The management reboot to relaunch the large-scale retail trade

Italian GDO: a quick shot can turn it into gold.

The Italian large-scale retail trade, together with the European one, is stagnating between major losses or small and sporadic positive signs. A pitiful scenario if we take into account that in the nineties these companies were the true protagonists on the consumer goods scene. Rich and courted by production, they reflected on the most efficient way to serve the consumer (ECR - efficient consumer response) made up of EDI (electronic data interchange), category management, integrated order issuing systems, three-month advance demand planning and pure crossdocking warehouses. This was between the eighties and nineties. Since then, since the end of the nineties, thanks to the watchword: grow through acquisitions, now or never, this progress has stopped. Large-scale retail trade has returned to being a series of identical boxes, managed in the best possible way, with shelf replenishment on a fixed date, stock out in abundance, and a lot of useless private label. Of course there are the exceptions Aldi, Lidl, Mercadona and Tosano, but beyond these numerically irrelevant brands, the panorama is very depressing. An Industry that has lost momentum, devoid of entrepreneurial spirit that only knows how to replicate old purchasing liturgies carried out without conviction by a managerial population that no longer seems to believe in it.

And yet, large-scale retail trade is the fundamental hub between the world of production and the end customer. It has the same opportunities as forty years ago when Wegmans from the USA, Tesco and Ahold came to study Caprotti's Esselunga case. Or when Édouard Leclerc came to study the innovations of Brunelli's Finiper or the Giant of Panizza. Baking and roasting in the sales points, catering inside the store area and before the checkout. Fishmongers granted to the best operators in the general markets, assortments of cheeses, wines, oils, ethnic, fruit and vegetables and meats were projects that the world admired. Coop Italia's controlled supply chains had a safety level of early childhood products (over 96 checks on Coop branded meat). All of this suddenly stopped and, as insunset avenue, the system has regressed to a series of soulless warehouses, without personality and above all without a strategic marketing thought worthy of the name.

And yet, very little is enough to make this link in the supply chain central and make it once again a protagonist in the consumer goods scene. And let's see how, starting from the offer and thinking on a constant perimeter of sales points.

From a recent global study by McKinsey, confirmed by a similar study by BCG and taken up in qualitative EDI-business excellence analyzes on individual countries, a generalized trend emerges towardspremiumnessof products and services. From Italy to the USA, from Latin America to the Far East, consumers have decided to buy higher quality products, perhaps buying less. This global trend affects all ages and all incomes. There has been a real psychological discontinuity due to the succession of negative events in the last five years which has made us rediscover the need to enjoy every minute of life as if it were the last. The ambition towards consumption outside the home, experimentation with high quality products, dream trips, and overtourism is proof of this. To respond to this need to live life, the public does not hesitate to reduce the stock of savings accumulated over the years: the new priority is to exploit life while it exists.

There are therefore very clear indications on the ambition towards the top of the range of consumers, and in particular of Italian and European consumers. The qualitative redefinition of the formats of ALDI, LIDL and MERCADONA is clear evidence of this. This attitude certainly doesn't mean wasting money buying low quality at a higher price. But it means looking for a rich, broad, profound offer capable of making me dream, experiment and taste experienceswhich I had never wanted to allow myself.So we find ourselves in the presence of a potentially growing demand eager to purchase premium products with high service content.

And instead, the offer of Italian supermarkets, over the last 30 years, seems to have lost a clear strategic guide: that hook to which every strategy must be anchored. The consumer groups to be served today, all over the world, need experience and emotion when purchasing in the store, a guide to discovering new products with a high level of service such as ready meals or fourth and fifth range fruit and vegetables. Many customers know how to cook and are looking for many special products, they want to cook ethnically, they buy more high quality pasta (in Esselunga Rummo has surpassed Barilla in volume sold. Is it clearer than that?). But the offer of our supermarkets is increasingly limited because the breadth of the range costs a lot due to the management complexity between CEDI and stores. The shelves are dedicated to low prices and low quality, few references per category, first prices and lots of private labels. Many retailers seem to have forgotten why private label was born and what it is for, but they extend it to everything. Even on rubbing alcohol, baking soda or rubber gloves, blocking entire lines full ofmee toononsense. No investment in refrigerated cabinets to extend fresh ones which are more difficult to handle, even if consumers would buy them. With narrow ranges and relatively low prices, our supermarkets have found their way into the mouths of discount retailers. Yes, strategically and always they have short ranges and low prices, and they make it their flagship. But they have very low fixed and general costs which allow them to mark up just a few percentage points. Our generalists, however, are not. This is why our retailers should do the opposite of discounters. Become the anti-discount on the quantity and quality of goods and not on prices where they will never win.

People are getting older, families have two working members, the need for home deliveries is increasing exponentially. Not e-commerce, mind you, e-commerce is a market place where I go to buy the long queues of ranges that cannot be found in local shops. But I'm talking about the old home deliveries. Those that leave the shop and arrive home with heavy or fresh products or those products for which it is useless to go to the shop, such as detergents.

But what are the conditions for realizing the breakthrough capable of transforming the very black hole of Italian large-scale retail trade into a new gold mine? And can it be done?

In a sector in which demand has so many and so specific needs, leaving the current perimeter of existing points of sale and therefore without investments in Real Estate, all that is needed is entrepreneurial ability and an appetite for risk to restructure assortments, services and above all operational processes. We need a profound redevelopment of a management team that has essentially been forgotten in company development plans. Destined to repeat empty negotiations and with very little delegation on assortments, it is considered a cost to be reduced rather than a competitive advantage.

