By Robeel Haq
With plans to become the Middle East’s leading supermarket chain by 2010, Panda is moving towards a centralised distribution strategy.
|~|Panda_HR2.jpg|~|Peter Nicolaas Els, supply chain director, Panda|~|The retail scene in Saudi Arabia is vastly different today compared to 25 years ago, when Panda opened its first supermarket in Riyadh. Although the country was experiencing steady economic growth at the time, local supermarket chains remained stagnant, accounting for less than 20% of food sales in the whole Kingdom.
However, with a large population and relatively high per capita income, Saudi Arabia has become increasingly attractive to investors. Indeed, the opportunity to enter a lucrative and underserved market has caught the fancy of several industry players. Despite the competition, Panda has more than doubled in size over the past three years, transforming itself into a retail powerhouse, with more than 50 supermarkets and six hypermarkets located throughout the country.
“Panda has entered the biggest growth stage in the company’s history. We are determined to become the leading food retailing chain in the Middle East,” says Peter Nicolaas Els, the company’s supply chain director.
The supermarket recently announced its ambitious 2010 growth strategy. It plans to increase sales from the current US$0.8 billion figure to $2.7 billion in Saudi Arabia alone by 2010. “The growth plan is aggressive and we will achieve these figures through store expansions, not only in the Kingdom, but other Middle Eastern markets too,” says Els.
As part of the growth strategy, Panda plans to establish 100 supermarkets. It has also ventured into the hypermarket format, which was initially pioneered by the United States during the 1930s. The concept is basically a combination of supermarket and department store, including full lines of groceries and general merchandise. Hypermarkets, like other big box stores, traditionally use business models focusing on high volume and low price products.
“In 2004, we opened our first Panda hypermarket in Riyadh, followed by another one in Jeddah the following year,” explains Els. “We became the first local retailer to open a hypermarket in the Kingdom, with the largest opening day’s sales ever recorded.”
Customers have embraced the format and Panda plans to continue opening more hypermarkets in major Saudi Arabian cities, in addition to other Middle Eastern locations. By 2010, it wants 30 Panda hypermarkets throughout the region – the first outside of Saudi Arabia was recently opened in Dubai Festival City, with one more already announced in May 2006.
By stocking a wider range of products, Panda has become more focused on increasing supply chain efficiencies.
The company manages its logistics operations inhouse, with a dedicated team of over 500 people covering everything from warehouse operations to executive supply chain responsibilities. “We previously looked at providers of third party logistics in Saudi Arabia, but we found the market was not mature enough. However, we would definitely contemplate outsourcing in the future. If external companies can operate our supply chain better, we will consider using them.”
Some bottlenecks remain in Saudi Arabia in terms of distribution and supply chain management. However, the local government is eager to capitalise on the Middle East’s logistics boom, with improvements in the transport infrastructure and simplified procedures. This will inevitably have a positive effect on companies such as anda. “Progress in phenomenal,” says Els. “Even if you look at supply chains today, compared to last year, they have developed phenomenally. They are catching up very quickly with the western world. I don’t think it will be long before the Saudi Arabian logistics industry and the Middle East industry in general are on a par with the highest international standards.”
A very small percentage of products stocked by Panda are produced locally in the Middle East, with the majority being imported from countries such as China, South Africa and America. Most of these items are sent to Saudi Arabia by seafreight, although a small selection of products can only be transported by airfreight. “There is demand for fruit such as berries, avocados and peaches, which need faster transportation times to maintain freshness. These are some of the niche products sent by airfreight, although it is much more expensive compared to seafreight,” explains Els.
The ocean-bound products arrive in greater quantities, shipped directly to Jeddah Islamic Port, where they are redistributed throughout Saudi Arabia. “We are the only national company with stores throughout Saudi Arabia,” says Els. “Once the products arrive in Jeddah Islamic Port, we redistribute by road. The products are mainly sent to the three major regions in the country – Jeddah, Riyadh and Damman – which is the west, central and eastern regions.”
Panda has warehousing facilities in each of the three regions. However, as the company continues to grow, it is adopting an increasingly centralised distribution strategy. “We are currently building a state-of-the-art facility in Riyadh. Once the facility is operational, all products will be transported there by land and redistributed to other Panda centres,” says Els.Panda selected Riyadh as the location for its centralised distribution centre because around 50% of demand for product comes from the central region of Saudi Arabia. “It makes sense to locate the warehouse in Riyadh, but we have plans to build warehouses in Jeddah and the Eastern Region too,” says Els.
Panda’s future warehouse facilities will be equipped with a range of different cargo space; each designed to handle frozen, cool chain and ambient storage. The facilities are equipped with state-of-the-art material handling products, however instead of picking various different manufacturers, Panda remains selective over its equipment providers. “Choosing one manufacturer for warehouse vehicles and one manufacturer of racking system makes things easier from a maintenance point of view and means everything is standardised,” says Els. “We chose a Swedish company called BT to provide forklift trucks, reach trucks, order pickers and material handling equipment. For the racking, we selected SSI Schaefer, which has a big presence in the Middle East.”
Panda has even extended its standardised approach to the company’s warehouse pallets. “We experienced some problems with low quality pallets, which resulted in excess damage. From a control point of view and a quality point of view, it made sense to find a better quality solution,” says Els. “For instance, our racking is 11.5 metres high. You can image, if the pallet is substandard and collapses whilst storing heavy items, the result would be potential fatal.”
After researching the market, Panda recently formed a partnership with pallet pooling company CHEP to implement a unique initiative. The deal involves the shared use of standardised CHEP pallets – not only by Panda, but also its various suppliers. “At this stage, the change management is quite huge,” says Els. “We have to explain the importance of using standardised pallets. This has become an important aspect in our supply chain operations now.”
Despite the vendors initially being somewhat cautious, Els is determined to educate the company’s partners about the benefits of adopting a standardised approach. “The vendors were a bit sceptical and adopted a wait-and-see approach. However, we already have some major partners committed, such as Abu Dawood, National Foods and Pepsi International. It has become a requirement for us, so others will follow suit. We don’t want to injure employees or damage products, so it’s in the vendors interest and our interest too.”
With a centralised distribution strategy and standardised material handling equipment, Els is confident Panda will continue to make great strides in its logistics operations. As the company’s logistics operations become more sophisticated and the dedicate team gets bigger, the key, according to Els is remaining innovative. “The concept of supply chain management is constantly changing and the technology is always being updated. To maintain a competitive advantage, it’s always important to stay ahead of the game and remain pioneering,” he concludes. ||**||