As independentschange, what fate awaits cash and carries?
By Elaine Watson
Warnings of doom for the independent retailer have been coming in almost as fast as bids for Safeway since Tesco announced plans to get into neighbourhood retailing. But is the writing really on the wall for the unaffiliated independent and, if so, will that also sound the death knell for cash and carries?
"In market size terms," predicts IGD, "cash and carry as a sector seems unlikely to escape the forces opposed to it."
Based on trends over the last decade, IGD predicts cash and carry will decline from a £9.2bn market in 2002 to a £9bn market in 2005, while delivered wholesale will grow from £6.6bn to £7.4bn over the same period as specialist traders broaden their offer to convenience. Moreover, unaffiliated retailers are expected to command about 35% of the c-store market in 2005/6, compared with the current 42%.
"If anything," adds the IGD report, "the importance of wholesalers within the grocery supply chain is likely to be eroded over time as more and more of the c-store market falls under the control of operators capable of buying in their own right rather than through an intermediary."
Even the boss of wholesale buying group Today's, Rodney Hunt, predicts the writing is probably on the wall for pure cash and carry, despite a cracking year for both delivered and cash and carry members within Today's in 2002.
"I don't believe that pure cash and carry will be around in 10 years or so. About 70% of members deliver now, compared to about 50% a couple of years ago," says Hunt. "Eventually, pretty much everybody will deliver, and every independent retailer will be in a retail club or symbol group."
If that doesn't convince some people that times are changing, news that die-hard cash and carry Batleys has been trialling a delivered service should make them sit up and take notice.
Batleys boss Len McCormick says: "There is no doubt that cash and carry is not growing as fast as delivered wholesale. And we are not going to bury our heads in the sand."
Unaffiliated retailers still represent by far the largest chunk of the c-store market, and nobody is predicting that the acquisitions of T&S and Alldays will precipitate the immediate collapse of a £9bn industry. But all the evidence suggests that pure cash and carry operators will find it increasingly hard to grow as consolidation continues.
Northern Ireland-based Holmes was a 100% cash and carry business in 1995. Today, 40% of its business is delivered wholesale and its smaller cash and carry depots have closed.
Cash and carry boss Michael Hamilton explains: "Our smaller depots couldn't progress because customers were either going out of business or getting bigger and better and wanting deliveries."
Lowries Wholesale, a delivered service that runs from Peter Lowries' cash and carry depot in Hexham, now accounts for about 20% of the business. The reason behind setting it up was simple, he says: "If we didn't deliver, someone else would."
Bestway, which started as a pure cash and carry operator, now has a sizeable delivered business, while market leader Booker has pledged to double its delivered business in five years and pump cash into developing its symbol fascia, Premier.
But, as many cash and carries have discovered, simply offering deliveries is not enough to provide a credible alternative to delivered specialists such as Spar or Blueheath.
Federation of Wholesale Distributors director general, Alan Toft, says: "Delivered wholesaling is a completely different culture to cash and carry. Not only do you need investment in warehousing, stock control, vehicles and administration, but also in the link with customers."
Once a retailer starts turning over more than £15,000 a week, says George Benson at Scottish cash and carry Bellevue, it will probably have started considering a delivered service. More often than not, however, people leave cash and carries "because they want a well known brand above the door" claims Benson. "And that means the symbol groups."
Committed to expansion
However, Landmark member Steve Parfett, who operates five large cash and carries in northern England, says he can offer the same benefits as the symbol groups at a better price. "I don't accept that cash and carry is in structural decline. We can replicate the support of a delivered wholesaler on a low cost basis. We can offer all the same kind of advice on layout, ranging, merchandising, plus we have the fascia [Landmark's Lifestyle symbol for members] and the retail clubs."
Landmark boss Martin Williams also insists there is life in cash and carry yet: "It's expensive to run a delivered operation and you can get your fingers burned. I'm actually quite bullish about the future."
Costco UK managing director Jim Murphy is also confident that cash and carry or at least the warehouse club concept has a long-term future in the UK, and remains committed to further expansion. "cash and carry still has great potential. It's the cheapest way of getting goods to market."
If you are entering the wholesale market from scratch, however, you'd be mad to go down the cash and carry route now, according to Chris Philp, business development director at new kid on the block Blueheath.
Web-based delivered wholesaler Blueheath avoided the typical start-up expenses associated with deliveries by utilising spare trucks and warehouse space at British Bakeries depots for its hi-tech operation, while customers order goods online.
