BrainTrust Query: Finding Common Ground … That Isn’t at the Bottom of a Pit
Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.
With so much money and many shoppers in play at U.S. supermarkets, it should be no surprise that the industry has traditionally been a magnet for huge investments from the consumer package goods (CPG) community. But there has always been something missing from brand and retailer interactions.
Diverting, slotting allowances, misuse of trade funds and dozens of other trade practices designed to solve short term financial needs have cluttered this ecosystem at the detriment of the consumer.
In his 1999 book, Agentry Agenda, Glen Terbeek detailed the "friction" created by brands and retailers in the grocery channel pipeline and the inefficiencies this friction fostered. Years ahead of his time, Mr. Terbeek understood that with new digital devices and systems, eventually consumers were going to seize the reins of this inefficient process and find other ways to acquire grocery products if bricks and mortar retailers and their brand partners didn’t start playing "nice."
Having toiled on the retail side of this business for several decades, I can safely say that the retail version of not-so-nice involves a variety of practices couched in receiving as much brand money and content as possible from brand partners without providing the brands much in return. Stores almost always believe that their brands have more money to give them than they receive.
Playing not-so-nice for the brand community is exemplified as driving case sales even if the consumer demand of the product does not warrant it being in the system. This practice leads to ad hoc promotions which continue to "push" products into the system as opposed to being "pulled" by consumer demand. This mentality also leads to diverting and other short-term trade practices that distort and clutter the pipeline.
For sure, some have taken a longer view. They are likely trading data, working together to layer their collective promotional efforts, and are being upfront with one another every step of the way.
But if brands and retailers overall do not evolve to become better "agents" of the consumer, lurking around the corner are new players positioning themselves to assume command. This proverbial paradigm shift will not be easy. Mr. Terbeek sent out the first warning flare thirteen years ago with his book. Little has changed since. Together, brand and retailer incumbents have dug a pretty deep pit from which to climb out of. Systems, intelligence and the models now are in place to begin to create synergistic partnerships. Let’s hope brands and retailers can soon find new common ground … somewhere other than in the bottom of the pit.
Discussion Questions
Are the inefficiencies in traditional buyer/selling trade practices in the grocery channel opening up the door for outside competitors? Which new “agents” may be increasingly positioned to capitalize on technology and more efficient delivery of food to consumers?
The system is not inherently inefficient. Enlightened partners on both sides of the table can make the process work. And outside competition will never take hold until the infrastructure issue is resolved (efficient warehousing and delivery of all products, including meat and produce).
Having spent the last 4 plus years working directly with retailers and national brands on creating in-store promotions, I can speak from experience that some retailers and national brands are more collaborative than others. As the old saying goes, “it takes two to tango” and this is a perfect example.
Some retailers believe that there is more money, or another “bucket” of funds, and some national brands question a retailer’s compliance on a program they have funded. The result is an inefficient system that leaves tons of opportunity on the table for competition that jeopardizes the position and strength of both parties involved. Private Brands that jeopardize national brands, direct to consumer models from major national brands that jeopardize retailers, new retailers that don’t play by the old rules (Trader Joe’s), online retailers, and the list goes on.
What to do? The opportunity is for retailers and national brands to work aggressively on collaboration and delivering what is promised. Imagine the win for the retailer, national brand and most importantly, the customer, if both parties followed through as promised. I do believe the system has improved dramatically from 13 years ago, but there is still plenty of opportunity left and the ones that pounce on it will come up winners.
When Glen Terbeek handed me a signed copy of his book at a conference in the last century, I had know him for years at that point and I knew his book would be an interesting read. The points he made were insightful to say the least, however, none of these challenges were new even 13 years ago.
These buying and selling challenges have plagued the food industry for decades. Somehow, non-food, like apparel, department stores, etc., don’t have these same issues. The food biz can look to these other retailing segments and begin to evolve their business models, which include the revenue models, their innovation models and other capabilities in their businesses, in order to leverage the strengths of the entire ecosystem or supply networks.
There are some great examples of collaboration that exhibit some of the traits we speak of in this article, however, there are far too few of these case studies today.
It does, indeed, take two to tango. Sure, inefficient trade practices open the door to lower cost competitors, but, who’s to say they won’t get corrupt over time?
True mutual organic growth is the only solution to trading partners who like to put their arms around you in order to get better positioned to pick your pocket.
First of all, let’s not kid ourselves about the “common ground.” It has always been there, just not the common ground that one thinks it should be. The manufacturers always know what is going on with the retailers and the retailers take full advantage of the revenue needs of the manufacturers. Every manufacturer has the opportunity not to play the game with the retailer. Few, decline. They know that whatever happens, it is worth the spending. If not, they would not do it.
This is reality, both sides are in it for themselves and each knows the rules by which the other operates. Where does a sales manager or product manager go to make their numbers for the quarter or the year? They go to the trade and the trade waits with open arms.
In the future, as power evolves toward the consumer through technology, both the retailer and the large national companies are going to become less relevant.
What will the CPG companies do? Instead of making the deals with the devil retailer, they will try to make the deals with the devil consumer.
I officially became a member of the executive cadre in the supermarket bidness in ’70 (as opposed to the store side as a night stocker during college). As Asst. Ad Manager for Fleming Foods in K.C., I heard for the first time about the slotting/co-op dollars paradigm shared by retailers and brands (and brokers at the time). I’ve been hearing about it ever since, often as an active participant in the negotiations. This slightly predates Terbeek’s ’99 book.
Nothing has changed, except for addition of the siren song of customer electronics as a possible initiator of détente. If I had a Pat’s steak (wit) for every published new solution and bright hope for change in the retailer-manufacturer relationship, you’d have to roll me out the door.
Let me go out on a limb, here, and make a wild prediction: The relationship between brands and stores regarding trade dollars isn’t going to reach kumbaya levels any time soon.
In an economic world where retailers and suppliers are largely driven by short-term profit imperatives vs. driving long-term sustainable value growth, building trust isn’t easy. The human element of the retail buyer or the product sales manager and their need to produce immediate value (margin for the retailer, case packs for the supplier) also create challenges to trust building. Finally the high turnover among the men and women at the front line of this desired relationship building also limits trust building.
The reality is that progress has been made and will continue to be made our of economic self interest. This progress will also continue to be challenged by the 3 points — drive for short term gains, human emotions relating to the need to produce for the boss, and high turnover of front-line negotiators.