Archive for The Economy

Brand-Retailer Relationships: “Partnering” or “Biting the Hand that Funds You”

When the Food Marketing Institute met this year for its annual warm-weather retreat, aka, The FMI Midwinter cooperationsConference,  one of the topics that is being touted was “partnering”, specifically between the Food Marketing Institute and the Grocery Manufacturers Association, (GMA). A perfect partnership opportunity for the two major food industry organizations to combine forces, share expenses and develop notable synergies.  Stay tuned, but I see no reason that this new marriage should be a long a prosperous one.

But as for the members of these two fine organizations, the individual brands and retailers, “partnering” has produced mixed results.  Over the last twenty years several industry movements have served as catalysts for partnering.  Category Management (CM), Efficient Consumer Response (ECR), and more recently Shopper Marketing-Path to Purchase (PTP) have led to co-authored and co-funded studies that lead to books and presentations.   But lasting partnerships among brands and retailers, not so much.

Reasons for less than optimal results abound. The truth is that on key cultural and process issues, brands and retailers are wired very differently. Retailers live in the moment.  Brands often live in the future.  Retailers adjust the components of their business hourly, while brands deliberate and strategize over months and years.  Brands move managers and executives relatively quickly through their organization, while retailers tend to keep their team members in positions longer.  Both feel they “own” the customer and are keenly anxious to extend that advantage.  For these reasons and others, many retailers continue to “bite the hand” that funds them.  In turn, brands continue to believe they represent a significant portion of the retailer’s life to form a direct to shopper relationship.  Both practices are unwise and bode poorly for the future.

Technology and a sagging economy have nurtured a new variable, namely an empowered shopper.  This shopper has ceased control of the conversation and is quickly demanding better information, more relevant deals, and more efficient shopping alternatives that only the brand and the retailer together, can deliver.

Loosely translated, retailers with data and new shopper touch points need shopper insights and content from brand to attempt to satisfy the insatiable appetite of the new empowered shopper.  Sure, brands and retailers can try to go it alone, but given the short window of opportunity, new competitors pouring through that window each day, and the impatience of the shopper, it is hard for me to image anything but the power of a well formed partnership providing the best solutions for the new millennium.

As with all things that yield positive and timely results, there are requisites for success.  Here are some.

  1. Lasting partnerships are formed typically at the top of each organization.  The commitment must be clear and consistent.
  2. A good partnership has an accountable contact person on each side of the relationship, who must answer the bell when things get bogged down or do not flow as expected.
  3. Outcomes must be clearly communicated with success metrics known to all.
  4. There must be equal or near-equal benefit from the relationship.
  5. The partnership must grow and evolve, rather than stagnate and become mundane.

Perhaps the conversations at FMI Mid-Winter will serve as a harbinger for further brand-retailer alliances.  The shopper is waiting….waiting…waiting…

 

mh

 

 

 

 

 

 

Taking “Price” Off the Table

For those of you in retail, I challenge you to survey your shoppers with a simple question….

           “If you could change one thing about our stores, operations, and services, what would it be?”

0809_LowPriceArrowFrom my experience over the years in retail,  the overwhelming answer to this query will be ‘LOWER YOUR PRICES’.  In fact, this response was so dominant our consumer surveys were designed to deflect this common response.  To do so we added the caveat, “Other than lowering prices, what would you like to see changed….”   Yes, we worked overtime to take “price” off the table and out of the discussion with our shoppers.   We assumed that lowering prices was something that shoppers will always ask for, even unreasonably so.  Further, we knew that lowering our prices was really out of the question, in fact we spent endless hours looking for ways to “smartly” raise prices to achieve margin goals.

So with “price” out of the discussion, we could then move on to ask our shoppers about aspects of our operation that we actually were willing and able to change.  The lurking danger of dismissing consumer sentiments should be self evident.  Competitors often find ways to accommodate your shopper’s wishes.   When they do, sales, market share, and store traffic reflect your indifference to shopper imperatives.  In fact, the emergence of Aldi, Walmart, and other “price” formats is a function of traditional retailers unsuccessfully attempting to take “price” out of the consumer discussion, into the headwinds of declining incomes and recession.

The stark reality is that those that have successfully relegated “low prices” to something less than a shopper headline, have invested heavily into services, product quality, and store facilities.  In the grocery channel, Whole Foods, Fresh Market, Wegmans, and even Publix are among the list of retailers who understand that if you are to be known for something other than “price” and known to the extent that “price” is no longer a consumer priority, you must make a commitment to create a shopping experience that effectively changes the subject.

