Current price discussions are undermining strategic cooperation between food retailers and their suppliers, according to an exclusive survey by LD&Co and RetailDetail. Yet both parties agree that stronger cooperation is a must.
Probing mutual expectations
To say that relations between supermarket chains and manufacturers are currently strained in the run-up to the end-of-year talks is an open door. All year long, talks on cost increases and price rises have been particularly difficult. To what extent does this situation weigh on the long-term relationships between the two parties? Following last week’s Trade & Shopper Marketing Congress, RetailDetail – in collaboration with Luc Desmedt of LD&Co and Dirk Vanderveken of Shopperware – launched a survey of retailers and suppliers.
The premise: suppliers and retailers need each other to optimise sell-out by category. Each has knowledge and insights that the other has little or none of. When you put those together, you get ‘1+1=3: that is the essence of category management. At a time when shoppers’ buying behaviour is showing unprecedented change, determining the right assortment, pricing and discount strategy is even more important than ever before. Therefore, we investigated to what extent ‘CatMan’ has been adopted by both parties today, what the mutual expectations are and to what extent these are being met.
Commercial agreement first, the rest will follow
The research took place in September and included both brand suppliers and private label manufacturers, as well as six Belgian food retailers: Albert Heijn, Carrefour, Colruyt, Delhaize, Retail Partners Colruyt Group and Spar Lambrechts. First conclusion: although CatMan is more than thirty years old, it is more topical than ever. All retailers give a ‘top 2 box score’ (totally agree/agree) to the statement ‘we consider category management as a key enabler of our commercial strategy’. Among suppliers it is 82 %.
A large majority of both parties recognise that strong collaboration is a must to make the most of CatMan’s potential; but two out of three retailers indicate that there must be a commercial agreement before category management can be mentioned. Among suppliers, this opinion is (logically) a lot less pronounced with just 46 %.
However, there is still work to be done: only 50 % of both suppliers and retailers acknowledge that they have sufficient expertise and resources. When mutually evaluating each other’s CatMan capabilities, retailers turn out to be a lot milder than suppliers: 50 % of retailers state that in general suppliers have sufficient expertise in-house, while the reverse is only 18 %.
The category, not the product
When asked an open question to retailers what best-in-class suppliers should meet in terms of category management, respondents indicated first and foremost that they expect suppliers to have a thorough understanding of retailers’ commercial philosophy and dynamics and to translate this into their proposals. This requires an objective, transparent attitude that starts from the overall category, and not from the supplier’s products. Five of the six retailers indicate that suppliers focus too much on their products and reason too little from the total category.
What do retailers consider important in category management? Three activities stand out: sharing a category vision, joint business planning, and sharing shopper insights. However, only a minority of suppliers report offering these activities frequently or continuously, while also only a minority of retailers give the overall quality of these activities a high score. Suppliers do have their reasons for being cautious about sharing shopper insights: they think there should be more sharing of data rather than having to pay (a lot) for it. This would allow suppliers to develop even better informed tailored proposals.
Need for ‘revenue management’
The findings regarding prices and promotions are also very interesting: both parties have a few things to say about this. A hot topic is finding the right balance between passing on the increased costs in the selling price on the one hand and remaining affordable for shoppers and competitive against the competition (either private label or other retailers) on the other.
A majority on both sides indicate that the current discussions undermine constructive cooperation. In any case, there appears to be a need for sound revenue management: only 21 % of suppliers consider sharing insights and advice on pricing as a common activity, while no retailer gives the quality of this a high score. This seems to be slightly better for advice on promotions: here, 34 % of suppliers say they do this regularly. But only one out of six retailers appears to be satisfied with this.
Significant in the context of promotions is the following comment from one supplier: “The current promo approach is unsustainable and loss-making. It is no longer feasible for promotions to have to be paid for entirely by suppliers. We should move towards a co-financing model so that promotions remains interesting for both parties.”
Jumbo and Colruyt
To finish the survey, we asked suppliers to rate food retailers in terms of their openness regarding category management, and in terms of their expertise. Jumbo turned out to be the most eager for category management support. That is not too surprising: the newcomer is not yet sufficiently familiar with the Belgian market and can therefore use some good input. Kruidvat and Carrefour complete the top three.
In terms of expertise, market leader Colruyt is number one, followed by Delhaize and Albert Heijn. Three of the six retailers also indicated which suppliers they consider best-in-class, but due to the small sample size, we prefer not to publish this info.
