More Supplier Choice than Customer Choice
Using Category Management To Dominate The Shelf
Across Europe the battle for the hearts and minds of supermarket shoppers is starting way before products hit the shelves. The buying decision as to which brand of baked beans ends up in the shopping basket is being made as a result of how the supermarkets and its suppliers interact. Increasingly, it is business decision in this area that decides which brands go in the basket, because if it's not on the shelf, it won't be in the basket.
Supermarkets are the avenue to consumers and therefore hold a tremendous amount of power. The similarities between retailer strategies in the main European markets are increasingly noticeable. Concentration of ownership, acquisitions and cross-border alliances between retailers are driving a reduction in the number of buying points. Ten of the major grocery markets in Europe now have at least 50 percent of trade passing through the hands of five or fewer retailers.
Many of these omnipresent retailers have high overhead costs and have financed their expansion by borrowing heavily. Organic growth is limited and competition from overseas increasing, yet the pressures to deliver incremental profit remain. This situation encourages strategies that can be a source of conflict with suppliers as attention focuses on cheaper suppliers, negotiated margin, cost reduction and own label development. Additionally, promotional budgets are directed to activity that develops spend per shopping trip and store loyalty rather than brand-specific activities.
However, supermarket suppliers are not as impotent as they seem as most major European retailers are actively developing portfolios of store groups differentiated by type, positioning and region. This gives suppliers the option to match the ranging, merchandising, pricing and promotion policies of the stores with their own supply and marketing strategies. By working in association with the supermarkets via unified objectives, working structures and IT, suppliers can become more powerful, and certainly powerful enough to squeeze their competition off the shelf.
To achieve shelf space dominance, suppliers - especially big brands - aim to be indispensable within their particular category. This means accommodating the needs and wants of key customers in every area, from promotional strategies through to product and packaging size. Retailers argue that branded suppliers fail to recognize the total category as a whole and to present their brand plans in this wider context.
In the US, retailers are setting the agenda for joint efforts to develop tailor-made business strategies for core categories. Wal-Mart, a discount retailer, provides its suppliers with a statement of objectives and priorities. This information includes macro-economic and shopper behavior information, customer profile category "mission statements", and a list of service standards (e.g. full electronic data interchange, planning calendar, and so on). In return they demand a Strength-Weakness-Opportunity-Threat (SWOT) analysis of the supplier's marketing program in the context of Wal-Mart's objective. They also need a strategic business plan designed specifically for their Wal-Mart trade. This includes product mix strategies, logistics and marketing strategies and quarterly meetings with suppliers' vice presidents. Using integrated IT systems in conjunction with sales and operations planning helps management teams work together.
Through sharing market, brand and store performance data, retailers and suppliers can work together to define the range, merchandising, promotion and/or pricing plans at retail level. Working together electronically cuts co-ordination time and helps Category Management (CM) become a corner of Efficient Response/Efficient Consumer Response (ER). Through such partnership activities suppliers can work with a single supermarket, or across a chosen group of retailers, to ensure that their own mainstream advertising ties in shelf space dominance and point of sale activity in key outlets.
Furthermore, production can be planned so that stores can carry extra product, reducing competitor shelf space and allowing for rapid product replenishment should the promotion exceed expectations. Similarly, special promotions can be quickly implemented should an excess of stock build up (perhaps following an anticipated spell of hot weather that failed to materialize).
Category Management is increasingly what the major retailers are demanding from their suppliers, as research from Kurt Salmon Associates shows. Asked for the five most important criteria for selecting a supplier for Joint Category Management (JCM) - equivalent to preferred supplier status - retailers responded:
- Demonstrated capabilities with other (non-competing) distributors
- Breadth of product offering category
- Capabilities and personalities of team members
- Involvement/accessibility of top management
- Overall feeling of trust and openness in relationship
Perhaps of most interest for many suppliers is that 'Supplier Market Share' is an omission from the list. This goes against the perception that JCM programs favor large manufacturers in relationships with retailers. None of the top five factors discriminates against medium and small manufacturers, giving these suppliers as much incentive - and as much business potential - as their larger competition. Indeed, as "Demonstrated Capabilities with Other Distributors" is at the top of the list, it is experience that counts most. With smaller supplier far more nimble than their bigger competitors, Category Management represents a real opportunity for medium and small size suppliers to steal a march on their more powerful rivals.
To really leverage the opportunity that Category Management offers the small and medium sized suppliers, there needs to be a change in strategic thinking and an improvement in technology. Without a new approach, all the technology in the world will make little difference as an IT system can not help supplier management teams think from the retailers point of view. However, once the mind-shift is in place, available technology can bring a great deal of transparency within the supplier/retailer relationship, helping Category Management strategy development and Efficient Customer Response.
Mark Barnekow is the Worldwide Business Development Manager to the Food and Beverage Industry at JBA, a leading worldwide supplier of enterprise management software to the highly competitive mid-market sector. Typically, JBA customers gain competitive edge from the rich functionality of our products combined with our @ctive™ Enterprise strategy. This strategy optimizes business process performance, based on international best practices, to consistently reduce costs and improve margins without continuous systems development.
JBA industry focused solutions meet the exact needs of selected target industries by incorporating industry best practice functionality integrated with best of breed partner products and services. In the Food and Beverage, Apparel & Footwear, Automotive Supplier and Electronics sectors, JBA Industry Teams skilled in both industry and products, optimize their use for each customer.
In 1998 JBA completed its 18th year of continuous growth with revenues over $470 million, growth built on our consistent investment in people, products and most importantly our customers. JBA employs 2,700 people, supporting over 4000 customers in 53 countries.
About JBA Food & Beverage
JBA Food and JBA Drinks, our market leading software, provide the most comprehensive and flexible business solutions available to the Food & Beverage Industry. They have been developed as a result of a close understanding of the issues crucial to the Industry, and the extensive expertise gained working with customers in the Dairy, Bakery, Meat & Poultry, Brewing, Wines & Spirits and Wholesale Distribution sectors.
JBA are co-sponsors of the just-food and just-drinks web sites. The sites are aimed primarily at IT and business professionals in the food and beverage industries. Located at www.just-food.com and www.just-drinks.com the sites carry breaking news from Reuters, guest writer features, latest industry statistics & surveys , best practice articles, publications and events. Other sponsors include; IBM Corporation, Leatherhead Food RA, Food & Drink Business, Kurt Salmon Associates, Beverage World Magazine, Food Industry News, National Dairy Council, Food Communications Information Service, Euro PA, Lebensmittel Zeitung, the ABI EC Group, QSA Ltd, Deutcsche Landwirtschafts-Gesellschaft e.V, Bradley Ward, Charles Wells Brewery and Japanscan Limited.
Mark Barnekow, Worldwide Business Development Manager to the Food and Beverage Industry at JBA
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