Should grocery chains bring transportation in-house?

Discussion
Photo: Ahold Delhaize
Mar 28, 2022

Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.

While the Walmarts of the world have owned their supply chain for decades, many smaller chains got out of the logistics business years ago in order to focus on core competencies. Since 2017, however, surging demand combined with a shortage of carriers has led some to rethink that decision.

In 2019, for example, Ahold Delhaize announced a plan to bring 85 percent of its U.S. supply chain under company control by 2023 (though it’s poised to meet that goal a year early).

When the pandemic hit, leaving many supermarkets scrambling to fill shelves, many others got on board as well. This past January, BJ’s Wholesale Club joined the shift, acquiring four refrigerated distribution centers and their private transportation fleets from longtime partner Burris Logistics to bring its perishable supply chain in-house.

The National Private Truck Council (NPTC) reports the percentage of outbound and inbound shipments handled by private fleets has grown every year for the past several years. NPTC president Gary Petty said, “For companies that sell products, taking control over how and when they get to the store — and how much it costs — is really a seismic shift … and a repudiation of outsourcing as ‘best practice.’”

While guaranteed capacity is the primary driver of the change, cost is an important consideration as well with freight rates escalating. Improved customer service is another potential benefit.

That’s not to say retailers operating their own fleets aren’t looking to maximize efficiency.

For example, says Marc Wulfraat, founder and president of logistics consulting firm MWPVL, instead of sending empty trucks back to the DC after a delivery, many retailers with private fleets are able to generate backhaul revenue.

In addition, even companies with their own fleets often hire outside carriers for deliveries to specific geographic regions when a third party can do it more cost effectively.

Mr. Perry admits that “success requires major investment” by retailers looking to take control over at least a portion of their supply chain. And on the trucking side at least, “The organization must be committed to transportation as a core priority and competency.”

DISCUSSION QUESTIONS: Do you see more benefits than drawbacks to food retailers bringing transportation in house? Do you see signs that give you hope that trucking capacity shortages will ease?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The hybrid of in-house and third party makes a lot of sense as it provides more control and certainty with the addition of greater flexibility when capacity is stretched."
"In order to benefit from economies of scale, ensure control, and avoid price spikes and other customer service benefits it makes sense to have control over transportation."
"For the larger organizations it can have a significant long term positive impact on the bottom line."

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16 Comments on "Should grocery chains bring transportation in-house?"


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Neil Saunders
BrainTrust

The general direction of travel is for grocery retailers to control more of their logistics and supply chain. This is partly because there is a blurring between online delivery capability and store delivery, with innovations like automated warehouses and distribution centers becoming points of competitive strength. However the pandemic has also highlighted how vital logistics is to the success of the grocery industry, and an internal operation allows for more flexibility. Of course, all of this favors larger players which have the capital and operational muscle to manage logistics internally.

Bob Amster
BrainTrust

We have had this type of discussion in the past. Without knowing the comparative costs, it is hard to categorically state which is best (and for which retailers). I have always advocated for outsourcing anything that is not a company’s primary competency. Transportation is the competency of carriers. Selling Campbell’s Soup is the competency of food retailers.

Zel Bianco
BrainTrust

Being in control of your transportation logistics can be a double-edged sword. It is likely more and more retailers will take this path to control costs but there will be situations and or geographical needs that are better served by third parties.

Andrew Blatherwick
BrainTrust

The love-hate relationship between retailers and their transportation suppliers is ever-evolving. Retailers are always looking for efficiency, customer service and innovation in their supply chain. Given the current issues with supply it is natural that retailers look for greater control and guaranteed availability. However as the global market gets back to a more normal situation and they find redundancy in their assets or a lack of flexibility, they may well revert to third party help, or at least a mix of the two. The hybrid of in-house and third party makes a lot of sense as it provides more control and certainty with the addition of greater flexibility when capacity is stretched.

Matt Lyles
Guest

Grocery chains need to continue to place more effort and focus on improving both the customer experience and the employee experience. Bringing transportation in-house allows them to do just that. The more they can own their supply chain, the more they can own and orchestrate their customer and employee experience.

So long as a grocery chain has the financial capacity to easily operate its own fleet, this move makes the best sense.

Jeff Weidauer
BrainTrust

Despite the current logistical challenges, trying to bring transportation in-house is a risky move that will bring as many problems as it solves. Retailers should stick to what they do best and outsource as much as possible.

Steve Montgomery
BrainTrust

Bringing transportation inside can — emphasis on can — have more benefits than drawbacks but it requires investment in infrastructure, trucks, people and in skill sets. Operating a warehouse efficiently is not an easy task.

