A major reason behind the increasing dominance of a handful of national grocery and produce retailers in the UK over the past two or three decades – Tesco alone has around 30 per cent market share, add in Asda/Walmart, Sainsbury and Morrisons to cover almost three quarters of the market – has been that they have been able to create supply chains based on large contracts with national or international suppliers and manufacturers, distributing essentially the same products throughout the country. This has created economies of scale both in purchasing and distribution, and consumers have benefited from assured availability and lower – much lower – prices. With the number of skus in a typical outlet now measured in the tens of thousands, consumers also enjoy at least the illusion of choice (although it can be argued that if you strip out minor variations in packaging, pack size, branded versus own-brand and so on, much of this ‘choice’ is merely a clever set of variations on a much narrower set of themes).
The retailers have always, of course, given due attention to regional preferences, but that is by no means the same thing as local sourcing. Regional preference recognises that, for example, haggis, or mutton pies, sell in Scotland (and in outliers such as Corby) but are a minority interest in the rest of England; more subtly that the North prefers its butter salted, the South unsalted. Regional distribution has always had to accommodate such variance, but the product varieties may still be produced by an anonymous factory in the UK or abroad.
The demand for local sourcing is different. Research shows that consumers’ perception of ‘local’ is typically within a thirty mile radius. That itself has some interesting logistics planning consequences.
The catchment area for a major store is usually taken as 15 miles. Some easy work with equilateral triangles shows that with an even distribution of population and stores, a producer would typically be ‘local’ to a group of just seven stores – well below the number normally served by an RDC.
The motives behind pressure for local sourcing are various: only cynics would suggest that it is something got up by the retailers to ward off the attentions of the Competition Commission. For consumers and pressure groups, there is a concern for the health of the agricultural sector (or more accurately a concern for what a degraded agricultural sector would imply for the environmental and amenity value of the countryside, which we all love especially if we don’t have to live there). Coupled with that there is the perception that local sourcing could support local jobs not just in primary agriculture but in manufacturing, processing and services. There is certainly a ‘snob value’ attached – consumers, like producers, are anxious to differentiate themselves and an artisanal sausage or region-specific bread comes somewhat cheaper than a box at the opera or a guided trek through Patagonia. Quasipolitical factors may also be relevant – the inscrutable activities of multi-nationals (the best current example being the move of ‘HP Sauce’ manufacture from Birmingham to Holland) undoubtedly promotes a backlash in favour of more ‘local’ and presumably ‘accountable’ producers.
And, more pertinent for the supply chain, there is the concern about ‘food miles’ – both in the sense that trucking or flying produce around the world is wasteful and harmful, and that in the process food loses its ‘goodness’. This is likely at once to be the longest-lasting motivation (if only because the concept is being well-taken by both government and opposition parties) and the most contentious. Not only does local supply imply a more complex and less efficient supply chain, with all that may mean in terms of part-loads, increased delivery numbers and perhaps lower perceived quality (artisan and small-scale products necessarily have greater variability; they are not usually capitalised to exploit modern packaging and product care techniques – although in fairness some of the demand for local products is based on a desire to get away from the plastics and special gases regime); but consumers appear to have forgotten why they welcomed the big retail chains in the first place – precisely because their supply chains could ship product halfway round the world and present it on a shelf in apparently better condition than could a greengrocer with a supplier in the next village.
But nonetheless, the demand for local products appears to be growing and is now a significant factor for the supply chain. (In passing, it may be observed that, if these pressures are not yet so evident in Continental Europe, this is largely because the biggest retailers do not hold such a dominant position, and therefore local and regional products have not been squeezed out to the same extent – where, as in France, firms like Carrefour have shown tendencies to follow the ‘Anglo-Saxon model’ there has often been strong resistance. Additionally, some ‘local sourcing’ is a bit of a myth – the mainstay of the often-controversial export of livestock from the UK and Ireland is the need to ‘finish’ animals in, say, France so that they can be sold as ‘locally reared’. Equally, in the UK the Sussex Tea Company – a small supplier to Budgens in that county – may pack a great tea, but despite global warming it is not yet growing its own Camellia sinensis)
Meet the Buyer
Given that the demand for locally sourced products is real and permanent, what are the supply chain challenges? There is certainly no shortage of potential suppliers, as farmers try to find value-adding activities and the retailers are hyper-active in nosing these out. Budgens, a chain a long way from the ‘big four’ in size, but locally dominant in some areas, has offered over the summer around 100 lines, sourced in and around Sussex, in its stores in that area, from beer to bacon and chutney to cheese. ‘Meet the Buyer’ events hosted by retail majors are so ubiquitous one wonders how the small producers find time actually to produce. A Sainsbury’s event in Northern Ireland earlier this year resulted in 15 new suppliers and 61 new products. Since its Regional Buying Unit was set up last year, Sainsbury claims to have introduced 231 new products. Some, perhaps many, of these will fall by the wayside; a few may make it to UK-wide distribution, and some will presumably become firm lines on a regional basis only. In September, Tesco announced that it was establishing six regional buying offices (at a meeting of 100 Cornish producers in Padstow) – five in England and one in Wales, on top of existing buying and marketing operations in Northern Ireland and Scotland. Tesco promises to ‘stock more local lines than any other retailer’.
