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Dunnes Stores headquarters, Dublin: The company is moving closer to full central distribution

Following Dunnes’ latest foray into establishing a central distribution model, GILLIAN HAMILL examines the consequences of this move for the Irish grocery sector.

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Satisfaction is rarely sweeter than when a long-term goal is fulfilled. So the management of Dunnes Stores were no doubt delighted to take a step closer towards achieving full central distribution (CD) earlier this year.  Reports emerged in March that the multiple informed key international branded suppliers it will now centrally distribute their product through a third-party distributor, believed to be Flancare in Clonmel.

But while Dunnes will be pleased international brand agents are no longer charging a premium for direct distribution to its nationwide network of stores; how will this move by one of the country’s major multiples affect the grocery landscape at large?

An inescapable fate?

Is central distribution set to become an inescapable feature on the trade’s horizon? And how will this affect third party distributors and suppliers? Perhaps the most pertinent question though, for the symbol groups and independents who were tardy or ambivalent in boarding the central distribution train-cum-steamroller, is whether they will ultimately be placed at a potentially fatal competitive disadvantage?

Jim Barry, managing director of the Barry Group, gave ShelfLife his view on the inevitability of the model’s onward march across Ireland. It is his belief that 95% of product in the Irish grocery market will be distributed through just 10 warehouses within the next 12 months.

Then again, perhaps this is not an altogether surprising prediction, considering the Barry Group’s well publicised plans to nearly double the size of its existing 125,000 sq ft central distribution centre in Mallow, Co. Cork. The move which will cost over €1.5 million, and create over 25 jobs, is being carried out to fulfil the company’s ambitious growth plans; following its recent acquisition of the ‘Carry Out’ chain of 50 specialist off-licences.  

Another symbol group currently fleshing out its central distribution model is Londis. According to ADM Londis Plc customer operations director, Claude Tonna-Barthet, the retailer began “a move towards a more centrally operated distribution service over four years ago.”  The transition kick-started “when ADM Londis partnered with TDG to review the operational effectiveness of the warehouse with a view to not only increasing our ambient product service… but also ensuring we had a road map to deliver a chilled service to our retailers.”

Brands axe deliveries

As for how suppliers and distributors will be affected, one answer to this question appeared in the news in March. Premier Foods, one of Ireland’s largest food companies with a turnover of around €150 million, announced that it could lose up to 55 delivery jobs – providing the positions couldn’t be relocated to alternative in-house functions.  A spokesman for the company which distributes well-known brands including Gateaux, Cadbury, Erin, Chivers and McDonnells, said it planned to end “cake van” deliveries to supermarkets; allegedly in response to a demand from the major retailers for a more centralised distribution service.

Of course, many of the arguments surrounding the pros and cons of the CD model, including potential job losses, aren’t new.  They all raised their heads back in the late nineties, shortly after distribution behemoths Musgrave and Tesco were “effectively up and running with their plans for central distribution.” In 1999, The Food, Drink, and Tobacco Federation argued the model could hand retailers the reins to too much power.

The reins of power

“The major concerns….would be, that because of the dis-economies in relation to lack of scale and regional dimension, the facility for brand manufacturers to continue to supply would be increasingly unviable and this would inevitably lead to a greater own brand profile as retailers concentrate on their own products and compatible distribution systems,” a federation report stated.  

Funnily enough, the argument seems uncannily familiar to the reasons mooted for installing a grocery code of practice, over a decade later, in 2010.

What’s more, during presentations to an Oireachtas Joint Committee in 1999, Deputy D’Arcy argued: “Centralised distribution is extremely difficult for many producers…they cannot afford to drive up to 80 miles to an area. Musgraves are asked to go to Cork which, from Wexford, is practically 100 miles. That is ridiculous. I am aware that between six and eight small producers have been eliminated in this system…Central distribution is fine when it is the model for working with large populations where the journey might only be 50 miles there and 40 miles back. However, it is not suitable for this country.”

But flash forward several years however, and the word on the street appears to be that central distribution is very much suitable for this country.

It’s therefore not surprising that suppliers such as Premier Foods are being asked by retail clients to “think about how they can better fit into a central distribution model.” Or if you want to loosely translate this phrase into more solid action – be forced to consider how many in-house delivery jobs they will have to axe. However, for third company distributors such as Flancare – who allegedly secured the all-important Dunnes deal – greater central distribution may in actual fact, prove no bad thing.

Third party benefits

This is the view of TDG managing director Mark Boulton, whose distribution company delivers to most of the major food retailers in Ireland and whose key customers include Nestlé, Danone, Glanbia, ADM Londis and Penneys.

“I think that greater central distribution in Ireland could well lead to more work for third party distributors not less,” said Boulton. “Now that Dunnes are finally taking the plunge, the whole face of domestic logistics will change. We have had three or four enquiries this year alone from other businesses that are now also looking to move their supply chains to a centralised model.

“Large third party logistics providers like TDG are in a position to bring suppliers and retailers together to maintain an efficient delivery network throughout Ireland, whether it is for ambient products or even frozen or chilled goods.

“It might affect the way suppliers interact with customers, and will certainly shake up the internal distribution network in Ireland like nothing else, but all in all, we see this as a good thing and a change for the better.”

Tonna-Barthet was also able to confirm Londis had “been approached by a number of brands interested in working with the group to distribute product through our warehouse – which would suggest that many companies are reviewing alternative distribution options in order to streamline their operations.”

Going forward: ready or not

With these changes afoot, symbol groups and independents with no resort to central distribution, may well be negatively affected in the future. A spokesperson for Superquinn, which has its own CD model already in place, told ShelfLife: “Superquinn believes that as more retailers move towards this model, the retailers who don’t will be at a competitive disadvantage as we would expect that the frequency of supplier direct deliveries into towns would reduce, which could potentially push up store inventory levels and reduce in store availability for those retailers.”   

Londis’ Tonna-Barthet shared broadly similar views. “Obviously as larger multiples move towards central distribution, this drives greater inefficiencies for suppliers in servicing a smaller, more diverse set of retailers. However, it really depends on how suppliers view the impact to their businesses if another multiple moves towards central billing.  It may well prove disadvantageous for independent retailers and smaller symbol groups who cannot offer their stores another alternative.”

For now however, it’s onwards and upwards for groups such as Londis who are increasingly ‘linked in’ to a CD system. “Our current focus is on developing a long term multi-temperature strategy and we are exploring a number of options in this area,” said Tonna-Barthet, adding: “Currently, the company is in the final stages of reviewing our logistics partner to ensure we have the best partner as well as the lowest cost service.” But as TDG’s Mark Boulton noted – whether retailers and brands are ready or not – central distribution does look set to “shake up the internal distribution network in Ireland like nothing else.”
This could well explain why a number of brands are keen to align themselves into a ID model now – it appears to be one delivery set to arrive soon.          

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