‘Unlike-with-like’ Competition in Blind-eye Sourcing….
By Brian Moore, Global Retail Consultant and CEO of EMR-NAMNEWS

In their relentless quest for lower prices, retailers are correctly including global sourcing in their buying repertoire. Buyers are obliged to seek the best deals, without geographical constraints, within a free market.

However, in the process, it may appear that local suppliers are being placed at a cost disadvantage through the use cheaper labour, lower ingredient costs and less stringent legislation in some overseas markets.  The many knock-on effects are well documented elsewhere, and in general, provided consumer-safety standards are being met, this non-food competition is tough, cannot and should not be restricted.

Sourcing food from abroad
However, there appears to be area that needs to be treated as a special case, in order to ensure that valid like-with-like comparisons are being made in terms of fair competition, and ultimately consumer safety. If food ingredients and finished product are sourced in markets that permit practices outlawed in the home country, resulting in cost prices that are lower than can be achieved under local legislation, then the retailer needs to exercise caution…

By apparently turning a blind eye to the fact that the imported food products incorporate prohibited processing practices and allowing them to be sold to an ‘unsuspecting’ public, retailers are in danger of painting themselves into a corner in terms of possible consequential damage to the retail brand and their shoppers.

Communicating with the consumer
The ‘instant’ reaction of the shopper to stimuli in retail could lull retailers into thinking that public response to ‘issues’ is equally rapid, and that if consumers do not react with their feet to the latest news coverage of a retail ‘scandal’, then a potential crisis has been averted.

In practice, however, if an issue like compromised food safety standards reaches and is allowed to hold centre stage for the (long) time it takes to build consumer awareness, it could become a focus for what will then be seen as related issues such as unfairness to farmers, animal cruelty, bullying of suppliers, ‘driving independent retailers out of business’, ‘abusing’ of shop workers, and even retail arrogance, all of which are currently being held in check by continual lowering of prices…

The tipping point…
However, as the limits in price reduction are reached, and pressures on demand-supply chain partners exceed breaking point, then a single event such as the resulting death of a consumer could precipitate an unstoppable tide of reaction against retail ‘abuse’ of power, bringing both consumer and trade issues jointly into the public arena, as a single issue…

The resulting impact on retail share/stock prices will signal the arrival of the Stockmarket, and eventually the involvement of politicians via ‘appropriate’ over-legislation…

On the trade side, when an overdue creditor in the shape of a contract-haulier may be driven to blockade a retailer’s head office with a ring-fence of trucks in a search for settlement, securing a few column inches in the process, it should be regarded as merely the tip of an iceberg… The major multiples have come a long way by being highly sensitive and responsive to market signals from both trade partners and consumers.

It would be a pity, however, if rapid growth continues to cause them to ignore obvious signs of market unrest, and the wake-up call is delivered by something as ‘remote’ as the possibility of some small supplier finally ‘flipping’, travelling all the way to a retail customer’s head office car-park, and torching himself?

Coping with Unlike-for-like competition….
In order to achieve genuine like-with-like comparisons when negotiating against competitive offers, it is obviously essential to move the discussion away from a focus on price… This means pulling together the entire KAM repertoire of multi-functional and multilevel contacts, re-assessing key parts of the demand-supply chain, combining consumer-marketing, and retailer marketing within a category management context, working suitable trade partners.

In practice this means starting with the company’s sales, profit and ideally ROCE growth expectations, in total, by channel and by key customer.

Choosing the right customers
At customer level, this means classifying each customer as invest, maintain or divest and focusing all negotiating effort on the most important invest customer (see www.kamcity.com/library/articles/partner.htm for criteria for trade partnership).

In practice maintain and divest customers should be managed on a transactional basis, stripping down the service package to a level that will simply retain the business. Part of the invest classification process will involve testing for the brand’s degree of consumer-shopper congruence, and this will facilitate the optimisation of consuming-shopping synergies.

Understanding the retailer’s growth strategy, risk-profile and competitive-set will enable a link to be made between brand and retailer strategies, in harmony.

Analysis of the shopper as a consumer will make it possible to map ideal-world expectation versus degree of satisfaction in the aisle. The resulting compromise can then become a template that allows an assessment brand inputs versus deliverables in terms of shopper need satisfaction. Any ‘surplus’ should be stripped from the offer, if possible, as, by definition, it is probably adding cost with little or no resulting benefit.

This attempt to attribute-strip along the entire demand-supply chain will reveal the ‘ingredients’ that possibly make the total offer-package ‘unlike-with-like’ and these elements should become topics for discussion at all levels and functions of both businesses.

The need for multilevel relationships
It is hopefully obvious that true like-with-like comparisons cannot be achieved without active and fundamental dialogue being maintained from board level to delivery interface in each company. The top level dialogue will be aimed at gaining insight into fundamental long term aspirations of each company, by people in a position to modify policy and implement change in demand-supply criteria accordingly.

This philosophical starting point then has to be reflected in all other functional relationships between the trade partners again with the aim of highlighting desired benefits on each side and tripping out all redundant elements.

Ensuring true like-for-like comparisons between suppliers
The resulting and detailed offer-requirement then becomes a basis for assessing available alternatives in terms of competitive offerings. This criteria-set should include buying influences in terms of Product, Price, Presentation and Place and can be systematically assessed versus the competition using the EMR Buying Mix Analysis tool available free at www.kamcity.com/namcalc/BMA/BMA.htm.

As can be seen above, ensuring a valid like-with-like comparison between available alternatives is possible and crucial in order to optimise customer satisfaction, profitably, but does require a willingness and ability to tailor the corporate offering to the most important invest-customer. All other customers have to fall in line and be capable of being retained with minor adjustments to the big customer package….

Failing that, it is perhaps preferable, or necessary to reclassify the customer as maintain or divest and revert to the take-it or leave-it approach of a transactional relationship…