The objective of the article is to show the results of the Benchmark Research – Distribution Service[1], conducted periodically since 1994 by ILOS, on the evolution of the importance and quality of the distribution service in the consumer goods industry in the perception of supermarkets[2].
The first part of this article presents an analysis of the economic scenario, which conditions the behavior of agents that are part of the consumer goods supply chains. Then, in the second part of the article, the implications of changes in the competitive environment will be discussed in terms of the needs of supermarket operators, as well as the performance and quality of the distribution service practiced by the industry. The analyzes that follow are based on the results of that research.
the economic environment
We have reached the end of 2011, with the year marked by recent events related to the sovereign debt crisis in Europe and the United States, which have greatly affected current global economic activity, casting a cloud of uncertainties for 2012. Even so, an analysis is in order. on the previous eight years, the period of government of President Luís Inácio Lula da Silva, with regard to the economy and its consequences on the purchasing power of consumers and, consequently, on the performance of supermarket retail sales. During his government, the economy had a strong growth of 37,2% of the GDP, between 2003 and 2010 – equivalent to an average annual rate of 3,3%. During this period, inflation increased by an average of 5,8% and the dollar depreciated by 9,2% per year.
Thus, the internal market was strengthened, with the growth of the population's consumption capacity. As shown in Table 1, the level of unemployment, which was 11,7% in 2003, reached its lowest historical rate, 6,1%, in 2010. On the side of work remuneration, the average income grew 5,3 % in the same period. The combination of positive effects on income and employment boosted the wage bill by 30% between 2003 and 2010.
Table 1 – Evolution of Brazilian GDP growth rates, exchange rate, INPC, IPCA, unemployment rate, minimum wage, average real income of employed persons, wage bill, credit operations, household consumption and real supermarket sales * forecast
Source: Economic Conjuncture, IBGE, RAIS/MTE and ABRAS
Consequently, consumer purchasing power, measured by household consumption, increased by 42,3% in the period, fueled by unprecedented growth in credit, which was equivalent to 24,0% of GDP in 2003 and reached 48,0% in 2010. This is explained by the increase in loan repayment terms, combined with greater consumer confidence in the economy. These positive effects on consumer purchasing power can be observed in the growth of supermarket retail sales, of 23,4% in the period considered.
It is important to mention that the strengthening of the internal market was fundamental for the exemplary performance of our economy in the face of the international financial crisis that began in the last quarter of 2008, due to the real estate “bubble burst” that put the private banking sector in check, causing in the “meltdown” of the world economy.
In 2009, the economic policy adopted in Brazil was to compensate for the impacts of the international crisis by stimulating domestic consumption, which in turn brought positive effects to the economic agents that are part of the consumer goods supply chains. In this sense, the increase in household consumption, of 4,2% in 2009 and 7,6% in 2010, was an important driver for the performance of the Brazilian economy to be much better than that of developed countries, culminating in the strong growth of 7,6 .2010% in XNUMX. The same phenomenon happened in China and India, where the strength of the internal market strongly mitigated the impacts of the global crisis.
It can be seen that, on the consumption side, the international crisis, despite the government's countercyclical action to stimulate the economy, resulted in a reduction in the pace of growth in supermarket sales from 8,98% in 2008 to 5,51% in 2009, reaching 4,18% in 2010, according to Table 1.
It is interesting to point out, in Table 2, the positive effect of government policies to stimulate the economy in 2009 – the worst year of the international crisis. In that year, the monthly sales performance of supermarkets, in relation to the previous year, remained at a favorable and consistent pace.
Table 2 - Evolution of monthly supermarket sales *forecast
Source: ABRAS
In 2011, we have experienced a less favorable economic environment, with an expected GDP growth of around 3,8%, mainly due to the recent sovereign debt crisis of the European Union countries. This, combined with the credit restrictions imposed to contain the acceleration of inflation throughout the year, heavily pressured by food and rent, has resulted in an increase in household consumption that is slower than that observed in the previous year (see Table 1). A recent IBGE survey points to a growth in household consumption of 5,7% in the 1st half of 2011, and 6,7% in the last 12 months, which indicates a trend of lower growth for 2011 (about 5,5% ), when compared to the 7,6% increase seen in the previous year.
