Wednesday, February 17, 2010

Facing the facts

Just a few years ago, the large retailers really needed major brands, making them vulnerable to pressure from suppliers.

Brand hybris is a thing of yesterday. Retailers are no longer only a distribution operation run by small scale merchants, but have evolved into branded companies themselves. Understanding of the retailers own respective strategy, on an overall global, country and concept level is a key issue.

The role of the supplier is to help the customer to reach their respective goals of differentiation by giving tools of relevance, to the customer in the situa-tion the customer meets the consumer. That means that the supplier should walk the same shoes as their respective retailer, and align its production according to the direction where the retailer is going, thus provide SKUs that is engineered and priced to fit the retailer’s respective strategy.

Retailers want to be understood. The first role of the branded goods provider is to understand.

Brand owners are stumbling under the pressure of shorter product cycles and lesser media attention, along with hard core SKU rationalisation.

There are no power brands – only brands that sell more, and brands that sell less. The traditional view of brands as sacred assets that must be allowed to exist just because they have a long history or are cherished by key officers in the organisation, or by small groups of consumers at some time of the years is no argument for keeping a brand or SKU in production. Mind space that cannot be converted to shelf space is of no use whatsoever. There is no room for politics in internal discussions or defending babies that should be able to stand on their own. Sales figures are the only relevant measurement of real brand strength. Mind space is not paying the bills.

The role of the supplier is to help the retail to reach their respective goals of differentiation by giving them tools of relevance, to the retailer in the situation the retailer meets the consumer. Brands are still assets but needs distribution to be able to bring value to their owners.

To get to the shelf relevance to the retailer and thereby the understanding of the retailers goals and how the specific SKU should help to reach that goal, is crucial. There is no substitute to distribution.

Therefore any internal discussion on any supplier should start with the question, "in which channels do we deserve to be on the shelves?"

Discount grows by the minute

The discount channel is, largely, virgin land for many supliers. A traditional view on branding as well as seeing discounters as a threat rather than a potential volume channel has hampered the development of the distributions via this channel. The fact that the Stockholm office is situated far from where the action is, is also a fact that has to be considered. Category Directors and Brand Managers, along with their consultants, must understand the dynamics of local markets and move away from 20th century branding theory were everybody can build a brand.

Discount is gaining power. If suppliers do not choose to align with the needs of this specific channel, and the threat it constitutes to others, the share on the markets with a growing number of discounters will decline as Every Day Low Prices gets to be the standard on these markets.

The role of the supplier is to provide SKUs that could be priced in accordance to the need of the market. No retailer sets the price level on its own. The market does collectively. But for the branded goods provider trying to push its brand portfolio to anybody this means bad news.

To understand and act to address the needs of the discounters is a major task on several markets.

PL is an essential part of key retailer’s strategy

Price and differentiation are two different reasons for launching a private label, and the PL share is on the rise on a global scale as competition sharpens.
Private Labels means that the retailer is taking charge of several functions such as marketing, certain product development and other things, and that the supplier to a large extent merely is a production facility. In special cases branded good has been converted into PL buy being offered exclusive distribution.

There are several key questions that need to be taken into consideration.

-The volumes that retailers PL have and their rate of growth as consumers accept them at a larger scale. PL-opportunity means large volumes.
-The question of available capacity at plants. Do we have spare capacity that makes us loose money?
-If a retailer approaches with the possibility of PL-production, any cost based calculation must be stripped from normal administration, product development, and internal procedures and so on. PL-production requires a dedicated organisational function.
-If a retailer wants a PL, he will get it. Saying no will bring the volumes to anyone else.

In a world where the supplier understands the needs of the retailer, he will also understand the need for a private brand, and be able to provide it if asked.

Addressing the retailers relevant needs for differentiations are crucial to stay and grow in the market.o