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Interview with Professor Peter Klaus

"No retailer can afford to ignore the challenge"

How are current changes in the European retail trade being expressed in the food sector? Professor Peter Klaus has answered questions arising in connection with this topic. A member of the Logistics Hall of Fame, Professor Klaus was one of the speakers at the RILA Conference held in Orlando in 2015. This is the supply chain conference for leading American retailers.

Professor Peter Klaus

Professor Klaus, you have observed the US logistics and supply chain management markets for many years, is the USA pioneering developments for retail in Europe?

At the very least, there is a time delay. The Americans tend to go for innovations more quickly and are less risk averse. In Europe, developments tend to be somewhat later, and somewhat more modest in scale than in the USA, even if they point in similar directions overall.

How are current changes in the European retail trade being expressed in the food sector?

The strong advance of internet-based shopping leads to high expectations for the food business also. This is demonstrated by the formation of relevant start-up companies and growing online offers. The second major change is the development of shop formats for greater convenience and new combinations with offers of food to eat on the premises. A third basic trend is that ranges are changing - smaller packing sizes, increase in ready-made meals, offering even more variety.

So the retail trade is becoming more complex?

Yes. Multi-platform sales via multi-channels or omni-channels make the delivery chain considerably more complex. The products will not only be distributed via the regional logistics centres of the finalised retail. The range of such delivery and distribution possibilities for the food retailers is expanding. No retailer can afford to ignore the challenge of offering his goods to customers via multiple channels – in large retail stores and in the newer convenience store formats. At the same time, consumers behave in a hybrid way: they use online ordering, a delivery service and collection from stores themselves in parallel.

What does that mean for retailers?

The difficulty for retailers, and therefore also for their service-providers, is to ensure that every product is available at all times in each sales channel. This is a huge challenge. Questions are also raised, such as: at what point in the delivery chain should the goods be kept available? Will the e-commerce orders be supplied from e.g. outlets, regional warehouses or from specific central fulfillment centres?

What role does the willingness of consumers to pay have in this market development?

The average bill at the checkout in food retail is between 10 and 20 euro. The minimum costs of home delivery is 5 to 10 Euro. Which means that even if savings are available by avoiding in-store shopping and using the online channel, these are quickly more than absorbed by additional logistics costs. The idea of home delivery ought to be made more cost-effective. Whether this happens and to what extent, this will significantly influence the future of the food retailing.

How can logistics companies adapt to this change?

Companies must set out to react in a more flexible way. They should also get away from the idea that any indicator will tell them what the future looks like. It is about multi-temperature, multi-channel and innovative capability. There are several intelligent possibilities here. The future remains open.

What new demands will be placed on logistics?

Home delivery activities represent a new business, in particular for parcel services and B2C supply firms. Depending on how optimistic your views on growth within the new channels are, the development of additional specific logistics systems will arise.

Will this also lead to changes for retailers?

We talked earlier about the shift in power from manufacturers to retailers. We are now discussing whether there is a shift from retailers to consumers. In the sense that consumers have a much greater choice of shopping opportunities through the internet, e-commerce and eating out.

Do manufacturers not also now have an opportunity to sell their products directly to end users online?

There is no contradiction here. Yes, that’s certainly true. It is clear that manufacturers and also the chains are not allowing market segments to be taken away from them without putting up a fight. Manufacturers for their part are starting to employ online marketing techniques, and compete with their own retail customers. It is too early to say what the new weighting will ultimately look like along the supply chain.

Peter Klaus, born 9.3.1944 in Frankfurt(Oder)
former University Professor at the Friedrich-Alexander-University of Erlangen/Nuremberg
Doctor of Business Administration/Boston University.
Master of Science (Transport.) Massachusetts Institute of Technology/Cambridge MA
Graduate of Business Administration

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