Therefore, an increase in supermarket sales at a slower pace is expected for 2011, when compared to the previous four years, which in turn should also imply positive, but moderate, effects for the consumer goods industry. Accumulated supermarket sales, 4,21% up to September 2011, as shown in Table 2, are more than 0,5 percentage points lower than that observed in the same period of the previous year.
The year 2012 will be full of uncertainties and begins with a Euro Zone threatened by a recession arising from the worsening sovereign debt crisis of the countries in the region. The austerity measures imposed to bring countries within the EU's deficit limit could jeopardize the growth of the continent's economies, which in turn will negatively impact the performance of the global economy. A slowdown in China due to a strong reduction in world demand could trigger “strong shocks and tsunamis” in the global economy, which would further reinforce a possible generalized recession.
Brazil would not be immune to this context of global economic crisis that may be forming for 2012, as it would certainly suffer from an inevitable reduction in Chinese demand and the consequent fall in commodity prices. Even so, the Brazilian economy would have a good chance of mitigating the negative effects of the crisis through government interventions to encourage domestic economic activity. In a way, Brazil is already facing good prospects due to strong investments in infrastructure that are already being made for the 2014 World Cup and 2016 Olympics, and the recent loosening of credit restrictions.
It should be noted that the next increase in the minimum wage, by around 13,5%, so touted as an undesirable inflationary pressure for 2012, could, in fact, also play an important role in stimulating the growth of the domestic market, helping the economy to maintain a reasonable pace of growth, at a level equivalent to 2011, but still enviable compared to the expected global recessive performance. The maintenance of the level of employment and the increase in income, in 2012, may generate interesting opportunities for the consumer goods industry, in the same way that occurred during the period of response to the global crisis of 2008/2009.
It is up to the industries to reflect on the economic prospects and their effects on the consumption profile, for a better positioning in the market. For example, could maintaining the overvaluation of the Real increase consumer demand in terms of quality and variety of products offered?
The commercial purchasing decision process
This section will address the impacts of changes in the economic environment on trade relations between participants in the consumer goods supply chain, as illustrated in Figure 1.
Figure 1 – The consumer goods supply chain
Figure 1 presents the logic of the physical flow of goods between the industry and the consumer, which can be done directly through a wholesaler or a retailer. This last case is the focus of the research carried out.
Figure 2 shows how the relative importance of purchasing decision variables[3] (based on the “marketing mix” – product, price, distribution service, promotion and advertising) of retailers with the industry has changed over the period considered by the survey.
Figure 2 - Evolution of the purchasing decision process from commerce to industry
It can be seen that, in the last four years, there has been a recovery in the importance of the distribution service in the retailers' purchasing decision process, to the detriment of the price, promotion and advertising variables. Output stands out as the most important variable in this period.
It is important to verify, in Figure 2, that the purchasing decision is centered around 62% on the price and product variables, when compared to the other variables – distribution service and promotion and advertising.
The growing importance of the distribution service, from 2007 onwards, can be understood by the period of expressive growth in supermarket sales, as the increase in the purchasing power of the population was translated into greater consumption, causing pressures on the service provided by the industry . Between 2007 and 2010, retail trade sales increased by 27,3%, driven by the combined effect of the 23,0% increase in wages, the drop in unemployment, from 9,3% to 6,1%, and the increase of credit by 17,3 pp, which boosted household consumption by 25,7%.
It is interesting to observe that during the period of Lula's government, between 2003 and 2010, while the importance of price fell by 6,2%, the other purchasing decision variables gained in relevance - the product by 1,0%, the distribution service by 1,5% and promotion and advertising by 3,8%. That is, throughout this period, retailers indicated that they were less sensitive to price, willing to accept an increase in price in exchange for better products, better distribution service and more promotion and advertising.
