Can DSD Change the Retail World?
Most grocery items are delivered to distribution centers, then travel to individual stores on the chain's own trucks. But Cherry Coke, hot dog buns, bananas, chocolate milk, and Doritos come to retailers via Direct Store Delivery. You've seen it -- the Pepsi truck pulls up and the driver rolls the product into the soda aisle and loads it into the display. If your local supermarket currently features a wall o' 12-packs spelling out the name of the regional favorite college football team, that's DSD at work.
A study done for the Grocery Manufacturers of America by AMR Research and AC Nielsen came up with compelling reasons why DSD continues to grow:
- DSD products account for 24 percent of unit sales and 52 percent of retail profits in the grocery channel.
- Seven of the top 10 grocery categories use DSD: carbonated beverages, bread and baked goods, fresh produce, milk, salty snacks, beer, and frozen prepared foods.
- DSD categories grew 15 percent in 2007, outpacing average food category growth by 52 percent.
- 77 percent of retailers expected to use DSD the same amount or more this year.
It's a distribution model that's worked so well for the big soda boys that they're promoting it as the growth engine of the future for other packaged goods companies. "DSD is a key driver of flawless execution in stores," says Coca-Cola's Ann Dozier.
A recent story in CPG Matters provoked a discussion on Retail Wire that's worth reading. Jonathan Marek of Applied Predictive Technologies advises, "CPGs should see this as an opportunity to get closer to the true point of consumer decision-making -- the shelf." Retailers control the most important place to gather marketing data, and by being willing to pay for the diesel and free labor, manufacturers "can gain access to and influence over that critical customer interaction."
But Peter Deeb points out, "The supermarket model is not designed anymore to receive a large percentage of their shipments through the back door of individual stores," and Stephen Needel of Advanced Simulations says the success of DSD is pegged to the characteristics of products like soda, milk, and bread -- high-velocity, perishable merchandise.
Needel adds. "Pepsi knows this all too well. In the '80s it was not uncommon for the delivery teams to kill products they didn't like, just by not stocking them on the shelves." So that's what happened to Crystal Pepsi.