Dear SFA Members,
You recently received an email through the SFA platform on behalf of Zipline on the topic of Customer Pick-Up (CPU) vs Delivered Pricing arrangements that incorrectly implied that distributors are to blame for stock-out issues that are being experienced at retailers of all sizes across the country. Please forgive our inadequate explanation of our position and allow me to clarify.
The problem of stock-outs has existed long before COVID, in fact, 1 in 3 shoppers experienced out of stocks in 2018 and 1 in every 13 items a shopper was seeking was out of stock before the pandemic. Zipline has always advocated strongly to our brand partners that they avoid CPU agreements unless absolutely necessary to secure engagement. The reasons: operational efficiency implications, cost competitiveness, consolidation opportunity cost implications, and most of all, lost sales due to stock-outs, have been drastically exacerbated by the pandemic and supply chain dislocation that has followed. Now, more than ever, simply being on the shelf is a competitive advantage and logistics failure is the primary driver behind stock-outs without a close second. Before COVID, the average on-time score reported by retailers was in the low 70th percentile, vs. retailers expected performance of 95% and above; further, while the numbers aren’t in yet, we know anecdotally that performance has declined in the past 12 months. Brands, retailers, distributors and producers of all sizes have an opportunity to improve the shopper experience, acquire new and expanded shelf space, and capitalize on increased consumer demand by taking control of their customer supply chain and prioritizing on-time fulfillment in lieu of short term transactional cost cutting measures that fail to account for the significant impact logistics can have on margin. Here is an example of cost/benefit math for logistics performance to illustrate our position more clearly.
Brand A: Revenue of $5M with a 45% pre-freight gross margin, delivering around industry average on-time performance (we’ll use 75%)
Brand B: Revenue of $5M with a 45% pre-freight gross margin, delivering category-leading on-time performance (we’ll use 95%)
Allocating 9% of revenue to logistics, we can budget $450,000 to logistics spend.
Brand A Gross Margin: $1,687,000
Brand B Gross Margin: $2,137,500
Potential Margin Improvement via Performance: $450,500
Meeting and exceeding retail delivery metrics has an impact on margin that can never be matched by cost cutting measures, and this math doesn’t include fees, fines and relationship damage done by sub-optimal performance. Our message is intended to draw the SFA Community’s attention toward minimizing stock-outs and fulfillment penalties, and control of your customer supply chain is critical to that mission. Distributors, retailers, and Zipline all have the same goal: making your product available to consumers when and where they want to buy it. It was errant and insensitive for our message to single out distributors, and we sincerely apologize to the SFA distributor community for our poor tact. Today’s challenges are vast, and so are the opportunities presented in overcoming them. We wish everyone in the SFA community the best, and offer our continued support in connecting the most exciting food and beverage brands in the world with U.S. consumers.