And it is, instead, the management itself,redevelopedwhich can become the pillar of the recovery of large-scale retail trade.

To concretely demonstrate the possible path in the little space available in an article, I believe that the simplest way is to retrace the strategic reversal carried out by Walmart in the space of just over 24 months.

Ten years ago, Walmart's network of physical stores seemed like a burden in an era dominated by online shopping. While Amazon grew in sales and stock market value with its easy-to-use e-commerce platform and nearly infinite range, many industry analysts predicted Walmart's decline. The stock plummeted on the stock market and sales dropped dramatically. Walmart has decided to flip the paradigm. It has transformed its physical stores into proximity warehouses serving various forms of home delivery.

With this transformation, Walmart began to grow again and remained the largest retail company in the world with two million employees. It has transformed itself into Amazon's strongest competitor in the e-commerce sector by adding speed of delivery (a few hours) to the online service. By offering its employees the opportunity to deliver packages to customers at the end of the shift, it managed to revolutionize the level of service. It also increased earningsvia overtimeof its employees with a great impact on retention and love for the company. This transformation reflects a very broad evolution taking place in America in the retail sector, where changing consumer behavior, the rise of e-commerce and the influence of discounters are reshaping traditional retail models.

One of the key factors in Walmart's rebirth has been its success in implementing a multi-channel approach. Unlike Amazon, which operates primarily online, Walmart has integrated its vast network of 4,700 U.S. stores into its digital ecosystem. This strategy allows customers to purchase products online and choose whether to pick them up in store or have them delivered directly from local stores. By repurposing its physical locations as distribution hubs, Walmart has significantly reduced shipping times and costs. About 90% of Americans live within 10 miles of a Walmart store, giving the company a logistical advantage over Amazon, which relies on centralized delivery points. This hybrid model not only reduces logistics costs, but also addresses the challenge of last-mile delivery, a pain point for e-commerce companies that operate exclusively online.

Walmart has seen notable growth in e-commerce. In the third quarter of 2024, e-commerce sales in the United States increased 22%, largely due to the popularity of in-store pickup and delivery services. Currently, 18% of Walmart's revenue comes from online sales, and its marketplace offers millions of third-party items. This rapid digital transformation has solidified Walmart's position as a significant player in the e-commerce industry.

A significant part of Walmart's strategic resurgence is its significant investments in technology and automation. The company has integrated advanced data analytics, artificial intelligence (AI) and robotics into its operations to improve efficiency and customer experience. In US regional distribution centers, robots sort and assemble pallets by department, thus speeding up the store put-away process. Additionally, AI tools optimize workforce management, reducing shift planning time from an hour to just five minutes. By leveraging these technologies, Walmart not only increases operational efficiency but also reduces costs, further contributing to its competitive pricing advantage.

The US retail landscape is undergoing a significant transformation driven by digital disruption. Consumers increasingly prefer the convenience of online shopping, personalized experiences thanks to artificial intelligence and the perfect integration between digital and physical channels. Walmart has successfully capitalized on these trends thanks to its hybrid delivery model and robust digital ecosystem.

To summarize, we see how potential factors of competitive advantage capable of transforming Italian large-scale retail trade into highly profitable activities, in our opinion, are:

Wide and deep assortments, capable of making the shopping experience a moment of discovery of the new, the different, the stimulating and enriching.Reduction in the percentage of private label references by giving them a social role (first prices) or a distinctive role (organic, extraordinary quality controls, etc.). eliminating unnecessary duplication of branded products, especially in those categories that are very crowded with references by brand. Especially in fresh where spaces are limited (in yoghurts for example or in dairy products).Rethinking of the supply chain especially in the last mile: stock out is the symptom of managerial inability and poor managerial attention. There will be no artificial intelligence capable of improving the fixed algorithms that penalize growing products and reward stable ones. Ademand planningwith at least a quarterly forecast, integrated between customer and supplier, it would help not only to reduce costs along the supply chain but above all to be able to dedicate shelves to satisfy customers instead of acting as a very expensive warehouse to overcome the difficulties of correct planning.Increase in the fresh and ready meals area. These are the two main needs of today's young and old customers. These are product categories with high management complexity in operational terms but with high added value. Here a private label makes sense, especially due to the difficulties of brand manufacturers in managing these categories profitably.Develop a home delivery service along the lines of what Walmart has done. This consists of using the current structure of shops as warehouses and the store staff as consignees. A reaction speed with respect to the order would be unthinkable for Amazon. The breadth of the large-scale retail trade range would put the discount offer out of play, which would not be able to respond given the short ranges and the low number of employees. Naturally, it would be necessary to rethink the processes of order acquisition and order transfer to suppliers in order to always have a tight flow with zero stockout. Home delivery should not be seen just as a luxury for a few wealthy customers. The elderly sections of the population need it more and more. Proximity spending, in addition to being inadequate in terms of breadth of range, can be too demanding for an irreversibly aging population.

Having experienced the great transformation of American retailing up close, we are convinced that with will and discipline Italian retailing can reverse the inexorable decline of which it appears to be the victim. As long as there are still entrepreneurs or managers capable of innovating and taking risks in the Italian distribution landscape.