KamLibrary - Alliance Boots Terms – A Pivotal Opportunity For All?

The recent move to impose new trade terms by Alliance Boots obviously represents a major precedent in supplier-retailer relationships. In practice, over the coming months, these demands will give the company the opportunity to put to the test suppliers’ level of dependence upon Alliance Boots as a route to consumer.

The scale of the demands puts considerable pressure upon suppliers to seek a fair exchange of alternative concessions from Alliance Boots, in order to reduce their dependence upon the incremental turnover* of approximately 40-50% required to restore the financial status quo. Failing this, suppliers will be compelled to seek ways of restoring lost turnover elsewhere, in the event that a ‘walkaway’ strategy becomes necessary.

Logically, the real opportunity lies in the excuse it provides in many H&B categories for a fundamental re-evaluation of the business model, in terms of optimising consumer-insight and shopper-insight, resulting in a re-balancing of brand and own-label, channels and customers. Essentially, this obviously provides significant opportunities for proactive development of alternative routes to consumer, as suppliers explore and develop their H&B options elsewhere. The result will be an acceleration of the historical drift of H&B brands from Boots to other retailers.

Specifically, this means that top-end department stores and specialist shops will capitalise upon incremental business via top-end brands, the grocery multiples will grow their shares of mid-range H&B categories and increase their levels of investment in in-store pharmacies, whilst Superdrug and the drugstores will attempt to gain a mix of mid-range and specialist incremental business in the process. Meanwhile, if cost-effective ways can be found for suppliers to help independent pharmacies optimise their unique relationship with consumers, they too will potentially gain from the fallout. This leaves online retail with a once-only opportunity to ‘go-for-broke’ across the whole H&B spectrum...

However, the move to restrict the resulting terms dialogue between suppliers and Alliance Boots to respective finance-functions, to the exclusion of the commercial roles, paradoxically represents a pivotal opportunity for NAMs in all categories to build their influence within the supplier-customer relationship. Essentially, all other company functions, including finance, have functional responsibility for all customers. The NAM, on the other hand, should be responsible for all aspects of the supplier’s relationship with an individual customer.

This unique perspective makes the NAM a natural co-ordinator of all company functions as they relate to the equivalent roles within that customer, at all levels. Apart from being managers of the customer relationship, the NAM should also develop and implement the customer strategy via numbers-based negotiation, using an effective network within each company to ensure a realistic transfer of cost and value between both parties.

The ability to translate every aspect of the supplier-customer relationship into financial terms can help the NAM to understand needs and demands on each side and facilitate the re-classification of customers as invest, maintain or divest. A supplier that reaches a new terms-agreement without the active participation of account management, risks providing an incremental gain for the customer and receiving little in return, whilst leaving all other elements of the trading agreement in place. Appropriate financial analysis can help to quantify and communicate the risk and reward relationship at all stages in the negotiation process. For these reasons it is crucial that the NAM team be tasked with revisiting their customer strategies in the light of the Alliance Boots demands, with senior management treating the resulting recommendations as a major opportunity to undertake a fundamental review of the business model and the routes to consumer. Only then will it be possible for a supplier to formulate and implement realistic walkaway strategies without jeopardising company profitability.

Alternatively, suppliers with high-capacity lungs could take the risk of awaiting Government intervention…..

* See calculation on: www.kamcity.com/namnews/news/ab050208.asp

For KamTips on 'Alliance Boots - An Opportunity For Fundamental Change' see Namnews – March 2008

Date article published: March 2008

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