Grocery
For every dollar it earns, a grocer keeps two pennies.
We are here to help you find more pennies. We are Insight Sourcing Group.
Today’s grocer faces a daunting future. Razor-thin margins, rising food costs, and new competition from value food retailers, online channels, and retail behemoths are piling on to the perpetual struggle for profitability. The COVID crisis has reinvigorated sales, if temporarily, but has also brought supply chain uncertainty and sporadic service levels. As pressure to protect market share through differentiation and omni-channel sales amplifies, one fact remains absolute: grocers must provide value for the customer’s money. Driving value for the consumer’s dollar is table stakes if grocers are to differentiate elsewhere – and that starts with proactive cost management.
Procurement is uniquely poised to impact your organization’s financial health and drive rapid earnings improvement. A dollar saved on the front end goes directly to your firm’s bottom line, and robust purchasing initiatives can drive results in months, not years. Procurement must aggressively turn over all stones in order to seek out and capture value and cost savings across both merchandise and non-merchandise spend categories. While managing merchandise costs is a top priority – rightfully so, as they typically account for 70% of non-headcount spend – unique opportunities to drive value may also be found in spend areas such as private label products and non-merchandise goods and services.
Areas for Immediate Bottom-Line Impact
Opportunities where grocers can drive meaningful cost reduction include:
- Private Label Merchandise: freedom from consumer brand loyalty drives opportunity to competitively select private label products. Standard private label margins are 25-30% higher than branded merchandise, and astute cost management pushes margins higher by negotiating significantly lower costs than branded products. Procurement strategy across private label merchandise must drive out cost while simultaneously maintaining or improving product quality and vendor service levels.
- Capital Equipment (HVAC, refrigeration, food prep, electrical equipment, and backup power generation): fleet standardization and strategic sourcing of owner furnished capital equipment may drive out more than 15% of “first costs” over a multi-year time horizon.
- Utility Management: dispersed store locations and broad footprints add complexity to utility management, one of the largest non-merchandise spend categories. Best-in-class energy strategies encompass deregulated procurement, regulated rate optimization, economic development incentives, renewables strategies, and demand management. Top-performing organizations capture 3-5% savings on regulated spend and up to 20% savings via renewables and sustainability initiatives.
- Freight & Logistics: load rejections nationally surpassed 25% in Q3 2020, a two-year high, driving shippers to spot market rates which have now risen above contract pricing for the first time since 2018. Shippers who rely on common carriers should focus on securing contracted rates that bring desired service levels. Regular and frequent sourcing activity in the market can protect against increases and deliver improved rates when the market softens.
- Print, Signage, & Labels: significant opportunity exists via comprehensive print strategy, which should include interior signage, shelf tags, fresh merchandise labels, and marketing material. Printed products often account for 3-6% of non-merchandise spend, and past results show opportunity for 20% savings or more.
- Maintenance Services: competitively and holistically sourcing facility maintenance services, such as HVAC/R, electrical, and lighting drives double-digit cost reduction. Accounting for nearly 10% of non-merchandise spend, these services must be at the forefront of a grocer’s procurement strategy.
- IT Hardware & Infrastructure: scanners and POS technology have seen powerful advancements of late. Leading organizations are evaluating market options to capitalize on solutions that increase flexibility and enhance access to data and business intelligence. Procurement of the latest POS solutions substantially advances functionality while driving 10%+ savings on equipment acquisition
Grocery Spend Benchmarks
Grocery Spend
Typical spend profiles for grocers shown above. Does not include internal labor / payroll.
Percent of Addressable Non-Merchandise Spend by Category
Category & Sample Subcategories
% of Total Spend
Savings Range*
*Savings range varies by subcategory
Is Your Procurement Team World-Class?
By proactively addressing costs, a world class Procurement organization will consistently capture 10% savings or more per spend category, results that drive meaningful improvement to your company’s profits. Ask yourself: is your Procurement team world-class? Insight Sourcing Group brings world class procurement to your doorstep. As North America’s premier procurement consulting firm, we are focused exclusively on spend optimization and procurement excellence, and our mission is to drive maximum value for every dollar our clients spend. Grocers throughout the country have taken advantage of our unmatched breadth of expertise to achieve results like those highlighted above. Let’s discuss how Insight Sourcing Group can make your procurement objectives a reality.
