While other suppliers are awaiting a return to some semblance of ‘normal’, we believe that there are real trade opportunities available for some suppliers in the short-term. Essentially, the current ‘cut-back’ uncertainty and lack of predictability means less competition and more talent is available for those suppliers willing to take a forward view and seek profit opportunities amidst the financial chaos.
In other words, a unique opportunity is emerging for those suppliers who are willing to acknowledge and build upon the new realities, reposition their competitive appeal and demonstrate their value to key customers, financially.
However, in order to realise the new opportunities, suppliers need to make a fully objective and realistic assessment of their own and competitors’ relative appetites for risk in times of unprecedented uncertainty. In other words, it is time to decide whether the company is risk seeking, risk neutral or risk averse, and how this compares with the competition in the category.
In exploring available opportunities, suppliers will be subject to varying degrees of risk in terms of impact upon the business and chance of occurrence. It is therefore necessary to reduce all business process to financial measures of investment and return in a cash-driven market environment. This will enable more rapid response to market changes in terms of customer demands and competitor initiatives without jeopardising overall profitability. Again, constant use of financial measures will enable the supplier to maintain and work within an acceptable level of risk. All of which will have to be factored into highly realistic forecasts of achievable levels of ROCE, the ultimate business measure in a zero-sum game.
Despite current uncertainties, it can be taken for granted that shoppers and retailers will continue to buy and sell, modifying their behaviour to reflect their perceptions of need-changes in the current climate. Moreover, given that each supplier has different profiles in terms of consumers and shoppers, brand-portfolios and customer-portfolios, terms and conditions, and especially financial impact upon individual customers’ profitability, so too will their relative appeal to each customer be different, unique and new, compared with the competition.
The opportunities for suppliers lie in the ability to capitalise upon these new differences in appeal to the customer, and demonstrate their impact upon the profitability of the customer’s business. In addition, suppliers will be dealing with multiples under increasing financial pressure who will try to transfer even more business risk to their suppliers, especially via increased demands for credit and trade funding. Given that trade credit is interest-free and trade funding can reach levels of up to 20% of sales to retailers, it can be appreciated that these moves will prove increasingly tempting to major customers, as the economy deteriorates. Moreover, suppliers should also anticipate increases in levels of deductions, currently between 3% and 8% of suppliers’ turnover. These demands need to be resisted, and attempts should be made to ensure a fair share of respective business risk, for companies supposed to be operating as ‘equal’ trade partners.
In order to identify and capitalise upon the ‘obvious’ opportunities, the following steps are essential. First, suppliers need to conduct a realistic update of their sales and profit growth targets against new conditions in the marketplace, together with an assessment of the more moderate ROCE levels possible in a new cash-based environment. Next, it is necessary for a supplier to take an objective view of competitors’ risk profiles in order to identify the new competitive line-up going forward. In other words, in a given category, identify which suppliers are now available to a retailer, and thus make up the new competitive set. The rest is detail. Finally, it might be worth bearing in mind that the money-management and return-on-trade-investment disciplines developed now will not only help to optimise available resources in the current climate but will add to the supplier’s momentum, as the recession inevitably eases and ‘normal’ growth resumes.
On the other hand, a prolonged retro-view will help in avoiding the need, or opportunity, to change….
