $17.39 in 1998.
Route mileage for wholesale grocers rose slightly in 2002 to 229 miles per route, up seven miles from 222 miles per route in 2001. The recent high point for route mileage was 245 miles per route set in 1999. In grocery delivery, miles are a cost factor rather than a revenue producer as in for-hire trucking. With a seven-mile difference between 2002 and 2001, productivity remained about the same. During the 1990s, route mileage has been as high as 278 miles in 1991 and as low as 210 miles in 1996.
Retail chain fleets are expected to outperform wholesale grocery fleets in this productivity category, and they did in 2002 with miles per route falling 23 miles to 202 miles per route. In 2001, only three miles per route separated the performance of retail fleets and wholesale fleets with retailers running 225 miles per route and wholesale grocery fleets running 222 miles per route.
Sales dept impacts fleet costs
Fleet managers responding for the 2001 transportation report said that the sales department has the largest impact on transportation costs. More than 84% of respondents say this is because sales has the power to dictate delivery times and conditions. The sales department can also add to transportation costs by demanding delivery of add-on orders late in the distribution cycle. However, cooperation between sales and transportation seems to be improving. 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 FDI 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, several large chains such as A&P, Albertsons, and Winn-Dixie have closed stores and divisions throughout their operations. In more serious moves, K Mart has filed for Chapter 11 bankruptcy and closed 285 stores with more closings likely to follow. Ames has shut down its business, which had 385 stores, and C B Ragland, a wholesaler with a 100-year history in Nashville, Tennessee, closed its distribution center, because it was unable to meet competitive pressures. Competition comes from abroad as well with global companies such as Ahold, Carrefour, and Tesco seeking to grow worldwide. The trend is global; Wal-Mart has purchased retail chains in Germany and the United Kingdom.
The growth of Wal-Mart 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 $80 billion in a total sales package of $240 billion annually.
Wal-Mart continues to open supercenters as fast as they can be built and projects increasing their number by at least 180 per year for the next several years. These megastores impact the sales of every retail food outlet within 20 miles of the supercenter, the FDI report says. Every supercenter opening removes more than $400,000 in sales from traditional retailers in the competitive marketplace. In addition, wholesale grocers and retail chains experience significant sales losses in competing with Wal-Mart as consumers move away from local stores supplied by vendors such as Fleming or Roundy's.
Wholesalers and retailers that once depended on store sales for growth also are looking to the foodservice market for increased volume. Ahold has purchased Alliant, once the foodservice arm of Kraft Foods, and JP Foodservice, until recently a division of Sara Lee. The McLane Company, a convenience store distributor owned by Wal-Mart, purchased the remains of Ameriserve, which was at one time the second largest foodservice distributor in the US prior to its bankruptcy. Other retail chains such as HEB are looking to specialized stores such as Central Market with a high percentage of ready-to-eat food to drive up sales.
Slow-growth sales pattern
The result is slow-growth sales pattern, the report says. The significant increase in competition from such alternative sales formats such 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 and could go higher in the event of military action in the Middle East. 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. In fact, food fleet fuel economy fell to 6.3 miles per gallon in 2002, 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 6.47 mpg in 1998. Many fleet managers worry that new engines designed to meet new emission standards will produce lower fuel economy results. (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.