Because of the degree of customer concentration at the top end of most trade sectors, and the increasing impact of globalisation, combined with the high cost of servicing small accounts, it is easy to forget the potential advantages of cultivating and developing business with small customers, within a total channel strategy…

For instance, in early 2003, the UKs ‘re-appreciation’ of independent retail presented potential lessons for vendors and retailers in channel re-alignment for local and global consumption in Norway…

A number of major elements are now changing UK trade channel configuration and are causing a significant power-shift within Convenience, as the two radically different cultures of Tesco and the Coop entered the top end of the arena and began to influence trade balance…

The Multiple grocers embrace Convenience scale

To appreciate some of the possible consequences of these changes, it is perhaps useful to explore the potential impact upon the major players…

Apart from continuing with their policy of UK market-infilling, within a ‘normal’ context of format evolution, Tesco were unable to resist some unique opportunities to grow their UK business. The acquisition of T&S gave Tesco access to a highly efficient ‘small-scale’ logistics facility that not only enhanced its ability to serve its existing forecourt estate, but also facilitated the exploitation of Tesco’s large scale strengths in UK convenience retail.

A re-birth for the Coop

Meanwhile the UK Coop gained a unique opportunity to modify their business-model and use open-market KPIs to help in re-aligning the core business and driving sales. It still remains to be seen whether this change represents too fundamental a shift in the short term, but so far the signs are encouraging. However, apart from the distraction of direct confrontation with Tesco, they will soon be subject to renewed convenience assertiveness by the voluntary groups, anxious to help their members cope with new channel dynamics...

Finally, bearing in mind that whilst Sainsburys are still struggling to find a way forward under new top management and have merely made a ‘token’ entry into convenience via their recent acquisition, the impact of Musgraves is likely to be minimal compared with that of Tesco and the Coop. With Morrisons still kept busy digesting their Safeway acquisition it is unlikely that all the secondary players will simply head for the sidelines….

Impact on trade strategies

Meanwhile UK vendors are finding it necessary to attempt to factor some of the above dimensions into their trade strategies within the 2005 UK convenience channel landscape.

Whilst ‘risk-seekers’ are prepared to tolerate/encourage ‘extreme’ trade concentration, many vendors may prefer to spread risk and create a counterbalance by building and maintaining effective distribution at the lower end of the trade.

Store-level marketing

As the future is probably increasingly about store-level retail competition, then vendors should perhaps prioritise ‘Intrapreneurial’ store managers within the multiples’ superstore base. However, whilst such managers are/can be highly qualified and motivated by share options and career aspirations, nothing beats the dedication and focus of an entrepreneurial owner-manager attempting to optimise the performance of a small outlet, living with the constant distraction of overdraft constraints and other life-or-death issues associated with small business survival.

Managing smaller customers as groups

However, whilst small independents undoubtedly need professional help, they are often unwilling or unable to pay market rates. Even if some vendors are willing to provide a ‘lite-version’ of this help via consultative-selling at outlet level, it is unlikely that even full compliance will yield sufficient return on investment in terms of sell-through.

The answer has to be to seek to work with ‘natural-groupings’ via wholesalers, symbol groups and dedicated third-party organisations designed to manage the entire marketing-sales-merchandising role at independent level.

Full partnership with such intermediaries requires KAM-level analysis of the partners’ organisational needs, taking a realistic view of the degree of trade-off in having to share their resources with other vendors, coupled with their need to achieve acceptable levels of return on investment at outlet level.

Providing tailor-made solutions, fully integrated with the intermediary’s own marketing aspirations, targeted at optimising performance at outlet level, can help ensure the achievement of ‘fair share’ vis a vis other vendors in their portfolio. This treatment of the intermediary as a ‘national account’ and managing them appropriately can help in optimising resource allocation across the vendor’s customer portfolio.

Whilst dedicated intermediaries can be of considerable help in managing existing independent sectors cost-effectively, vendors should also be sensitive to opportunities to cultivate new convenience customers in emerging channels.