But there are still problems. Small-scale suppliers may need nerves of steel to capitalise the production requirements of a supermarket major, even for merely regional distribution. Such suppliers will be understandably wary of committing a large part of their production to a single vendor – not just because they fear being ‘hung out to dry’, but also because other distribution channels – local shops, farmers’ markets etc – are perceived to be important to their brand.
For produce, seasons are short, not necessarily predictable, and since the retailer needs to provide availability of salad leaves or raspberries year-round, an early bumper crop from the Fens or Tayside may not fit easily with larger bulk contracts with major producers in say Spain or Holland. Supply chain visibility, difficult enough to achieve within large contracts with major suppliers, is even more problematic with smaller or occasional suppliers. Forecasting and demand planning errors are much greater, or at least of much greater consequence, supply may be less predictable while the nature of the product and the size of the supplier may make it difficult to hold buffer stock, and while the farmer’s wife may be a wizard with EDI, there again she may not).
And for some products there are supply chain difficulties that neither producer nor retailer can resolve: for example, you can buy ‘locally reared Welsh lamb’ in Aberystwyth, but the animal has probably been trucked to, and the carcase brought back from, an abattoir in the West Midlands. ‘Local’, here, may actually increase ‘food miles’.
Most of the arguments for local sourcing are about consumer demand, and where the retailers can satisfy such demand at a profit, it will surely be met. ‘Food miles’, however, falls into the wider category of ‘sustainability’ – a concept which, however vague the definition, is informing politicians of all colours in many countries. Indeed, the UK’s Department of the Environment, Food and Rural Affairs (DEFRA) last year produced a report ‘The Validity of Food Miles as an Indicator of Sustainable Development’ (downloadable from www.defra.gov.uk). Although the data sets are incomplete there are some interesting findings – for example that 48 per cent of food-related vehiclekilometres are actually generated by customers’ cars, not the supply chain (although at 13 per cent, customers’ CO2 emissions are less significant). DEFRA acknowledges that ‘The current dominant system of food supply…involves large HGVs travelling long distances between suppliers and shops via centralised distribution centres [which]enables very efficient loading of vehicles which reduces the impacts per tonne of food. More local sourcing can greatly reduce the distance travelled by food, but the reduction in transport impacts may be offset… by the use of smaller vehicles or lower load factors’. As is traditional ‘We recommend further research’.
A valuable Annex to the report, by researchers at the Universities of Westminster and Heriot-Watt, looks for ‘Win-win company policies in food logistics systems’. Many of these centre around techniques such as computerised routing and scheduling, in-vehicle telematics, e-commerce, sophisticated fleet management – the sort of techniques which the current major retailers and their logistics partners are exploiting ever more efficiently, in ways that are not easily open to smaller suppliers or retailers. (The trend towards factory gate pricing however, although resented by large manufacturers trying to achieve scale efficiencies in their own distribution, may tend to level the playing field somewhat for smaller vendors and producers).
However, a study presented at this year’s Agricultural Economics Society (Barnes and McVitie, ‘Measuring the Sustainability of the UK Food Chain’ – see www.aes.ac.uk/cons_06_docs/papers) shows that Total Factor Productivity in the food chain is declining (in other words, inputs including social costs are increasing faster than outputs including social benefits), despite the increasing efficiencies of the major supply chains. The authors conclude that ‘The main negative impact is with the use of cars, which has increased substantially from 1998 onward. Predominantly, this is due to increased distances travelled to supermarkets. However, moves have been made by retailers to improve convenience in terms of internet shopping and smaller city centre based retail units. In time these might have the effect of reducing externalities by altering shopping patterns’.
And, conceivably, giving renewed opportunities for local and niche suppliers. A report (by Professor John Whitelegg for the London Development Agency (www.lda.gov.uk) explores the potential for a ‘London Sustainable Food Hub’.
The report deserves careful study. The Sustainable Food Hub would promote:
- an efficient, trusted and well-regarded warehousing system that can accept, store, sell-on and distribute produce to intermediate and final consumers and take some of this burden off producers.
- a transport system that minimises miles, reduces producer costs and realises environmental savings
- a base for the development of other businesses (eg processing, packaging, marketing)
- employment opportunities an increase in consumption of local, organic and sustainably produced food with gains for the local economy, health and the environment.
- an increase in consumption of local, organic andsustainably produced food with gains for the local economy, health and the environment.
On a ‘social’ business model, the author suggests costs of $4 million over three years, after which the hub should be self-sustaining.
The proposal may seem pie in the sky but it is modelled in part on current practice in Austria, Sweden, Italy and even at Booths, a regional supermarket chain in Lancashire. Certainly it would take considerable political will to set up, and to reconcile the very wide range of interests, not to mention the inevitable complaints that the Hub would constitute a subsidised rival to existing SC operators.
But even if you disagree with the proposals, they should be studied – and a better alternative proposed. One thing is certain: the demand by consumers for products they perceive as ‘local’ or ‘sustainable’ products, foods and groceries will continue to grow, as will popular support for a more level playing field for small-scale and niche producers.
The retail multiples and their supply chain partners have transformed the availability of keenly priced, quality produce in variety throughout the UK – not too long ago you had to be rich and in London to buy a red pepper, and this is an achievement for which the supply chain has been given too little credit. But expectations and priorities have shifted once more, and become more complex. Whether Tesco, or the Mayor of London, or some other player as yet unknown, can best reconcile all these factors remains to be seen.