Retailers, more so than ever, are changing the way that they conduct business with consumer packaged good suppliers (CPGs). According to a McKinsey report Playing catch-up: How to partner with the retailer of the future, in order to effectively maximize retail partnerships and boost sales, consumer packaged goods suppliers need to adapt the way they approach retail support. The top three trends influencing the way retailers work with CPG suppliers from the report are summarized as follows:
- Emerging channels & channel shifts – Growth of eCommerce and discount channels are putting downward pressure on both retailers’ and CPGs gross margins.
- Declining contribution of the top CPG brands to category growth – Top brands are contributing progressively less to category growth. For example, food and beverage manufacturers account for 45% of sales, but only three percent of growth; smaller manufactures across categories are increasingly making up more of that.
- Less reliance on CPG provided data – Retailers are now using advanced analytics which concurrently has diminished the reliance on CPG data support provided to retailers in the past.
As a result of these trends, retailers have the upper hand and are using this advantage as a negotiating tactic to demand more from their relationship with suppliers. On the flipside, many CPG companies have been slow to adopt new practices in dealing with retailers. There are three areas of opportunity in which suppliers can improve on to partner with the retailer of the future and increase collaboration:
- Ensure the right retail support structure – Allocate resources based on segmented retailer traits consisting of revenue, profit, and growth potential. Structure account management teams around these tiered customer segments.
- Commit to collaboration – Strengthen joint business planning and help retailers solve complex business problems on a frequent basis.
- Supercharge insights – CPGs should collaborate with their retailer to generate distinctive insights around the areas that retailers care most about, and leverage advanced analytics such as predictive and prescriptive insights which can add value to the partnership. Additionally, account managers must be trained and excel in presenting insight-based selling vs. relying on longstanding relationships alone.
All in all, when partnering with the retailer of the future, providing top notch insights is key to increased collaboration and success. The report calls out that, “no longer will it be enough to generate insights at the national, channel, or customer level on a weekly or monthly basis. Retailers will expect store-specific, real-time insights tailored to their strategic priorities.” Access to more granular level insights and new processing frameworks that can analyze billions of transaction records will help to transform antiquated reporting processes.
Retailers and suppliers should support one another by sharing 1st party data. Read more about the benefits sharing data can be found in the blog article FMCG Retailers' Analytics Improve with Supplier's 1st Party Data. While this is a shift from the way many CPGs have conducted best practices in the past, the right structural and technological shifts will enhance the level of insights shared with retailers.