What Happens When There Are Fewer Big Retailers?

By Al McClain
 
Retailer consolidation is nothing new; it's been happening for years.  What is new, for me at least, is hearing from consumer packaged goods (CPG) manufacturers that "38 percent of our business is with Wal-Mart" or "over 80 percent of our business is with our top ten customers."   

A recently released A.T. Kearney/GMA study of CPG execs found that finding growth is their #1 issue, and that consolidation and the power of retailers tied for third.  In the study, half of the execs who found retailer consolidation to be the top issue also considered it to be a possible source for competitive advantage, as they can collaborate with their large customers.
 
Progressive Grocer, cited in the study, said that in 1995 the top five U.S. supermarkets/supercenters represented 26 percent of total sales for supermarket-type items.  By 2004, they represented 48 percent.  According to the A.T. Kearney/GMA study, of those execs who ranked retailer consolidation as their top priority, 50 percent were dealing with it by exploring collaboration opportunities with retailers; 21 percent were staying flexible to adapt to a changing environment; 21 percent were improving innovation and product development; 14 percent were reducing cost base and increasing efficiencies; and 14 percent were exploring acquisitions and consolidation.
 
A number of issues are raised as big retailers become bigger.  Here are a few to think about:

• As the largest retailers become more and more powerful, are some suppliers beginning to lose control of their brands as a result of deals calling for exclusive SKUs provided to retailers, exclusive promotions, and the like?
• Are some suppliers increasingly ignoring independents and regional chains, and is that dampening future success for these suppliers and smaller retailers?
• Will new retail channels emerge to fill niches left behind by the "big guys"?
• Will new suppliers emerge to supply smaller retailers not served well by some of their current suppliers?
• Five years from now, who'll be in charge - retailers or suppliers?

There are no easy answers to these questions. Suppliers are naturally going to work most closely with retailers who can deliver the most sales and profits.  The catch is that what's smart for the next quarter and what's smart for a five-year plan may be two very different things.  Middle managers with 20 or 30 years left in their careers may have a whole different perspective than senior managers closer to retirement age. - Al McClain - Moderator