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11/17/2015

Embracing Diversity: A diverse supply chain is key to successfully reaching minority customers

Food retailers who want to reach today’s growing minority populations should make sure their supplier sources include companies that are at least 51 percent owned, operated and controlled by minorities, women, veteran/service disabled veterans, and/or LGBT individuals.

That recommendation from the Food Marketing Institute (FMI) white paper Impacting Sales: A Holistic Approach to Supplier Diversity in the Food Retail Industry shines a spotlight on the vital role diversity now plays in a company’s overall business strategy.

Indeed, as the demographic makeup of U.S. consumers has dramatically and rapidly evolved, supplier diversity has become much more than a “do-gooder” strategy. It now must be considered “a sustainable business practice, a competitive advantage and a necessary means of increasing market share,” the white paper stresses.

To learn more about the increasingly important role diversity plays throughout the supply chain, Supply Chain Insights reached out to Terry J. Soto, president and chief executive officer of About Marketing Solutions, Inc., a company that helps clients optimize strategies to succeed with their multicultural customers. Soto—the author of “Marketing to Hispanics: A Strategic Approach to Assessing and Planning Your Initiative” and “Grow with America: Best Practices for Ethnic Marketing and Merchandising”—shares her insights below.

Supply Chain Insights:
Can you speak to the growing need for more diversity within the supply chain?

Terry Soto: The growing populations of Hispanics, Asian Americans and African Americans are not only demonstrating their considerable purchasing potential; they are also changing the way that America eats. These ethnic consumers are accustomed to a broad variety of food products and are introducing new international foods with tremendous crossover appeal.

Diverse populations also are much younger, are having kids, have larger households and have the most mouths to feed. This equals larger market baskets and more weekly fill-in shopping trips to buy ethnic and non-ethnic products. This population’s younger average age makes them more valuable consumers because the life of their grocery spending is at least 15 years longer than currently aging non-Hispanic white consumers.

Supply Chain Insights:  What are some benefits grocery retailers can reap by working with sources from these under-represented communities?

Soto: Retailers can gain significant market intelligence, similar to that obtained from large CPGs, which will enable them to develop and improve their assortment; gain legitimacy in the ethnic communities in which they do business; and gain, attract and retain the diverse customer base they need to grow same-store sales (which is especially important for stores whose trade area demographics have shifted dramatically in both urban and suburban locations).

Supply Chain Insights: What are some of the biggest challenges retailers face in developing a more diverse supply chain?

Soto: The industry’s workforce is still very homogenous—namely non-Hispanic white, middle-aged males. As such, diversity initiatives related to staffing and suppliers are few. This results in complacency and resistance to gain the competency required to compete for today’s diverse consumers.

Additionally, retailers are constrained by efficiency-oriented business models, which restrict their ability to customize offerings for diverse customer segments. Centralized product assortment decisions are seldom based on the needs of local diverse markets. And decisions on product assortment tend to be category-oriented vs. market-oriented.

Finally, [in some cases] smaller minority vendors don’t know how to work with large retailers, and [some] retailer processes and RFPs are not adapted to this emerging and less sophisticated supply chain sector.

Supply Chain Insights: Do you have any advice on how retailers can reach out to a more diverse group of suppliers?

Soto: Retail organizations need to wake up and evolve with changing demographics. Management needs to challenge their category management and buyer organizations to step out of their comfort zone and step up their game on how they see and respond to the current consumer market.

Supply Chain Insights: What steps can retailers take to create a supplier diversity program within their organizations?

Soto: Developing the right assortment is an evolutionary process, so it’s important to be flexible. Retailers must be willing to experiment with new vendors and items, evaluate effectiveness, and try again. Retailers who want to capitalize on the large and growing ethnic consumer opportunity must take a hard look at their operations and address their challenges directly in order to be successful. Retailers will first want to determine if a significant opportunity exists to drive profitable growth through ethnic merchandising. They will need to assess the opportunity as they would any other by:

• Defining their ethnic merchandising strategy and organizing to execute it. This implies defining the gap a retailer needs to fill, segmenting stores based on the sales opportunities that ethnic customers represent, and reconciling segment and category management so that different metrics/criteria are created to track ethnic categories/SKUs.

• Tailoring their offerings to appeal to their target customers. This implies defining customer targets and assortment, and executing the plan at store level.

Retailers then must prepare their organization to do business with local ethnic-owned businesses by taking the following steps:

• Have a set of services and products that could be purchased from local ethnic vendors and distributors.

• Conduct research to identify ethnic vendors/distributors who can provide these services and products locally.

• Ensure that RFP procedures, processes and language are amenable to ethnic-owned, small business participation.

• Work with selected ethnic vendors to help them qualify for business with your company.

• Provide constant and honest feedback to ethnic vendors so they can improve their services and grow their business with you.

• Develop spending goals among ethnic vendors as a proportion of total dollars spent across procurement areas.

For more information about developing a diversity program, contact the FMI Supplier Diversity Committee, whose mission is to establish and share best practices to further enhance, develop and promote the growth of minority/women and other diverse owned business enterprises interested in working within the food retail industry. Visit www.fmi.org/industry-topics/supplier-diversity#sthash.nOJLh5fU.dpuf.