Cashflow is freed by keeping inventory to a minimum, while administration costs are slashed through processing orders and invoices electronically, says Philp. "We are broadly competitive on price with a cash and carry. The difference is that delivery is included in our price." Although he can see why Booker has used its cash and carry depots to support delivered operations, adds Philp, they make Booker's delivered business "phenomenally inefficient".
First, the supplier delivers to a Booker distribution centre. Then Booker picks goods and delivers them to its depots or delivery hubs. Finally, goods are picked again from depots and delivered to customers, points out Philp, "by which time they have been transported three times, and picked twice".
Arguably, however, what keeps cash and carry bosses awake at night is more likely to be lousy terms than the pros and cons of moving into delivered wholesale.
Suppliers can be shortsighted
While most accept they have to work harder on promotional or ranging compliance through retail clubs and step up category management, they do not always get the support they need from suppliers, claims Today's Hunt. "Some suppliers are still very short-sighted. They don't seem to recognise they need to level the playing field to ensure we're still around in years to come, that the maintenance of a healthy independent sector as a counterbalance to the multiples is good for everyone." Peter Lowrie adds: "It's not the deals we can fight for them. It's the basic cost price difference [that is the problem].
"As a convenience supplier to c-stores, we have a worth, but as a traditional cash and carry we have little or no retail presence, which is all suppliers seem to value. But I live in hope some suppliers will look to other customers [beyond the multiples] to support them in their hour of need."
Alan Toft claims that both cash and carry and supplier need each other. "I now sense manufacturers are beginning to realise that without cash and carry they do not have the vast potential for overnight deals or end of year accounting manoeuvres in which a supplier can sell a substantial number of cases into cash and carry almost overnight," he says.
Suppliers, meanwhile, complain that the independent sector is more difficult and expensive to serve than the multiples, while wholesalers claim suppliers no longer recognise there is a double margin at work in negotiations with a wholesaler his own, and his customer's. One source says: "Now they want to move away from overriders as well and negotiate in the same way they would do with the big retailers."
So where does this leave pure cash and carry? Blueheath's Philp remains unrepentant: "Retailers are increasingly realising that their time is better spent running their store than running around a cash and carry."
{{ANALYSIS }}
By Elaine Watson
Warnings of doom for the independent retailer have been coming in almost as fast as bids for Safeway since Tesco announced plans to get into neighbourhood retailing. But is the writing really on the wall for the unaffiliated independent and, if so, will that also sound the death knell for cash and carries?
"In market size terms," predicts IGD, "cash and carry as a sector seems unlikely to escape the forces opposed to it."
Based on trends over the last decade, IGD predicts cash and carry will decline from a £9.2bn market in 2002 to a £9bn market in 2005, while delivered wholesale will grow from £6.6bn to £7.4bn over the same period as specialist traders broaden their offer to convenience. Moreover, unaffiliated retailers are expected to command about 35% of the c-store market in 2005/6, compared with the current 42%.
"If anything," adds the IGD report, "the importance of wholesalers within the grocery supply chain is likely to be eroded over time as more and more of the c-store market falls under the control of operators capable of buying in their own right rather than through an intermediary."
Even the boss of wholesale buying group Today's, Rodney Hunt, predicts the writing is probably on the wall for pure cash and carry, despite a cracking year for both delivered and cash and carry members within Today's in 2002.
"I don't believe that pure cash and carry will be around in 10 years or so. About 70% of members deliver now, compared to about 50% a couple of years ago," says Hunt. "Eventually, pretty much everybody will deliver, and every independent retailer will be in a retail club or symbol group."
If that doesn't convince some people that times are changing, news that die-hard cash and carry Batleys has been trialling a delivered service should make them sit up and take notice.
Batleys boss Len McCormick says: "There is no doubt that cash and carry is not growing as fast as delivered wholesale. And we are not going to bury our heads in the sand."
Unaffiliated retailers still represent by far the largest chunk of the c-store market, and nobody is predicting that the acquisitions of T&S and Alldays will precipitate the immediate collapse of a £9bn industry. But all the evidence suggests that pure cash and carry operators will find it increasingly hard to grow as consolidation continues.
Northern Ireland-based Holmes was a 100% cash and carry business in 1995. Today, 40% of its business is delivered wholesale and its smaller cash and carry depots have closed.
Cash and carry boss Michael Hamilton explains: "Our smaller depots couldn't progress because customers were either going out of business or getting bigger and better and wanting deliveries."