The strong increase in the volume of supermarket retail sales observed in the period certainly caused pressures on the capacity of the industries' distribution operations, which, consequently, must have compromised the quality of the services offered.
The more moderate perspectives for the economy in 2011 should maintain the evolution observed, with product and customer service tending to gain strength to the detriment of price and promotion and advertising. However, it should be taken into account that the measures to control inflation, throughout 2011, must have influenced the relative importance of the retailer's purchasing decision variables in relation to the consumer goods industry in relation to 2010.
The next part of the article will seek to assess the level of satisfaction of the retail trade with the distribution service provided by the consumer goods industry; what is your level of demand; and, finally, if the companies holding the best practices have their performance differentiated by the retail trade.
Conclusions
The favorable economic environment in recent years, despite the international crisis that occurred at the end of 2008, has positively influenced the agents in the consumer goods supply chain. The government's action to mitigate the harmful effects of this international crisis resulted in measures to encourage domestic consumption, which in turn maintained a strong level of activity in commercial relations between supermarkets and consumer goods industries.
However, due to inflationary pressure throughout 2011, the government tightened credit restrictions, which had a negative impact on consumer purchasing power in 2011. In this sense, the supermarket trade should experience a sales performance in 2011 below that observed in 2010, pressing the industry for a more efficient distribution service.
In short, for 2011, it is expected that both the product and the distribution service will have continued to gain relevance in commercial relations between supply chain agents, which, in turn, may have implied an increase in demand regarding the level of service offered by the industry.
It is important to point out that 2012 should be a tumultuous year due to the sovereign crisis of the European Union countries, which could lead the continent to a serious recession, negatively affecting the global economy. However, the consumer goods industries must be aware of the impacts of these uncertainties on the business environment, as opportunities may arise if a set of incentives to strengthen the economy, aiming at the growth of the domestic market, has the expected effects.
Bibliographical References
FLEURY, PF, LAVALLE, CR Evaluation of the physical distribution service: the relationship between the consumer goods industry and the wholesale and retail trade. Management and Production, vol. 4, nº 2, August 1997.
CHRISTOPHER, M. Logistics and Supply Chain Management: strategies for reducing costs and improving service🇧🇷 Prentice Hall, 1998.
BOWERSOX, DJ, CLOSS, DJ Business Logistics: the supply chain integration process. Atlas publishing house, 2001.
Cesar Lavalle
Director of International Relations
Institute of Logistics and Supply Chain - ILOS
(21) 3445-3000
lavalle@ilos.com.br
[1] General Information: The Benchmark Distribution Service survey, conducted periodically since 1994 by the Center for Studies in Logistics, has been sponsored by industrial companies, leaders in their respective sectors. The scope of the research covers about 600 interviews, carried out in five Brazilian capitals (São Paulo, Rio de Janeiro, Curitiba, Belo Horizonte and Recife), considering three categories of products: perishable food, non-perishable food and hygiene and cleaning. The methodology evaluates eight dimensions (operationalized through their respective distribution service attributes): Product Availability, Order Cycle Time, Delivery Time Consistency, Delivery Frequency, Delivery System Flexibility, Failure Remediation System, Support Information System and Physical Delivery Support.
[2] Survey carried out periodically since 1994; this article is based on 2010 results.
[3] Respondents were asked to distribute one hundred points among the four purchasing decision variables considered (product, price, place/channel – represented by the performance of the physical distribution service, promotion and advertising). A higher score indicates greater relevance. The result indicates the relative weight of these variables in the decision-making process for trade purchases with the industry. With the aim of maintaining data compatibility, the analysis that follows only considers São Paulo and Rio de Janeiro, as these are the only markets that were objects of research during all stages of the same, between 1994 and 2010. Other markets were added from the second phase of the research.
