Technology is the top strategic investment for AWG, according to its annual report. Part of that technology investment has been in the co-op’s Convergence initiative, which is the alignment of AWG, its member stores and supply partners.
Convergence brings the co-op and its members together to work on areas to scale its more than $24 billion in retail sales.
According to Shelly Moore, the company’s chief information officer, Convergence focuses on three major objectives. AWG is enhancing its assortment and image, as well as how it positions itself in the marketplace compared to competition on private label brands.
Another focus is assortment optimization – making sure AWG has the right variety in its warehouses to support its members. This is accomplished through using data and technology.
The third focus centers around “the power of using data to better negotiate, plan, connect and collaborate with our suppliers to drive trade and investment improvement, as well as negotiation and supply chain planning,” Moore said.
All of that is underpinned by technology, she said. One of AWG’s investments has been its partnership with Circana (formerly IRI) to create a collaborative portal “so that we are working off of one version of the truth to our suppliers, so both our category managers and our suppliers have standardized reporting, more standardized policies so that as they’re coming to the table and they’re doing joint business and looking at the next six months or the year ahead, we’re really working off the same version of the truth.”
“That’s phase one, which has been out there for some time and has yielded a number of results in efficiencies, certainly in working with suppliers,” Moore said.
President-elect Dan Funk said the first work on Convergence has been focused on assortment and variety and looking at how to help lower the cost of goods and improve promotional planning around AWG’s private label assortment and go-to-market strategies.
“There’s a lot of benefit there, and we see that moving forward,” he said.
Circana and AWG have created a partner gateway to help improve “the interface between our vendor partners and AWG and helping to build out an infrastructure where CPG partners can look at AWG in the whole and compare our business to other similarly suited businesses across the North American landscape.”
Funk said next steps will focus on IT infrastructure and helping members improve efficiency, boosting the shopping experience and also benefitting the distribution side.
“We’re going to focus a lot on our support services on the last phase of Convergence,” he said.
This will include taking steps to ensure “that we have the proper support infrastructure to help our members be successful at retail.”
According to Funk, AWG wants its members to be able to see the marketplace more competitively. It also wants to improve the flow of communication and efficiency from the vendor partners through AWG to the members, and also have data flowing from the members to AWG and back to the vendors. This will help with cost efficiencies and synergies that can be used for comparisons.
“The tools that Circana is bringing forward also are really valuable both for the vendor partners, as well as our AWG team members, in history, forecasting, supply chain visibility, the ability to really help a lot of our interfaces promote and to build sales at both retail and wholesale,” he said. “Those next phases will be focused on the retailer and tools that will help our members and continue to help our teams through that interface.
“They’re bringing a lot of tools and infrastructure, as well as a lot of expertise to sales forecasting and also visibility to the marketplace that will help our individual vendor partners make decisions that can best help grow our business, as well as help our merchants and, ultimately, their stores continue to grow their businesses.”
Funk said Convergence is designed to ensure the co-op is doing its part to help members and also to allow them to focus energy on helping drive their operations forward and “create the growth that they need at retail with their consumers.”
CFO Gary Koch described Convergence as the blending of AWG and its members so that, as much as possible, they “act as one.”
He said AWG wants to be seen in the industry, especially with its trading partners, as a $24 billion retail cooperative “because that’s the leverage that we should probably be given if it was all under common ownership. We’d be this $24 billion retail chain, and more people would probably take notice.”
“We are this cooperative that has approximately 1,100 members, and they’re independent grocers and they can make individual decisions. We’re not seen like that as much because maybe, in the past, we haven’t executed in tandem.”
He said the Convergence initiative can provide alternative programs members can opt into “that don’t necessarily increase the cooperative’s bottom line but drive value directly to their bottom line.”
Emile Breaux, SVP, chief sales and support officer, described Convergence as advanced or “next level” category management.
“It’s looking at the category assortment and promotional planning through the lens of the consumer,” he explained. “We’re taking direction back to retail through sales data we get through POS data feeds, and we’re putting it in some pretty sophisticated systems that have given us better data, better intelligence, on how to assort our categories, how to price our categories, not only day to day but with promotions.”
Breaux said this gives AWG better visibility into what’s happening in members’ stores so it can better negotiate with manufacturers.
“We’ve got far better market intelligence now that’ll tell us objectively what we need to be doing in terms of changes, whether it’s vendors that are in our categories or product lines, how we assort, how we merchandise our shelves, the items which we promote, how aggressive we get in our promotions. It’s a very advanced and sophisticated data-driven approach to category management.
