What’s Next for Trading Partner Collaboration?
By Mark Baum
As the books close on 2018, it will be recorded as a good one for retail in general. Overall, in-store sales were up almost 3.5 percent and online sales had another large increase of 15 percent. On a macro level, consumer sales are projected to expand ~4 percent in 2019. That is cause for cautious optimism, as that growth will not be spread evenly across all retailers. And large CPG companies still find themselves in low, to no, and in some case negative growth territory.
The rapid and massive shifts in consumer food values require trading partners to be ever more mindful of the emerging drivers of customers’ path-to-purchase. More emphasis on health and well-being, and growing concerns about food and product safety, both short and long term, are now top of mind for many.
Also, there is growing interest about social issues; among them, animal welfare, worker and human rights, and overall corporate social responsibility. Environmental and energy issues are also now part of the consumer buying equation. This means that a company’s societal values are becoming almost important as the value of the products (per se) that are available for sale. Retailers and their product suppliers must address these issues – together – in an open, authentic, and transparent manner.
The omnichannel shopper has been emerging for several years and retailers must fulfill those customers' needs and requirements, wherever, whenever, with whatever, and however they desire. Also, more shoppers are seeking new and innovative products in the natural/organic, specialty, ethnic, and artisanal categories. Many emerging brands are forging new partnerships with retailers for increased distribution and market share. Food retailers need to find cost effective and efficient ways of working with the thousands of these new, smaller manufacturers. And large-cap companies are not sitting idly by; they are in some cases paying large multiples to put these brands into their product portfolios. How they integrate them (or not) and present them to their retail customers, either as stand-alone businesses or as part of a more holistic view of those categories and the marketplace, are strategic imperatives.
These trends, coupled with technological advances (for example, AI, VR, IoT, robotics, and automation), and shifts in the labor market, are fundamentally changing the outlook for and model of trading partner collaboration. In short, a new collaboration mandate is required. In an FMI survey(1) of retailers and manufacturers, 100 percent of respondents identified the need for to lower the cost of doing business both within and between trading partners. Further, the costs of collaboration need to be aligned with mutual goals and expectations around sales, promotions, and overall profitability.
In some cases, there is already increased tension in trading partner relationships. For example, some CPG companies have adopted more aggressive Direct-to-Consumer (DTC) strategies, taking advantage of the shift toward online shopping. At the same time, some retailers are investing more in their private brand programs, looking for more innovation and differentiation in their product offerings.
Regardless, this new trading partner operating model requires more open communication and sharing of the costs and value of all collaboration elements. That signals the need for a shift in the often-disparate growth and profit agendas to more mutually aligned strategic, operational, and executional objectives.
For retailers, developing the skills and platforms to connect with the digitally engaged food shopper is critical. However, they must be relentless in their focus on in-store excellence, creating unique consumer experiences that cannot be replicated online. They must partner with their product suppliers in a number of ways to make this happen. It begins with trust and that trading partners have a mutual interest in satisfying consumer wants and needs – together. We have also identified several key imperatives to successfully collaborate in the year ahead.
Retailers and manufacturers both have some internal work to do. Getting the right organizational structure is fundamental. Building a culture of ownership and shared success is at the top of the priority list. Getting agile, providing entrepreneurial leadership, becoming insights driven and building seamless end-to-end execution are core principles of this requirement. Also, master data accuracy is the foundation upon which all the other collaboration attributes are based. Complete and accurate data must be shared between trading partners and delivered to consumers. In an omnichannel marketplace, when it comes to product information and images, “digital must equal physical.” The online and in-store experience must be seamless and trading partners must work together to ensure that is the case.
Between trading partners, this new model requires a shift in thinking from “pay to play, to pay for performance.” Assortments will become more scrutinized and rationalized as retailers seek to redefine the center store. In what categories and instances should they invest and fight for market share, and conversely, when to reallocate toward the perimeter, or online, or on-premise dining? Manufacturers need to provide more comprehensive and cohesive shopper insights to inform these important decisions. Better and more integrated forecasting and more efficient, effective marketing and promotions will become a hallmark of this new model of collaboration.
At its core, even with the rise of e-commerce, the food retailing/CPG industry remains a “people business.” Food is tactile. Sensory. Intimate. Metaphoric. Walk a store. Take in the sights, sounds, smells – and smiles. The store can and should be where the magic happens. Or where, as Mary Poppins says, “Everything is possible, even the impossible!” This view of trading partner collaboration this year, and in the years ahead, will enable food retailers and their product suppliers to find the insights, platforms, and delivery mechanisms to drive new and improved approaches to delight and excite consumers and build better and more profitable business models.
(1) The Digitally Engaged Food Shopper, Nielsen, FMI, 2017
Mark W. Baum is Senior Vice President, Industry Relations, Chief Collaboration Officer, for the Food Marketing Institute (FMI).