Tesco is about to cause yet another shake-up in the UK supply chain with an initiative that will send shivers down the spines of many suppliers.
The subject is 'shelf-ready' packaging and the plan is to insist on a new standard for all new products starting as soon as the standard has been communicated. Quite simply, if you want a future listing at Tesco, you will have to show how the new product meets Tesco's shelf-ready specification. If it fails the test it fails the listing.
The reasoning for the change is simple enough and the pain will be borne once again by suppliers. It goes as follows: Tesco stores have fixed labour allocations for shelf-filling based on store throughputs, as do all of its rivals. The labour allocation is presently incapable of taking the 98% service level provided by Tesco regional distribution centres and converting it into acceptable levels of on-shelf availability. Merchandising is vastly more complex than had been imagined, as senior Tesco executives discovered when they went to work in the back store for a while.
It rapidly became apparent to them that the standard shelf-filling process could never keep pace with peak customer demands. The slower sellers were often not merchandisable in full case quantity, necessitating part cases being taken back to the storage area where, often, they get buried under other products making them difficult to find again. Given the choice of filling shelves with easy-to-handle product or hard-to-find-and-handle product, the shelf filler always favours the former.
For some, big manufacturers, shelf-ready packaging is already in place. For many smaller firms this is not so and there will be pressure to convert old lines to shelf-ready as well as a ban on any new line not designed with 'smart' shelf-filling in mind. Tesco is providing its suppliers with a set of sample 'acceptable' and 'unacceptable' packaging formats.
Does this initiative make sense commercially for Tesco? Undoubtedly! Will it be efficient consumer response-friendly? Probably!
Will Tesco pay for the specific costs of change? Need you ask?"
is Director, ProActive