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It's back to the all-powerful buyer. For better or for worse?

2015-03-07 - David Sables is CEO of Sentinel Management Consultants - sales negotiation advisors to leading fmcg suppliers
Source - The Grocer

Analysts saying the supers must ‘drop their prices’ to compete is mildly irritating. Dalton Philips proved that retailers funding price cuts with the same operation reduces profit and compounds the problem. Too much stock tied up in extended ranges means that to compete with discounters this way they’d halve their ROI - shareholders will have a problem with that. Dave Lewis gets it though: cut the range, cut the stock and get the suppliers to fund the price move. Simultaneously save everywhere, including resource. Bring supply chain, price, space, range & display and product quality all back under the commercial team. This is sooo right - you should expect the other three to follow. Although it’s a nice PR spin, this has got nothing to do with simplifying the ‘commercial income’ deals for suppliers. Those that survive the Boston Consulting Group range cull have the prospect of going back to the days of real volume growth with blunt front-margin based negotiations, aimed at driving down cost prices. Recent skirmishes on commodity price deflation are just the start. Suppliers need to be prepared for the harsh reality of this new dawn.

Like back in 1994 when Tesco led the way on shopper strategy, the suppliers that equip themselves best with category management skills will take best advantage of the opportunities. If you don’t like the outcome of the Boston massacre then you will need to be a player in the fine-tuning that follows. In your categories you need to understand the true shopper-based segmentation. Your products need to have unique differentiation. That’s how you’ll save your listings, not by banging on about brand equity and heritage.

The main reason cat man fails is that suppliers tuck away expertise into an insights department and the account managers don’t have the skills to follow up. The investment is made, but no value is placed on it in the trading relationship.

The influence is all going back into buying teams. It may be ‘back to the future’ (minus the flux capacitor) with this structure - but don’t make the same mistakes. This time, instead of dressing up your generic category strategy as a customer one, help them differentiate and trade that expertise.

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