Wholesalers need to be more innovative and better respond to customer demands, Westpac says. Photo: 123RF
Wholesalers are being advised to up their digital, data, logistics and customer services or risk being bypassed by more innovative competitors.
An industry report by Westpac New Zealand indicates the country's more than 16,700 wholesale firms face a dim outlook if they fail to innovate.
While wholesalers generated sales of $138 billion in the year ended June 2022, Westpac industry economist Paul Clark said most had done so using old school business practices, rather than the ecommerce and analytical data tools employed by more savvy market entrants.
The main reason for the lack of innovation was identified as weak competitive forces in the sector, which were undermined by contractually enforceable distribution agreements that limited choice on specific product lines and brands.
While many wholesalers had benefited from cosy and long-standing relationships in various product niches, Clark said the landscape was changing, with digital disruption, most significantly Amazon's expansion in the region.
"(Amazon's) absence here is often cited as a key reason why wholesaling in New Zealand lags its offshore peers," Clark said, adding that change would come regardless.
Amazon had raised expectations in terms of responsiveness to customer demands, and had created opportunities for tech-savvy market entrants and others looking to bypass wholesalers altogether, he said.
The Amazon-effect had also changed the expectations of wholesalers' business customers, who must also respond to changing customer demands, not just on price and delivery, but environmental and social concerns as well, Clark said.
The report recommended wholesalers make some changes to meet the changing demands.
"Firstly, they need to expand their ecommerce offering," Clark said.
"That means providing online customer portals with self-service and engagement options, establishing their own AI-enabled electronic marketplaces, and leveraging off the advertising muscle and reach of social media."
They also needed to make it easier for customers to transact with them, whenever and wherever they wanted, given the increasing use of mobile and social media engagement.
"Thirdly, wholesalers will need to automate and integrate their inventory and supply chain processes."
Wholesalers would need to consider investment in digitally enabled machinery and equipment to improve accuracy, speed, and agility, which would in turn create additional services that others could not provide, Clark said.
Examples of advances in automation included automatic storage and retrieval systems (AS/RS), autonomous guided vehicles (AGV) and robots (AMR), Goods to Person systems (GTP), shuttle/sorting equipment and unmanned aerial vehicles (UAV).
"Finally, wholesalers will need to boost their analytical capabilities. More informed decision making across all parts of the business is key if wholesalers are to reduce the threat of being bypassed by new market entrants."
The changes required will take time and money to implement, and it could take a decade to fully adopt the technology required to compete, Clark said.