No silver bullets here,  but my advice to retailers who struggle with meeting their shopper’s “price” expectations would be to chose one or two areas of your operation and build service and product quality programs around those offerings. As one example, if you want to be known for the best produce in the market, actually buy and maintain the best produce and train your associates to be knowledgable experts in both product and preparation of the product. Be consistent and talk about it incessantly.  Once credibly is established as the place to go for produce, you might be surprised how much you can charge for bananas!
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Operation “Wallet Recovery”

I’ve heard it said many times by more than one supermarket retailer that they believe they have a very loyal shopper following.  Many of these same retailers are shocked when they discover that they are only supplying about half of these shopper’s grocery needs.  In fact, I have tracked the “wallet share” of several retailers with strong “loyalty” programs  only to watch a precipitous drop in their share of shopper requirements over the past five years, especially among their very best shoppers.

Yes, despite the best efforts of some very good retailers, they are losing their grip on their best shoppers. Certainly some this attrition is unavoidable.  New competitors  from other retailer channels are taking a bite out of the supermarket pie.  On-line retailers, Amazon for sure, are now selling shelf stable center store products on-line to a growing audience.  Big boxes and specialty retailers are taking significant share on both the “price” and the “fresh” pieces of the business.  Finally, with the lingering recessionary environment, shoppers have drastically expanded their “consideration set” for all their sources of grocery items as they have adapted a renewed “cost-containment” mentality.

Yet, growing the business for many supermarket chains is still possible, all the bleak aforementioned realities withstanding.  However, to be successful at winning back lost shopper share requires a plan that should include the following steps;

  • The first step in operation “wallet recovery” is understanding where the leaks are occurring and how big they actually are.  Both primary and secondary research will be needed in this step, but basic stuff, nothing terribly sophisticated needed to create this learning.
  • The second step is developing a strategy to recover this lost business, given the limited resources you have to do so.  This means not chasing every shopper, every dollar in every category.  It requires customer data, analysis and actionable strategies.
  •  Thirdly, the retailer must understand that winning back their shoppers share of wallet is an ongoing, never-ending process that must optimize limited resources and involve merchandising, marketing, merchandising and even human resources.  Consequently, great focus and commitment is required.

Customer loyalty is not dead, but it has changed.  It more elusive and less sustainable.  Successful loyalty marketing now requires new strategies and a focused, committed approach.  More to come on this topic.

 

 

 

 

The Cost of “FREE”dom….

Anyone who has spent significant time in the supermarket business knows that there is no such thing as a FREE anything.  Buy One Get One Free promotions are among the most costly promotions supermarkets offer,  FREE Turkeys at Thanksgiving are just about the most expensive promotion a supermarket chain can endure.  So is it also with federally mandated  no or low cost healthcare benefits and a host of other new regulations that must be incorporated in the P&L.

National chain restaurant operations and their franchisees have already gone public with counter measures to the new expected expenses.  Layoffs, fewer full-timers, reduced hours for associates, and even higher prices to consumers are among the early reactions we see restaurant chains discussing.

Supermarket chains are not immune to more of the same.  Look for subtle changes to service levels and higher prices to begin to be noticed.  These moves are unavoidable and in aggregate likely to be universal across much of the business world beyond supermarkets, risking throwing the economy back into a recession.  With recession or even a slow down, coupled with the devaluation of the U.S. dollar due to huge national debt, the landscape for supermarket sales and profit growth is tenuous at best.

These issues have been elevated in discussion in every boardroom since the re-election of the president on November 6th. President Obama has already stated that higher taxes for many who own small businesses and the continuation of a larger role for the federal government is very much on his agenda for his second term.  There is no doubt this will mean a challenging landscape for most traditional supermarket chains.  

Consumers will react to this as well. Expect that shoppers will continue to be increasingly conscious of price comparisons, deals, fuel programs and private label savings. Dollar stores, and other price formats will continue to flourish.  Those traditional supermarkets that can accommodate new pressures on their P&L, while somehow preserving services and customer experience, will once again posture themselves for growth when we do finally emerge from this financial abyss.  For those that are already struggling today, the impending new set of economic issues could be a death sentence.  It is times like these that strong senior management teams really earn their salaries.  IF they make the right moves, investments and expense reductions they will have increased their chances of navigating through this challenging environment.

 

 

mh