There are companies who have elected to take a middle road. They own the facilities, inventory, trucks, etc., but outsourced the management. This middle road brings some of the benefits, but removes many of the hassles.

Perry Kramer
BrainTrust

For the larger organizations it can have a significant long term positive impact on the bottom line. Especially for an organization that has the cash to invest in large capital investments. In the case of BJ’s they will no longer be fighting with Burris to get the best allocation of goods and fleet availability. This gives them better control of their supply chain which is high priority for almost every retailer. Many of the largest retailers already have the majority of the software and other infrastructure in place for their current operations. They can expand it as well as make the organizational changes needed to onboard the people and processes without starting from zero.

Rich Kizer
BrainTrust

Every business wants to feel in total control of their operations. However there is hardly a day in any business that something something doesn’t upset the apple cart. With the thought of breakdowns, driver and absences, my bet is on professional companies giving the service you mandate to their drivers. “Breakdown? Get a truck out here now.” Customers don’t care about your problems, they care about fulfilled promises.

Shep Hyken
BrainTrust

It’s all numbers. Does it make sense to have your own fleet or contracts with logistics and delivery companies? As I look at the retail grocery industry, delivery has become an important part of the model. If this is the direction the industry is going, then one day we may see more retailers owning their own delivery solution. At this point, retailers are going to be dependent on outsourced delivery.

Gene Detroyer
BrainTrust

The first question is, who owns and operates the warehouse? If it is the retailer, then the retailer should have a complete supply line to their stores, without depending on a third party to do the work. If it is a wholesaler or co-op that owns and operates the warehouse, then the wholesaler or co-op should be responsible for getting merchandise to their customers. There must be straight lines of demarcation of responsibility.

Oliver Guy
BrainTrust

In order to benefit from economies of scale, ensure control, and avoid price spikes and other customer service benefits it makes sense to have control over transportation. Some logic says that capacity owned and managed should be aligned with a “base-load” – knowing that having capacity not in use can be expensive. A strategy could then be to use third parties for peak demand – however the “cost” of that is that it may be more difficult to control the whole process. Particularly where product is bought online, it may be appropriate to have product delivered to consumers using your own fleet – thus the driver being the customer contact – however capacity to do this at all times could lead to under-utilization. Incentivizing consumers in order to flatten the peaks could be one mitigation method as could providing excess capacity to other retailers.

Richard J. George, Ph.D.
BrainTrust

This is the logical next step for food retailers, who currently use third party companies like Instacart. The biggest advantage is ownership of the customer and reduced payments to such logistics operations. The downside is the cost of dedicated distribution. Besides the obvious capital and operating costs of warehouses, trucks and employees, this model requires the need for an appropriate IT system, as well as a “pick and pack” operation before the order even gets to the truck. Yes, this is an opportunity but it needs to be weighed against the costs to do it properly.

Mel Kleiman
BrainTrust

The discussion question asks two questions. The answer to the second one is simple. There is no sign that the shortage will ease anytime soon when it comes to capacity. We are still over 65,000 truck drivers short in this country, and the number of people willing to drive trucks is not growing to keep up with the demand.

When it comes to the second question, the answer is vague. It depends on the operation, and for every retailer, the answer will be different, but in most cases, it will be a hybrid model.

Kai Clarke
BrainTrust

Grocers cannot be all things to all customers. The size required to profitably purchase, maintain, and then manage both ways in a logistics transport is difficult. For long-haul grocers, this becomes even more so, when keeping their own truck full on all aspects of the logistics route. This type of in-house transportation control should only be reserved for the few largest grocers.

Anil Patel
BrainTrust

I feel it would be too soon to conclude if the in-house transportation capabilities are a benefit or risk for food retailers. Retailers ultimately will adopt solutions that would best fit their ecosystem and meet customer needs. And if that means an in-house capability, they would go for it. However, we can safely predict that in-house transportation capabilities would be largely adopted by all retailers in the future because delivery is a part of the product. Product handling, packaging, and customer interactions at the point of delivery, all these factors matter failing which can lead to negative customer experiences.

wpDiscuz
Braintrust
"The hybrid of in-house and third party makes a lot of sense as it provides more control and certainty with the addition of greater flexibility when capacity is stretched."
"In order to benefit from economies of scale, ensure control, and avoid price spikes and other customer service benefits it makes sense to have control over transportation."
"For the larger organizations it can have a significant long term positive impact on the bottom line."

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