Finally, for those small retailers outside the ‘loop’, who wish to remain independent because they ‘like it that way’, and are by definition highly individual, one can thankfully rely upon the rule of large numbers in finding groups with needs that are sufficiently similar and have sufficient critical mass to make tailor-making a viable option. The solution can then be to design template-variants aimed at meeting the needs of these ‘obvious’ segments. All that remains is to find appropriate media with which to communicate those solutions…

This concrete recognition and development of independent retail options will not only help to balance channel-mix but will also enable the vendor to spread the risk of increased trade concentration, and thus help to preserve brand integrity…

Alternatively, vendors have the option of ignoring the little guys and spending the extra cash on fireproof clothing in the Major Multiples’ kitchen…?

How to Optimise Business Via Independent Retail Customers…

Effective management of independent retailers requires that a comprehensive, systematic, subjective and periodic examination of the company’s trade environment, strategy, organisation, systems, productivity and functions be conducted with a view to determining problem areas and opportunities within the independent sector, all within an overall trade strategy. The result should be the basis of a plan of action aimed at improving the company’s performance within the independent trade sector

In the light of significant change within and across channels, and the resulting wish to spread risk via wider distribution, it is essential to systematically assess changes in markets, consumers and to analyse the competitor’s response to the new demands.

Analysing the main customer sectors in terms of extent and rate of concentration, efficiency levels, resulting changes in volume, value and profit will help to determine the degree of urgency and tolerable expense required in developing independent business. Again, a comparison with the competitor’s customer-size profile will help to validate an outline independent sector strategy

Use of top end retail as a benchmark

Then, using top end multiples as a benchmark, try to establish the degree of relative sophistication of the independent’s decision-making-process in terms of users, specifiers, constrainers, information vendors, screeners, voters, vetoers, and buyer, all subject to variation determined by decision type i.e. new buy, rebuy, and modified rebuy (range extension). Elaborate, perhaps, but it is worth remembering that these are all part of the buying process, the only difference being that all of the roles are carried out by one person, who succeeds or fails by the result, using their own money…..

Bearing this process in mind, it is then useful to try to determine their level of satisfaction with delivery/stocking, shelf life, product/package durability, promotions, product movement, sales/display aids, DPP (!), category management and space utilisation, given that their only means of expressing dissatisfaction is to vote with their feet…

At that point it can be useful to assess whether increased competition from the multiples has caused those surviving independents to evolve a more sophisticated appetite in terms of service-level demands..

Application of Large Customer lessons to Independent customer management

Given this clarification of need, it is important to incorporate the learnings within a viable trade strategy, which relates the independent sector initiatives to the overall allocation of company resource. As with the ‘more important’ multiple sector, it is important to set realistic and SWOT-based objectives in terms of sales, profit and growth rate for the independent business, in order to avoid the risk of budget-cuts in order to meet demands from the multiples…

The overall Trade Management Plan will obviously pick up the independent strategy and provide some context, spelling out objectives, support package, costs and return, but it is also important to ensure that the blend of finance, production, R&D, distribution, IT, and sales support is optimised via a match with independent retailer needs.

Auditing the company’s day-to-day management of the Independent sector

It can be helpful at this point to assess the company’s functional efficiency from the point of view of the independent customer, incorporating existing levels of knowledge/skill of the people involved with the independent sector in areas such as marketing, finance, category management, sales promotion, advertising, sales forecasting, market research, creative thinking, and high level selling… Again, an elaborate approach, but not for companies taking the sector seriously…

Obviously, planning for the sector as a business unit requires that such planning be integrated with consumer marketing planning in terms of timing, and compatibility, with appropriate controls and a monitoring system built in.

Finally, because of the high risk and the cost (both real and opportunity cost) of developing and maintaining profitable business with small customers, it is crucial that the company’s trade management systems are equal to the task.

This means assessing the quality of the information-base in terms of the measurement of profitability by customer and independent sector, with relevant comparisons against other trade sectors and with the company average. This information needs to be supported with systematic trade research, revealing degree-of-fit between consumer/shopper profile and that of the brand. If this seems like too much trouble for a ‘relatively unimportant’ part of company business, it probably will remain so…

However, with increasing trade concentration rapidly closing off other options, the independent convenience trade may provide one of the few ways forward in global retail…

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