Grocery Store Chain Centralization

During my career in the retail industry, I have had the good fortune of having many interesting and challenging positions.  One of those positions involved leading the national centralization of Grocery for the 5 divisions of American Stores.  This project was important for reducing costs but also for proactively battling mega stores’ ability to undercut American Stores pricing. 

During the 1980s, Wal-Mart was marching towards becoming the super power that it is today.  Even though at the time Wal-Mart was only in the mass merchandising channel; they were also making plans to move into the traditional Grocery Industry.  Wal-Mart had already mastered the art of harnessing the power of centralization - focusing on sales, cost of goods reduction and developing various efficiencies with suppliers.   Rather than pocketing that additional margin, they poured the savings into lower and lower prices.   Sooner than most grocers could imagine, they would be scrambling to compete with Wal-Mart.

With this insight, American Stores decided to become one of the first grocery and drug retailers to centralize their operations.  I was asked to head up the Grocery Division across the country.  I had the opportunity to select the top talent from each division.  As a result, not only did we have the top talent, but we also had people on our central team who clearly understood the uniqueness of each division’s operation.

Despite our team’s experience and capabilities, we faced tremendous difficulty with the transition of each division.  We centralized only one division at a time.  What we found:

▪ A clear savings in the cost of goods overall

▪ That savings were not so clear on the top selling
  items.

▪ That savings on “B” and “C” level items were
  quite clear.

▪ Manufacturers benefited from making calls on
  one Category Manager, covering 5 divisions,
  rather than calling separately on all 5.

In the end, we were able to successfully centralize the procurement and marketing of all divisions.  We were able to deliver a significant reduction in cost of goods.  Consequently, we caused a ripple effect throughout the supplier side of the industry; brokers and many manufacturers began to centralize.  We were able to demonstrate the power of one decision point for the entire country.  We began to develop higher levels of cooperation with suppliers, who realized increased performance improvements as we worked together

In those ways, we clearly achieved all of our objectives.  Unfortunately we were never able to achieve the level of teamwork with the divisions that would be necessary to maximize our success.  Each division experienced quite a loss of power as much of their decision making authority was shifted to corporate headquarters.  There were no case studies to have prepared us for the frustration and conflict that would be felt on a personal level by people working within each of those divisions.

After having been through this experience, I feel that there are 3 main points to consider when forming a strategy for centralization for a company.  The first is to define what tasks would be more cost effective to do one time for all the divisions.  The second area of focus would be to define what tasks should be performed within a division that are demographic specific i.e. marketing and assortment.  Finally I believe it is critical to involve the HR department to develop creative team building consensus to get everyone on board and ready to support the many new changes they will be facing well in advance of the launch date.

For information about my services and availability please visit my website at GlobalRetailConnections.com

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