The Efficient Consumer Response movement has been going for a decade.Yet, as chairman of Heineken’s executive board Thony Ruys observed in the opening plenary session of the 10th anniversary ECR Europe Conference in Paris a fortnight ago: “Many people have still not implemented ECR. Why?”
Some clues came in a survey of more than 300 industry leaders undertaken at the event, attended by 2,000 of the great and the good of Europe’s grocery industry.
When the ECR movement began back in 1995, it was all about collaborative management along the supply chain. Companies could serve customers better, faster and at less cost by working together with trading partners.
But a quarter of those surveyed felt the level of collaboration was worsening. Suppliers were most negative; with 30% saying it was getting worse, while only 15% of retailers agreed.
And, while overall seven in 10 thought retailers and manufacturers did not spend enough time talking, when the findings were broken down further they showed it was again manufacturers who believed this. No retailers agreed with the statement.
Worryingly, while 90% said there was more focus on price than ever before, with more than a third believing it was the biggest single issue facing the industry, 70% of those surveyed said they did not have a good executable ECR framework to drive value beyond price. In view of this, 85% agreed that
the current retail business model could not last more than 10 years.
“We talk about collaboration but we don’t really seem to be collaborating,” Andrew Green, general manager of customer business development for Procter & Gamble in Western Europe and co-chair of the newly formed ECR Value Creation project team, told The Grocer. “And we talk about delighting the shopper, but we focus predominantly on price. We all agree that we cannot afford to commoditise our industry and yet price focus seems to do just that.”
In fact, when asked what they used as the primary success measure today, just 12% said shopper satisfaction, while nearly four in 10 said sales revenue and 27% gross margin. Yet 42% felt that shopper measures should be the most important.
Despite this somewhat jaded view of the current situation, retailers and suppliers that are collaborating are reaping the benefits. A survey by IBM Business Consulting and the ECR Academic Partnership shows that, between 1995 and 2005, companies that have implemented ECR have delivered savings of 3.6%, equivalent to E18bn. ECR adopters report 5.7% service levels ahead of the average, 10 fewer days inventory and half the levels of out-of-stocks than the average.
Gillette and Carrefour are a case in point. They decided to collaborate on vendor-managed inventory in 2000 and Carrefour’s first VMI warehouse opened the following year. Since then Gillette’s service level to the French retailer has improved from 94% to 99.6%, inventory levels have decreased from 22 days in 2002 to 12 days at the end of 2004, quality measurements in logistics have gone up from 83% to 96% in two years and out-of-stocks have fallen from 9.2% to 2.8% over an eight-month period.
More importantly, though, research by ACNielsen and the University of St Gallen shows that ECR adopters are rated more highly by shoppers than non-adopters on seven key attributes: deals and promotions; on-shelf availability; display; range and variety; selection of brands; fit to needs; and easy and quick shopping. For example, on product display adopters scored four out of five, while non-adopters scored 3.2. And on range and variety adopters came in at 3.99 compared with 3.29 for non-adopters.
“ECR adoption alone does not give competitive advantage, but it allows more efficient strategy implementation. However, non-ECR adoption results in competitive disadvantage,” says Joerg Hofstetter from the University of St Gallen.
So, with ECR adoption a proven benefit to both retailers and manufacturers, why - 10 years on - are so many companies failing to embrace it? According to the study, the number implementing ECR has indeed grown over the decade, with retailers up
One issue is that, despite all the talk of collaboration, behind the scenes retailers are continuing to turn the screw on suppliers.
“Suppliers with high ECR experience are retailers’ preferred collaborative partners. In most cases the quality of their relationship improves; they feel less ripped off. But the intensity of price negotiations has still increased,” says Hofstetter.
But interestingly, in the survey undertaken at the event, twice as many manufacturers as retailers cited margin as the most important measure today. So, while manufacturers are often heard complaining about lack of funds for new product development and brand investment, are they their own worst enemy?
Yes, believes Wal-Mart president and CEO Lee Scott. While buyers need to understand a collaborative relationship is about serving customers better, “manufacturers sometimes take the easy way out”.
“Manufacturers often reward the hardness of the negotiator,” he says. Yet there is no correlation between companies that co-operate and build their businesses and gaining the lowest price, he adds.
ECR is about breaking down non-productive barriers and finding the most effective ways of delivering the right products to consumers at the right price. At the conference there were plenty of examples of retailers and suppliers working together to achieve this. Yet barriers still exist and it’s obvious there is still a way to go.