U.S. Supermarkets generate nearly $700 billion in sales and over 22 billion transactions per year. With so much money and many shoppers in play, it should be no surprise about that the industry has traditional been a magnet for huge investments from the consumer package goods (CPG) community. But there has always been something missing from brand and retailer interactions. It is often very difficult to get into this topic very deeply without writing an entire book. Incidentally, Glen Terbeek did just that back in 1999 with a book entitled the “Agentry Agenda”.
The book described the “friction” created by brands and retailers in the grocery channel pipeline and the inefficiencies this friction fostered. Diverting, slotting allowances, misuse of trade funds and dozens of other trade practices designed to solve short term financial needs, have cluttered this ecosystem at the detriment of the consumer. Years ahead of his time, Mr. Terbeek understood that with new digital devices and systems, eventually consumers were going to seize the reins of this inefficient process and find other ways to acquire grocery products if bricks and mortar retailers and their brand partners don’t start playing “nice”.
So let’s define the current environment, which I believe is the antithesis of “nice”. Having toiled on the retail side of this business for several decades, I can safely say that the retail version of not-so-nice involves a variety of practices couched in receiving as much brand money and content from brand partners without providing the brands much in return. Further, retailers can be very short-sighted and tactical when it comes to their interactions with brands and almost always believe that their brands have more money to give them than they receive.
Retailers have implicitly admitted that making money by selling to shoppers is getting more difficult by the day. Consequently they are looking to the brands for increasing support and funds to become more profitable buyers, not better sellers!
Playing not-so-nice for the brand community is exemplified as their short-term priority of driving cases sales of the product even if the retailer or consumer demand of the product does not warrant the product in the system. This practice leads to ah hoc promotions which continue to “push” products into the system as opposed to being “pulled” by consumer demand. This mentality also leads to diverting and other short-term trade practices that distort and clutter the pipeline.
For the sake of brevity, I have somewhat over-simplified the process and have intentionally indicted the entire food industry for inefficient practices. My apologies to all retailer and brands that have broken out of this paradigm of short-sighted, self-serving objectives. For sure, some have taken a longer view and are making headway towards actually creating synergies from their combined efforts. For those that are moving forward, they are likely trading data, working together to layer their collective promotional efforts, and are being upfront with one another every step of the way, understanding the needs of the other out of the partnership and working in earnest to achieve those goals.
Finally and the point of all of this, if brands and retailers do not evolve to become better “agents” of the consumer, lurking around the corner, are new players positioning themselves to assume command. This proverbial paradigm shift will not be easy. Mr. Terbeek sent out the first warning flare thirteen years ago with his book. Little has changed since. Together, brand and retailer incumbents have dug a pretty deep pit from which to climb out of. Systems, intelligence and the models now are in place to begin to create synergistic partnerships. Let’s hope brands and retailers can soon find new common ground……. somewhere other than in the bottom of the pit.