Retailer Collaboration Promotes Mutual Profitability

In the past decade, the CPG industry has experienced limited growth, with the exception of a few innovative categories. Although the CPG industry is mature, it’s witnessing transformative change. There’s an all-out assault on everyday price because small-inventory grocery stores like LIDL and Aldi are aggressively increasing their footprint. Walmart is issuing penalties for late deliveries. Amazon said it’ll charge manufacturers more for premium shelf space. And, retailer – manufacturer collaboration is just not happening.

The hardships faced by consumer goods companies is a classic business tale.

A WSJ article explains, “an industry creates winning products, carves out strong market positions and enjoys reliable, sustained revenue — only to be too slow to adapt to changes that threaten those cash cows.”

When external disruption threatens sales performance, what should a CPG company do?

Industry expert Wayne Spencer explains that during a time when manufacturers and retailers have more data at their fingertips about what consumers buy, when they buy it, and why they’ve bought it, both parties remain latched to the notion that success is “either”, but not “us.”

Reactionary Price Cuts

Unfortunately, a retailer’s first response to competitive pressure is to reduce prices.

“The current landscape is now beginning to look a lot like 2009, when meaningful deflation resulted in an industry price war,” said Credit Suisse analyst Edward Kelly.

Retailers hypothesize that cutting prices will drive traffic into the store. Look at Whole Foods. In 2019, the grocer slashed prices on hundreds of items. “Amazon’s plans to cut prices on hundreds of products at Whole Foods, as well as offer expanded benefits to its Prime members, recognizes the cutthroat competitive landscape in food retailing,” said Moody’s analyst Charlie O’Shea.

Note to CPGs: Once your product is on the shelf, you’re not done. You have to drive turns and new traffic.

The Power of a Growth Mindset

Manufacturers strategize on a response to blanket cost cutting and many foundational CPGs remain on the hunt for a solution to prevent further financial loss.

Instead of getting caught in the cycle of looking to the past for an old solution to a new problem, it is truly in the best interest of the CPG manufacturer and the retailer to sit down in a non-confrontational setting to conduct collaborative distribution and merchandising planning.

Retail expert Cathy Shifflett explains, “A retailer doesn’t want to feel like you (the CPG) is going to all the stores with the exact same plan. We want collaboration. We want a strategy that works for our store’s unique needs.”

Note to CPGs: Unleash the power of promotional optimization data.

It’s going to take more than desire for CPG companies and retailers to achieve the results they want. To effectively work with your retail customers, you need support from analytics. You need to measure and predict promotional outcomes.

To really optimize the category and marketing investment and actually impact revenue, collaboration must be a priority.

With collaboration, manufacturers and retailers can reach the consumer in the most efficient and effective way.

CPGs who can provide data with real-time information on category performance of a SKU and an optimized mutual category merchandising plan will find success with their customers. The end result is a more efficient distribution base. It will also minimize costly out of stocks and maximize the profitability of the categories, brands and individual SKUs.

Note to CPGs: Welch’s Shared their Data with Retailers ➥ Welch’s brought screen grabs from their TPO application to one retail customer in an effort to visually display what the cost of running their promotion against a direct competitor is compared to a week that they didn’t. Since Welch’s has a highly elastic product, this was a quick and easy way to show the effect of price on base volume. The retailer was really engaged with this data.

To stay competitive and financially stable, CPG companies should continue to innovate.

Adopting a collaborative approach with retail customers can be driven by the power of predictive modeling. Together, CPGs and retailers can set guardrails and map a smart trade strategy focused on achievement rather than savings.