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November 21, 2014

Digesting digital: Suppliers, retailers must collaborate online to deliver value

Price is becoming an ever more significant issue in the UK grocery sector. Squeezed consumers and pressured retailers are increasingly focused on a product's RRP. But there are still ways that manufacturers and supermarkets can add value. A central theme of the IGD online conference this week was the need for manufacturers and retailers to collaborate online if they are to avoid a race to the bottom. Katy Askew reports.

Price is becoming an ever more significant issue in the UK grocery sector. Squeezed consumers and pressured retailers are increasingly focused on a product’s RRP. But there are still ways manufacturers and supermarkets can add value. A central theme of the IGD’s online conference this week was the need for manufacturers and retailers to collaborate online if they are to avoid a race to the bottom. Katy Askew reports.

For some time now, the growth of the discount channel has been a central theme in UK grocery. The no-frills retailing espoused by the likes of Aldi and Lidl have stolen a march on the UK’s largest multiples. And their light brand offering and focus on own label has put the frighteners on branded manufacturers operating in the country.

Austerity Britain would seem to extend well-beyond the public service and benefit cuts pursued by the coalition government. Reduced spending power and the growing threat of the discount channel has promoted a mood of austerity in retail too. The UK’s largest supermarket groups have responded in kind with discounting, price cutting and couponing of their own while also reigning in capex and slashing space expansion programmes.

As Shore Capital analyst Darren Shirley observes: “The competitive challenge is now drawing a collective response from the majors in the form of price cuts, cost reduction programmes and a slashing of capital investment programmes as protecting balance sheets also comes to the fore.”

Price is front and centre for the ‘big four’ UK grocery multiples. But they also want to cash in on one of the few other areas of growth in the UK grocery space: online.

Speaking this week at the IGD online retail conference in London, Asda’s senior director of grocery e-commerce, Chris Conway, made it clear the UK arm of Wal-Mart is pursuing a multichannel strategy that brings together these two mega-trends. At asda.com, the supermarket giant wants to win on the convenience and accessibility of its online offering while also competing on price.

Conway said: “Convenience is about access to our customers. Giving them access to the way they want to shop at a time that is convenient to them.”

Asda’s pricing policy is centred on “every day low pricing” and he added: “Two years ago our in-store customers were getting a better deal than our online customers… We have redesigned our website… Asda customers are now better off shopping online than in-store.”

Asda is investing in developing its online offering, expanding its presence in the mobile space and opening new click and collect pick up points – including stand-alone points in convenient locations. At the same time, Conway said we can expect “an unwavering focus on price and value” from Asda over the next year.

Asda expects its suppliers to fall-in with this discounting strategy, increasing the likelihood of more tough price negotiations down the line. The carrot the company is offering in all this is the roll out of a new data sharing strategy.

“This time last year we didn’t share data with our suppliers… from October we have been sending data packs to our key suppliers… what consumers are buying when and where,” Conway revealed. “We have started this journey together with you, working collaboratively. We want to grow together.”

However, according to more upmarket grocer Ocado, there is another way. Rather than focusing on a race to the bottom on price, Ocado marketing and grocery director Lawrence Hene suggested a focus on optimising online capabilities – from suppliers and retailers alike – can move the conversation on from one focused on price alone.

“Compared to the other people growing at a comparable rate we like brands,.. we are adding range and we want more of your range,” he quipped, juxtaposing Ocado’s up-market offering with that of the discounters.

Hene said there are two elements driving Ocado’s growth: the investment the group is making in increasing capacity, on the one hand, and the work it is doing to “make it simpler for the shopper”, on the other.

Significantly, Hene stressed Ocado’s expansion is largely tied to the expansion of branded manufacturers with appropriate online strategies. “What is perhaps more interesting than our out performance is your out performance… The brands that are getting it right [are seeing market beating growth] we have ten brands that are growing at more than 45%. It is the difference between having a strong online strategy.”

The most important aspect of a brand’s online performance is visibility. Customers are much more likely to purchase your product if you appear towards the top of the search. Outside the top ten and your chances of making a sale drop to almost zero.

Once you have secured that initial buy and make your way into the consumers “favourites” list you are sitting pretty. “By the time a customer is a regular shopper they are buying from their history. You need to make sure you are always visible,” Hene revealed.

In order to secure visibility, food manufacturers need to understand how a retailer’s search engine works. To succeed on Ocado products must be tagged appropriately, the search brings offers and “something new” to the top, followed by the rest. The order is then determined by shopper conversions and the margin structure on offer for Ocado.

The challenge for manufacturers is that each retailer search engine works differently, with the same search bringing different SKUs to the fore. “Understanding the mechanics of the retailers’ sites is what is going to mean you can win,” Hene said.

The success of the “Animal Planet” 360-degree marketing campaign from Dansk Supermarked would suggest collaboration is also key to success in online marketing – which feeds into the bricks-and-mortar world of retailing. The campaign, which had a major digital component, saw consumers at Denmark’s largest retailer collecting points on purchases to obtain animal trading cards.

Interestingly, it was “entirely” funded by suppliers who sponsored the campaign in exchange for linking certain products to the trading cards, digital marketing manager Kåre Berenthz-Nicolaisen revealed. However, the outcome suggests this was a lot more than just a retailer shakedown. Dansk Supermarked saw a 3.1% sales lift at within the seven week period the campaign ran. The branded suppliers who sponsored the initiative saw sales increase a whopping 99.94% in the same period.

“We are trying to push forward meaningful activations so we can give something back for our suppliers… Half of you are retailers and half of you are brands. You guys can do a lot together,” Berenthz-Nicolaisen insisted. “The collaboration becomes a positive spiral.”

Joe Comiskey, e-commerce innovation & strategy manager at Unilever, told the conference getting the complex nuances of online strategy right is crucial for branded manufacturers. Unilever has a dedicated resource across its global functions to focus on the development of online strategy.

“You need to make sure it has the focus. Often it can be seen as an add on unless you have a team that drives home that message… You don’t have to have that [reliance on promotions] when it comes to online… it is coming to it with a completely different mindset,” Comiskey said. “When you start to deal with smaller retailers in the e-commerce space, it is a real challenge. Having a dedicated team is one of the key ways you can drive this forward.”

That focus enables Unilever to gather actionable insight and turn it into a wide-reaching online strategy, Comiskey continues. For example, Unilever noted an up-tick in ice cream sales during hot weather. Rather than the traditional approach that had seen Unilever increase ice cream advertising at certain times of the year, the company introduced heat-activated digital marketing, making its consumer communications more effective.

IGD’s Lisa Byfield-Green agreed understanding the online space is key to tapping into the growth of the channel. “We all know that shoppers are shopping more in the online channel… Online is where the growth is coming from. Suppliers that have dedicated resource for online are in a much better place to work with retailers who are pushing this forward for their own growth… Those are the people that retailers want to work with.”

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