Lowries Wholesale, a delivered service that runs from Peter Lowries' cash and carry depot in Hexham, now accounts for about 20% of the business. The reason behind setting it up was simple, he says: "If we didn't deliver, someone else would."
Bestway, which started as a pure cash and carry operator, now has a sizeable delivered business, while market leader Booker has pledged to double its delivered business in five years and pump cash into developing its symbol fascia, Premier.
But, as many cash and carries have discovered, simply offering deliveries is not enough to provide a credible alternative to delivered specialists such as Spar or Blueheath.
Federation of Wholesale Distributors director general, Alan Toft, says: "Delivered wholesaling is a completely different culture to cash and carry. Not only do you need investment in warehousing, stock control, vehicles and administration, but also in the link with customers."
Once a retailer starts turning over more than £15,000 a week, says George Benson at Scottish cash and carry Bellevue, it will probably have started considering a delivered service. More often than not, however, people leave cash and carries "because they want a well known brand above the door" claims Benson. "And that means the symbol groups."
Committed to expansion
However, Landmark member Steve Parfett, who operates five large cash and carries in northern England, says he can offer the same benefits as the symbol groups at a better price. "I don't accept that cash and carry is in structural decline. We can replicate the support of a delivered wholesaler on a low cost basis. We can offer all the same kind of advice on layout, ranging, merchandising, plus we have the fascia [Landmark's Lifestyle symbol for members] and the retail clubs."
Landmark boss Martin Williams also insists there is life in cash and carry yet: "It's expensive to run a delivered operation and you can get your fingers burned. I'm actually quite bullish about the future."
Costco UK managing director Jim Murphy is also confident that cash and carry or at least the warehouse club concept has a long-term future in the UK, and remains committed to further expansion. "cash and carry still has great potential. It's the cheapest way of getting goods to market."
If you are entering the wholesale market from scratch, however, you'd be mad to go down the cash and carry route now, according to Chris Philp, business development director at new kid on the block Blueheath.
Web-based delivered wholesaler Blueheath avoided the typical start-up expenses associated with deliveries by utilising spare trucks and warehouse space at British Bakeries depots for its hi-tech operation, while customers order goods online.
Cashflow is freed by keeping inventory to a minimum, while administration costs are slashed through processing orders and invoices electronically, says Philp. "We are broadly competitive on price with a cash and carry. The difference is that delivery is included in our price." Although he can see why Booker has used its cash and carry depots to support delivered operations, adds Philp, they make Booker's delivered business "phenomenally inefficient".
First, the supplier delivers to a Booker distribution centre. Then Booker picks goods and delivers them to its depots or delivery hubs. Finally, goods are picked again from depots and delivered to customers, points out Philp, "by which time they have been transported three times, and picked twice".
Arguably, however, what keeps cash and carry bosses awake at night is more likely to be lousy terms than the pros and cons of moving into delivered wholesale.
Suppliers can be shortsighted
While most accept they have to work harder on promotional or ranging compliance through retail clubs and step up category management, they do not always get the support they need from suppliers, claims Today's Hunt. "Some suppliers are still very short-sighted. They don't seem to recognise they need to level the playing field to ensure we're still around in years to come, that the maintenance of a healthy independent sector as a counterbalance to the multiples is good for everyone." Peter Lowrie adds: "It's not the deals we can fight for them. It's the basic cost price difference [that is the problem].
"As a convenience supplier to c-stores, we have a worth, but as a traditional cash and carry we have little or no retail presence, which is all suppliers seem to value. But I live in hope some suppliers will look to other customers [beyond the multiples] to support them in their hour of need."
Alan Toft claims that both cash and carry and supplier need each other. "I now sense manufacturers are beginning to realise that without cash and carry they do not have the vast potential for overnight deals or end of year accounting manoeuvres in which a supplier can sell a substantial number of cases into cash and carry almost overnight," he says.
Suppliers, meanwhile, complain that the independent sector is more difficult and expensive to serve than the multiples, while wholesalers claim suppliers no longer recognise there is a double margin at work in negotiations with a wholesaler his own, and his customer's. One source says: "Now they want to move away from overriders as well and negotiate in the same way they would do with the big retailers."
So where does this leave pure cash and carry? Blueheath's Philp remains unrepentant: "Retailers are increasingly realising that their time is better spent running their store than running around a cash and carry."
{{ANALYSIS }}
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