2000 Reports

Food retailing: Ito-Yokado Group: Gaining and sustaining long-term advantage through information technology

Hibara, Nobuhiko

Information technology (IT) enables food retailers to respond more effectively to fluctuating consumer demand caused by changing demographics and taste. One particularly important result is to reduce inventory costs dramatically. Such progress motivates retailers and suppliers to form strategic alliances in order to realize more profit from introducing new IT systems. Together with the introduction of such IT systems, however, it is also critical to establish a well-functioning delivery system between retail stores and suppliers is also critical if both retailers and suppliers are to actually achieve lower inventories. Such a delivery system needs to be very well managed in terms of ordering and stocking all merchandise on an item by item basis. In other words, the IT system by itself will not return real benefits to both parties without a good physical delivery system. The following cases for leading Japanese and U.S. retailers prove this point. This type of strategic alliance inevitably causes some "lock-in" effects that create potential conflicts among the parties. This is especially true if the retailers aggressively pursue a higher level of sales by introducing Private Brand (PB) merchandise because they are not fully satisfied with the performance of Nationally Branded (NB) merchandise. Therefore, good incentive reward systems, supporting supplier's merchandise under certain market conditions, are needed for both parties to continue the strategic alliance. Since E-commerce should flourish across the world in the 21st century, the effect of E-commerce on food retailing is also discussed, though it is expected that its penetration of food sales will be slower than in other sectors.