Martin Wood, strategic retail insight director at IRI, speaks about what retailers hope to gain from closer supplier collaboration
Retailers and suppliers are no longer like two unwilling partners in a marriage of necessity. As margins come under increasing pressure, they have renewed their vows and are now more like newlyweds.
Increased scrutiny from the media and the threat of fines ordered by a tenacious Grocery Adjudicator have no doubt played a part in changing retailer behaviour. But there is much more to it than that: grocery retailers know that their suppliers are closer to data on customer behaviour than they are, but they’re also now recognising that they have taken too much of a broad brush in their approach to finding insight and authority on key categories
This is both surprising and ironic given that it is the retailer that is physically closer to customers and has a wealth of data about their shopping patterns; yet they are not always in the lead when it comes to insight.
Manufacturers, who have long been reliant on retailers to give their brands shelf space, have spent years building strategic, analytical and consumer-centric organisations. As a result they have a much more granular and robust insight on consumer behaviour in their categories than retailers.
They are also more adept at conducting detailed analytics of it in order to execute marketing and brand innovation.
Ultimately, retailers and manufacturers are working towards the same goals – to increase loyalty and sales. Collaboration makes reaching these goals much easier. A key commonality is the sharing of data and, more importantly, making use of the customer insights that are uncovered.
Since retailers have market and consumer data in abundance they are in the best position to listen to consumers’ demands and respond to them quickly. Manufacturers on the other hand can bring their in-depth knowledge of brands and categories to bear by working with retailers to analyse and derive conclusions that can be used as the basis for all sorts of decisions including finding the optimum combination of product lines. The result of this particular collaboration is happy shoppers who have found what they want, quickly, in an environment that is easy to navigate. This is good news for retailers since shoppers who cannot find the brands that they love are far more likely to switch to another store.
Suppliers and retailers can also work together to devise and implement the most effective promotions. In the past, this was a key area of contention as the negotiation around them is complex and sometimes still is as suppliers have to pay gate fees to run promotions in store. Retailers can be less interested than the brands in the return a promotion generated because the gate fee has covered the cost. Today however, more retailers are beginning to ask for advice about promotional optimisation.
This could not only help to avoid breaches of the OFT guidelines which state that a promotion must be clear and transparent but it can also help maximise their impact. Certainly we know that promotions that are simple and clear to understand, in addition to providing clear value (such as buy one get one free or three for £1) are more likely to work for both shoppers (saving money) and retailers (selling more so that profits are increased).
Technology breaks down barriers
Of course, advances in technology have made it much easier for collaboration to take place. Willingness to share information is not enough by itself. Secure portals provide access to clearly defined datasets and eliminate the fear factor for retailers who may have been reluctant to give suppliers too much information about their own business affairs.
Even with all of the pressure from the regulator, who wants manufacturers to shine the light on retailers that aren’t abiding by the new supplier/retailer rules, there is increasing evidence of collaboration between retailers and their suppliers. Retailers such as Costco, Waitrose and Tesco are investing in collaborative exchanges that make it easier for both parties to share the same information. While not everyone is on board – the discounters for example are resolute in their unwillingness to share data with suppliers in such open collaboration – more retailers are working harder for their suppliers today in a relationship that can only be likened to newlyweds. It’s only a matter of time before wedded bliss is something that all retailers and suppliers will share.