Given the fact that the global financial crisis in 2008 is still causing headline-grabbing casualties among the big retail players – resulting in greater concentration of trade in the hands of fewer, more powerful retailers, combined with the increasing cost of servicing small accounts – it is easy to forget the importance of smaller, independent retailers in providing manageable routes to consumers for brand suppliers.
A further complication is created when major ‘big-space’ retailers find that ROCEs from smaller convenience outlets are better than their traditional estates, causing them to accelerate convenience development…
However, on balance, proactive suppliers appreciate the potential advantages of cultivating and developing business with small customers, within an omni-channel strategy… With the right degree of focus and dedication, a healthier independent retail trade can help in diluting some of the power of the major multiples, as well as providing a more manageable in-store environment, especially for niche brands.
Moreover, as we enter 2014, the UK and continental EU’s ‘re-appreciation’ of independent retail presents potential lessons in channel re-alignment for local and global consumption, especially in a flat-line market environment…
Key changes in market dynamics
Four major elements are changing UK & EU channel configuration as a result of the financial crisis:
Firstly, top-end retail is thriving because of a redistribution of wealth, meaning that those with money are willing and able to spend on premium brands. Secondly, consumers short of money are increasingly frequenting discounters in a search for reduced-price products.
As a result, the large mainstream retailers are now regarded as ‘the squeezed middle’ – populated by savvy consumers determined to buy only on the basis of demonstrable value for money, and often via increased purchases of quality own label products. The squeezed middle retailers are attempting to retrieve lost share by demanding reductions in supplier prices in order to fund onshelf price-cuts…
Meanwhile, Amazon – the elephant in the room – continues to grow at 26% CAGR, with no end in sight…
Finally, Discount Drug is in a state of flux, courtesy of Hutchison Whampoa which is increasingly conscious of the growing global ambitions of Alliance Boots and competing accordingly… To this must be added the near certainty that governments everywhere will de-regulate retail pharmacy, allowing grocery retail and discount drug to compete aggressively with traditional pharmacy, resulting in a more cut-price and high-risk environment for brands.
Managing smaller retail players
Whilst ‘risk-seeking’ brand owners are prepared to tolerate/encourage ‘extreme’ trade concentration, many suppliers may prefer to spread risk by building and maintaining effective distribution at the smaller, independent end of the trade.
However, whilst small independents undoubtedly need professional consultancy help, they are often unwilling or unable to pay market rates. Even if suppliers are willing to supply a 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.
Optimising the use of trade intermediaries in servicing smaller retail players
The answer has to be seeking to work with ‘natural-groupings’ via wholesalers, symbol groups and dedicated third-party organisations such as Ceuta or Bridgethorne that are designed to manage the entire marketing-sales-merchandising role at independent level.
Successful partnership with such intermediaries requires NAM-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 suppliers – 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-à-vis other suppliers in their portfolio. This treatment of the intermediary as a ‘national account’ and managing them appropriately can help in optimising resource allocation across the supplier’s customer portfolio.
This concrete recognition and development of independent retail options will not only help to balance channel-mix but will also enable the supplier to spread the risk of increased trade concentration, and thus help to preserve brand integrity…
Alternatively, suppliers have the option of ignoring the little guys and spending the extra cash on fire-proof clothing for the 2014 kitchen…?
