Big Gulps

I firmly believe that there’s no such thing as a bad retailer. They’re all tough, and some are more confused than others, but be that as it may, we all know how brutal it is out there.

Marketers are journeying through a hostile environment. Retailers are gaining scale and using their clout. The top 10 grocers today account for about 50 percent of total grocery revenues. Manufacturers are also consolidating, giving them (i.e., your competition) access to more resources and deeper pockets. Product commoditization and price compression are hurting us all. And, finally, consumer disinterest is, well, disheartening. It sounds like a train wreck. More stress, slower growth, fewer resources.

But back to those retailers and what they’re doing with you. In the spirit of so-called partnering, have they given you any Big Gulps lately? You know, those bonding sessions where you’re told to take your price increase and head back home. Or, those “open dialogues” where you’re told that the private label supplier is now the category captain.

Now there are even more wonderful topics to discuss with your partners. Are you ready for consignment? How about selling your excess capacity at variable manufacturing cost plus a nominal margin? Or single source supply – for a fee? You’ve been reading about shared labor costs at retail. Are you ready to have that conversation? Retailers are very interested in co-branding with you, putting their name on your brands’ packaging. And co-marketing is much in demand, especially if you’re using HQ marketing/advertising dollars (NOT trade dollars).

Retailers are very needy. Their real needs are margins and turns. That’s about it. However, retailer “wants” are quickly becoming “needs.” Things like special packs, unique items, efficiencies, growth ahead of the category, and participation in all their programs are all being demanded now.

So, you’ve heard of some of these “partnering opportunities” and may be working on a few back at headquarters. What does it all really mean? This: Retailers are looking at you in ways they’ve never looked at you before. Feel like a piece of meat, being ogled? Feel like a bug in a science experiment? Well, maybe you should.

Your productivity cycle spins in one direction (more revenues beget more resources which beget more funding which beget more ideas which beget more programs which beget more resources). The retailers’ productivity cycle is simultaneously spinning in the opposite direction (more revenues beget reduced expenses which beget lower prices which beget increased traffic which begets more revenues). You are stuck in the middle of this ugly machinery.

More and more retailers are building vendor profit models, and they’re figuring out which manufacturers are really profitable. This goes beyond margins and terms. It goes beyond ROI and turns. The most sophisticated models take into account growth rates, handling efficiencies, turnover, supply reliability, damages and perishability, as well as marketing support beyond discounts.

Retailers know if you’re naughty or nice, and they’re going to treat you accordingly. They may not come right out and say it, and they may not show you their analyses, but they are definitely going to train you to become more profitable – or nonexistent. It isn’t going to be a pretty lesson for many.

So, here’s a little quiz to self-administer, just a few simple questions to see if you’re ready, willing, and able to compete.

First, do you know how to decide with whom you want to work? In other words, what are your criteria for “partnering up” with selected retailers? What does each retailer need and want from you, and are you willing to provide it?

Second, where is your competitive advantage now, and where should it be in the future? Have you done a complete assessment of your capabilities? Where are your weaknesses, and are you prepared to fix any of them?

Third, how will you handle exceptions and special requests? Do you have any givens and guidelines in place? Within the confines of Robinson-Patman, how will you discriminate among retailers?

If you don’t want to complete the quiz, there’s a quick way to get a pass/fail grade. Just answer this question: Do you have a Consumer Marketing group that diverges from a price-based Merchandising Sales group? If so, you fail. A silo-ed organization cannot overcome the challenges being thrown down by big-scale retailers. (Even convergent organizations aren’t guaranteed to win; they just stand a much better chance.)

Put your pencils down and pass your papers to the front of the class. Grades will be posted by Nielsen and IRI.