“It gives us visibility into what’s happening at the shelf far better than we’ve ever had in the past,” said Breaux, adding that the process helps put AWG on a level playing field with some of the “largest players on the planet.”
SVP of Merchandising Tye Anthony added that Convergence is capitalizing on as many opportunities as possible to leverage the buying power of AWG as a whole. This is more important in today’s competitive environment and what many see as an unlevel playing field as far as supply chain goes.
Anthony said AWG members represent $24 billion in retail sales, “which carries its own strong buying power.” Leveraging that power is what Convergence is all about.
“I commend the board and our members for looking at that, from our largest members to our smallest members, saying we certainly are a lot better together than we are apart.”
He said he believes Convergence has been well received from the vendor community, because it has created efficiencies.
“They realize that it is yet another thing that they can get a better return for their dollars on, too. We want to see more vendors embrace it even further. But we’re very pleased and satisfied with the efforts to this point, and thank our vendor community for helping us along this path.”
Anthony said there is more excitement among AWG members around “contributing to that greater cause than we’ve ever had in the past.”
Looking more closely at the member side of Convergence, SVP of Special Projects James Neumann said Convergence provides transparency “from top to bottom, because what the CPG wants is information so they know how effective their promotions can be, what price points determine case movement, what makes their spend make sense.”
“When we can only show half of the picture by showing wholesale movement, it doesn’t give them the lens to be able to accurately depict if their spends are working based on the metrics that they compare against when they’re looking at chains,” he said. “It allows us to negotiate with our vendors with a better level of certainty and accuracy and benchmark against not just other independents but chains for cost of goods and product availability.”
Neumann noted that one lesson learned from the COVID-19 pandemic was that it’s not just about cost of goods but also availability of products. He said when the world’s largest retailer is demanding 97 percent order fill rates or the vendors are penalized for not delivering, those vendors may undersell to everyone else to meet that requirement.
He said Convergence allows AWG to make a case to those vendors using specific data to “pinpoint the inadequacies in deal level and supply chain and have better leverage to offer better supply and better cost of goods to our members than we did without this information.”
It also allows AWG to develop “a smarter planogram” to better concentrate volume for its vendor partners so “they’re not chasing the breadth of variety.”
“They can focus on the items that are selling better and bring us the items that are selling better in other channels that we might be missing in our planograms. Specifically, it helps us with negotiating our private brands and our Best Choice label by being able to drive better cost of goods because we have better penetration within our stores to create movement. It’s kind of a big lifecycle. It’s information from retail, back to wholesale, back to our vendor, which in turn delivers better cost of goods and gets new items introduced into planograms at a wholesale level, which can execute at a retail level. And that lifecycle continues to perpetuate itself to deliver the best cost of goods with the right product assortment ultimately to our members’ customers, our consumers.”
Retailer, vendor perspectives
Kim Eskew, chairman and CEO of Springdale, Arkansas-based Harps, said one of the challenges in dealing with so many different independent owners is getting them to agree on anything.
“We’re pretty stubborn in our ways, and getting independents to all agree that we’re going to go this direction and this is the stuff we’re going to carry is hard. I think Convergence has been necessary in order to make that happen,” he explained. “It’s not been easy, but we anticipate that there are going to be savings as a result of that program.”
Denny Belcastro, VP of industry affairs and customer development for Kimberly Clark, said he believes Convergence is beneficial.
“Not only does the physical structure help us, it’s the systems and technology that goes along with it that is going to help us forecast better, produce better and obviously provide better long-term supply chain and customer service,” he said.
Belcastro commended AWG leadership for its forward-thinking approach in its investment in Convergence. Through the initiative, AWG is working with suppliers to say, “Let me tell you why you should invest in us.”
He said AWG has backed Convergence through the physical structure, investments in technology and “with strong leaders like Dan and his team that he has put in place.” He said David Smith’s leadership has allowed AWG to “punch above its weight,” and Kimberly Clark views the co-op more as a national customer than a regional customer.
“Customers like that, what you want to do is influence manufacturers on how they think about doing business with you. Are they as big as Kroger? No. Are they as big as Target or Walmart? No. But in their marketplace, they drive market share, so they are critically important. And that’s what their leadership has done in the past. And I think Dan and his team will continue to do that in the future.”
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