The domestic retail market and the agro-industrial sector are entering a phase of severe transformation of traditional supply chains, provoked by growing risks in the field of transport logistics.
The largest federal retail chains have begun official negotiations with food manufacturers on a radical change in the terms of contracts: buyers offer suppliers to completely undertake the transportation of goods directly to distribution centers (DCs) and final retail stores.
The retailers’ position is pragmatic: the end-to-end maneuver is designed to proactively protect shelves from shortages and guarantee the availability of products in conditions where the stability of the chains’ own logistics infrastructure is under threat.
Trade operators seek to diversify operational risks by shifting the burden of transportation costs and cargo safety onto the shoulders of raw material producers and processors.
Changing the logistics paradigm: who is ready to carry cargo “to the counter”
Historically, large retail chains built a centralized model: retail logistics companies independently picked up goods from manufacturers’ warehouses and transported them to their distribution centers, optimizing costs and fixing the cost of services separately.
Direct delivery by suppliers to specific retail outlets was practiced exclusively in the segment of ultra-fresh and perishable products with a small distribution radius — primarily from local bakeries and distributors of dairy products.
Transferring other categories of goods to self-delivery will face tough economic and technical barriers.
Large factories producing groceries, canning or freezing do not physically have a small-tonnage fleet to service thousands of scattered stores.
For such a scheme to work, chains will have to radically expand the pool of regional medium-sized suppliers capable of meeting the needs of local retail outlets locally.
The “scissors” economy: rising costs and a hit to margins
Experts warn that the breakdown of well-functioning centralized logistics will inevitably trigger a chain reaction of negative macroeconomic consequences for the market:
Avalanche-like growth of costs — decentralization of transportation by hundreds of individual suppliers will lead to an increase in the transport component in the cost of each specific product.
Reduced efficiency of distribution centers — refusal of mainline supplies will lead to a drop in the load of giant distribution centers and retailers’ own large-capacity vehicle fleet, increasing their internal operating costs.
Falling profitability — due to fierce competition for customers, retail chains will not be able to proportionally raise the retail price on the shelf.
As a result, both manufacturers and retailers will experience net margin compression.
Direct delivery by supplier’s transport will be economically justified only for an expensive and compact assortment, for example, elite alcohol.
Conclusions and protective measures for the agricultural sector
Retail is trying to insure itself against infrastructure failures at the expense of suppliers.
Large agricultural holdings and processors need to take an extremely balanced approach to signing new agreements. The transition to self-delivery to stores or agreement to remove responsibility for UAVs is permissible only if there is a mirror revision of selling prices upward, otherwise new logistics risks will completely eliminate the profit of the manufacturing sector.
