It might have been the stuff of nightmares but Safeway's stock strategy behind high:low pricing has proved a winner says Sarah Hardcastle S afeway's high:low promotions strategy, known in the company as Gonzales, has been hugely instrumental in turning round the multiple's fortunes in the last two years. As a measure of its success, volumes have increased from 9.5 million cases a week pre-Gonzales to 11 million now ­ with the figure continuing to rise. Gonzales is based on weekly rotating sets of deals, typically consisting of 20 promotions of 50 products run in a group of 20-30 stores. The deals last for seven days, running from Wednesday to Tuesday and, to add to the complexity, they move around the country every week ­ but never to adjacent regions. They are promoted by around nine million leaflets distributed weekly by stores in the relevant regions. Supply strategy director Ian Mumby readily admits that setting up and running Gonzales' highly complex logistical operation with its widely varying surges in volume could be seen as "the stuff of nightmares". "Pre-Gonzales," he says, "Safeway's supply chain was relatively easy. It was predictable, with stable volumes, delivered high levels of on-shelf availability, and was widely recognised as best in class. Then along came new chief executive Carlos Criado-Perez and the new strategy which gave us the biggest challenge in food retailing." So how has it been accomplished? Mumby says Gonzales' supply chain is based on flexibility, quick response to change, and fast implementation, "all of which makes it difficult, if not impossible, for our competitors to follow". It consists of several components which, collectively, have fundamentally changed the way the supply division works, says Mumby. At the heart of it is a network of short-lease satellite distribution centres spread over the country. These provide the additional capacity Gonzales needs without impinging on Safeway's mainstream logistics network. "We didn't want to disrupt that with the volatility that Gonzales entails," says Mumby. Leasing temporary depots from the overcapacity in the marketplace also enabled Gonzales to be up and running within the amazingly short timescale of nine weeks from inception to start-up. To speed operations, cross-docking in full pallets was introduced. "But even that hasn't been sufficient to meet demand," says Mumby, " and so we've put in cross docking in our permanent fresh depots. It makes use of the depots' early morning downtime, finishing by noon when the fresh produce arrives." As uplifts can be so huge ­ on some promotions as much as 100-fold­ and availability is critical, a cross-functional team meet at noon every day in a war room' to assess the morning's real-time sales data from the stores running the promotion. "We can then look ahead at availability, identifying issues by product and store and take necessary action," says Mumby. "With promotions only running for a week, speed of response is vital. In one week, a store can sell a whole year's worth of product, and that takes some planning. "If we take action on the first day, Wednesday, we can materially affect what goes into store on Friday and Saturday, the peak sales days. This focus on daily information is all part of a shift to daily and twice daily reporting in our business." Fundamental changes have been made to the forecasting and ordering systems. "As the methods we used before couldn't support the volatility and speed of response that we needed, we put in new systems that create a central forecast based on history but which allow individual stores to make changes and modifications based on their local knowledge, space availability and promotional plans," says Mumby. "As this places a huge burden on us to get forecasting right, we put in a reactive algorithm which assesses sales early in the promotion and amends forecasts according to how they are going." In spite of these precautions, wastage is a constant risk and Mumby says a number of procedures are in place to tackle this. These include a store returns process. "If we get things wrong, we can't have a store clogged up with six months' worth of promotional product, so unsold stock is forwarded to the depot handling the next promotion," he says. Plus, there's a system for inter-branch transfer so stores running adjacent deals can forward stock, by-passing the depots. With Gonzales now well established, Safeway is currently looking at the role of the satellite depots. It has just opened a new ambient depot in Coventry which Mumby says will reduce dependence on satellites in the Midlands. "The others are being assessed on a case-by-case basis, and some may be incorporated into our network permanently. "Gonzales has been extremely successful for us and will continue to be a fundamental part of our strategy." {{FOCUS SPECIALS }}