Bearing in mind that the private equity retailer’s ‘long term’ objective is to re-sell the company to the stock market within a 3-5 year timeframe at a minimum premium of 50% above the purchase price, complete with ‘Tesco-class’ ratio performance, then any longer term initiatives have to be subordinated to that need. On the other hand, a traditionally funded retailer theoretically operates to a longer timeframe. However, in practice the pace of highly competitive retailing may force that retailer to ignore the long term and resort to strategies that ensure survival.
Retailers obviously have the interests of the consumer at heart, but tend to be more focused upon the shopping need-set. Their interest in the shopper is more about identifying general needs that can be satisfied by a selection of brands, or ideally an own label product. Any interest in consumption behaviour will probably be confined to concerns about possible complaints about quality deficiencies, although development of Generation 4 own label may cause them to invade this traditional territory of the brand owner.
In fact, it could be said that the retailer sees brands as a means of attracting the consumer to the store via a broad message. In other words, the more category-orientated the message, the more it will appeal to the retailer. Within the store, the consumer-shoppers are confronted by brands and own label in the aisle, at a point where they are receptive to comparative detail, a need ideally met by reminders of brand attributes or additional educational insights. The encounter then becomes a conversion issue, ideally resulting in a switch-sale to the benefit of the own label owner, from the retailer’s perspective.
This degree of category sensitivity in fact distinguishes traditionally funded and private equity retailers in that their attitudes to investment differ radically. A private equity player will challenge all investments, especially category management, that have an indeterminate payback in the short term, whereas traditionally funded retailers will tend to buy into the longer term benefits. This means that suppliers have to either demonstrate the short term financial benefits of category management to both types of customer, or reserve their long term category initiatives for traditionally funded customers.
The traditionally funded retailer may be seeking to ensure repeat visits via loyalty-building initiatives, whereas the private equity retailer may have a more ‘cold-blooded’ attitude to ensuring that the consumer-shopper optimises the trip, financially. They will therefore see the potentially satisfied shopper as simply a means of delivering a given and predictable shopping basket revenue at point-of-sale. This means that a private equity player will make all efforts to identify immediate need, and ensure full availability on shelf, at a predictable and acceptable cost in terms of return on investment. This will make them demanding but very valuable to those suppliers that are focused upon full compliance, instore.
Given that the issue of ownership of the consumer has been called into question by the depth of consumer-shopper data available to the retailer, and if ownership is defined by extent of knowledge, then the retailer owns the consumer, and in effect ‘rents’ access to that consumer-shopper to those suppliers willing to pay for the privilege. Those suppliers still in doubt should contrast the retailer’s knowledge of ‘their’ consumer in terms of name, address, even email, phone, age, family details, eating habits, state-of-health, and treatment, occupation, income, leisure, finances in terms of savings, insurance, mortgage, brand/own-label balance/usage and shopping habits versus the supplier’s limited knowledge, by market segment…
On balance, properly supported, traditionally funded and private equity retailers both will tend to satisfy the shopping needs of the consumer. It remains the supplier’s role to ensure the satisfaction of consumption by optimising the synergies of consumer-insight and shopping insight. Private equity simply sharpens the edge….
