3 Local neighbourhood shops are finding it increasingly difficult to compete with supermar
kets. However, three years
ago, the Perfect Shopper franchise group was launched that allowed these neighbourhood shops to join the group
and achieve cost savings on tinned and packaged goods, particularly groceries. Perfect Shopper purchases branded
goods in bulk from established food suppliers and stores them in large purpose-built warehouses, each designed to
serve a geographical region. When Perfect Shopper was established it decided that deliveries to these warehouses
should be made by the food suppliers or by haulage contractors working on behalf of these suppliers. Perfect Shopper
places orders with these suppliers and the supplier arranges the delivery to the warehouse. These arrangements are
still in place. Perfect Shopper has no branded goods of its own.
Facilities are available in each warehouse to re-package goods into smaller units, more suitable for the requirements
of the neighbourhood shop. These smaller units, typically containing 50–100 tins or packs, are usually small trays,
sealed with strong transparent polythene. Perfect Shopper delivers these to its neighbourhood shops using specialist
haulage contractors local to the regional warehouse. Perfect Shopper has negotiated significant discounts with
suppliers, part of which it passes on to its franchisees. A recent survey in a national grocery magazine showed that
franchisees saved an average of 10% on the prices they would have paid if they had purchased the products directly
from the manufacturer or from an intermediary – such as cash and carry wholesalers.
As well as offering savings due to bulk buying, Perfect Shopper also provides, as part of its franchise:
(i) Personalised promotional material. This usually covers specific promotions and is distributed locally, either using
specialist leaflet distributors or loosely inserted into local free papers or magazines.
(ii) Specialised signage for the shops to suggest the image of a national chain. The signs include the Perfect Shopper
slogan ‘the nation’s local’.
(iii) Specialist in-store display units for certain goods, again branded with the Perfect Shopper logo.
Perfect Shopper does not provide all of the goods required by a neighbourhood shop. Consequently, it is not an
exclusive franchise. Franchisees agree to purchase specific products through Perfect Shopper, but other goods, such
as vegetables, fruit, stationery and newspapers they source from elsewhere. Deliveries are made every two weeks to
franchisees using a standing order for products agreed between the franchisee and their Perfect Shopper sales
representative at a meeting they hold every three months. Variations to this order can be made by telephone, but only
if the order is increased. Downward variations are not allowed. Franchisees cannot reduce their standing order
requirements until the next meeting with their representative.
Perfect Shopper was initially very successful, but its success has been questioned by a recent independent report that
showed increasing discontent amongst franchisees. The following issues were documented.
(i) The need to continually review prices to compete with supermarkets
(ii) Low brand recognition of Perfect Shopper
(iii) Inflexible ordering and delivery system based around forecasts and restricted ability to vary orders (see above)
As a result of this survey, Perfect Shopper has decided to review its business model. Part of this review is to reexamine
the supply chain, to see if there are opportunities for addressing some of its problems.
Required:
(a) Describe the primary activities of the value chain of Perfect Shopper. (5 marks)
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