The Rise of Small Store Formats Are a Headache for Logistics Providers

Craig Padoa By Craig Padoa | 02 Dec 2019

With more than half the world’s population now living in cities, and more Aussies in apartments than ever before, the face of retail is changing. There is a clear and irreversible trend towards smaller stores serving denser populations.

Small stores raise big questions about logistics and supply chains – especially the final mile. The retail and logistics sectors need to start grappling with the long-term implications now.

Australia has been an urban country for a long time. Nearly nine in ten Australians lives in one of the 18 cities with a population of over 100,000 people.

As population growth forces Melbourne, Brisbane and Sydney to grow up rather than out, retailers are servicing people who want to grab fresh milk, bread and juice within walking distance of their apartment.

So how do we get those products where they need to be as efficient as we can? Given that it’s not viable to run dairies, flour mills and orange groves out of a 15-storey apartment block, that’s necessarily a supply chain and logistics question.

When it comes to retail supply chains, there are two types of countries – pallet countries and roll-cage countries. With 22 subsidiaries worldwide, the company I lead services both. The UK, for instance, is a roll-cage country.

Australia is and always has been a pallet nation. Our trucks are built for pallets. Our warehouses are built for pallets, as is the racking inside them.

But an increasing number of stores don’t have loading docks, and some won’t even fit a pallet through the front door. It may sound strange that anyone would suggest taking a pallet through the front door, but some small-format stores simply do not have rear access.

Our experience with customers in London shows that a concise supply chain for retailers is not just desirable but indispensable for dense urban areas.

In London, there are strict curfews on truck movements and severe fines for violating these curfews. Roll-cages are packed in UK warehouses and the products aren’t handled again until they’re broken up in front of the shelves in-store. The truck stops outside, rolls the cage off quickly and is gone.

But we can’t just cut and paste this kind of solution onto Australia’s fast-growing medium-density residential neighbourhoods. The immense sunk cost into pallet infrastructure means that an abrupt wholesale shift towards roll cages is neither practical nor economical. But at the same time, we cannot have pallets dropped on the sidewalk, broken down in front of commuters and the stock carried into the store. The inefficiencies are on show for anyone to witness.

What’s the solution? Smaller pallets?

Henry Ford once said that if he’d asked his customers what they wanted, they would have said, “A faster horse”. And while pallet and truck sizes might be part of the solution, some more strategic forward thinking is required.

Australia has vast distances for goods to cover. Given the economies in fuel and labour costs created by hauling products in the largest available trucks, large trucks will necessarily be part of the equation. We need to think from the ground up about how we can most efficiently deliver goods to small storefronts on time, with the fewest possible handlings

The solution is likely to lie in hybridisation of existing technologies with imported advancements. Automated warehouses built around roll-cage logistics such as that implemented by UK retailer TJ Morris is something that Australian logistics providers will need to consider more and more as the small-format store grow in numbers.

While the suburban large-format supermarket won’t immediately disappear, growth is going to be heavily skewed towards the smaller, more convenient stores servicing apartment developments.

The winners on both the logistics and retail sides of the equation will be those who put this growth sector first, rather than trying to retrofit existing solutions into spaces they no longer fit in.

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