How much do suppliers really value local retailers, is a question that independent shopkeepers often ask themselves.
Open to the same
competitive pressures as the big supermarkets and competing for the same
shoppers, independents often feel they are locked out of the best deals and
can’t buy at the prices the grocers sell for.
A new edition of
Store Wars, co-written by businessman Greg Thain and former Cadbury marketer
John Bradley, provides some great answers to the question. Most importantly,
they advise manufacturers to support weak retailers.
Before independents
get too hopeful it has to be said that Thain and Bradley argue that in the past
10 years a major switch in power has happened. After around a century in
control, the big brand manufacturers are now number two to the likes of
Walmart and Tesco. This has implications for all local shops.
There are two reasons
for the success of big retail. Firstly, they now know more about their shoppers
and market to them better than the brands can. This erodes big brands
traditional control of the “mindspace” of the shopper.
Second, own labels gives
big retailers greater say over what is stocked in store. It means they can
challenge all but the strongest brands with cheaper alternatives.
Thain and Bradley
show that “hustle” strategies used by big manufacturers to buy shelf space are
now unproductive. One study found that 90 per cent of trade-marketing
initiatives lost money for the manufacturer.
“Manufacturers cannot
afford to buy their way to shelfspace success in the long run,” they write.
Today, manufacturers
spend up to 30 per cent of the selling price on buying shelfspace from big retail.
This is not translated into profit for the retailers as competition is so
intense they have to pass the benefit on to shoppers. This hurts independent
retailers locked out of these deals.
Because most shoppers
don’t write lists and buy what they see, winning presence in-store is vital for
manufacturers. Supermarkets exploit this fear. But not too much as they fear
being out-of-stock of what shoppers want can backfire on them as consumers go
to their competitors.
What can trade
marketers do? Support weak retailers. “For strategic reasons, retailers who are
weak and losing customers should be encouraged and supported…manufacturers
should be hesitant to pursue actions that encourage greater retail
concentration.” Good category advice is also an area where they can help.
Store Wars is written
for the people who go to business schools to work out strategies for selling
branded goods. The authors have a wealth of knowledge and write clearly. It is
a very useful guide to the major forces that are driving change in the
convenience channel.
Local shops do not
feature much. The growth of Tesco convenience stores is presumed to be
unstoppable. However, there are hints at ways that the independent can fight
back. Perhaps wholesalers can use symbol groups and own label to compete.
But everything could
soon be overturned by the arrival of e-tailers, with the shadow of Amazon
looming large over the shoulder of big retail. Despite all this, specialists
with good local know-how can continue to breathe.
ends
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