Retailer-supplier collaboration linked to higher private brand sales
Retailers that have a strategic, or collaborative, relationship with their private label manufacturers can expect higher sales and stronger growth on the private brand side, Linda Severin, vice president of marketing for Elk Grove Village, Ill.-based Topco Associates LLC, said during a presentation at FMIConnect. On the other hand, retailers that have only a transactional relationship with their private label manufacturers can expect own-brand sales to be flat or declining.
Severin, along with Howard Brandeisky, senior vice president, global marketing and customer solutions at John B. Sanfilippo & Son Inc., Elgin, Ill., presented these findings during a June 9 FMIConnect presentation titled “Best Practices to Build Strong Private Brand Partnerships.”
“Our main message for everyone today is [to ask yourself] ‘How can we work together to build the industry and create more strategic and collaborative relationships?’” Severin said.
To create strategic relationships, Brandeisky stated that retailers and manufacturers must first discover what is preventing them from collaborating successfully. For example, is retailers' desire for shopper loyalty based on differentiation and innovation doesn't always mesh with manufacturers' need for a return on investment. As a result, manufacturers often share innovative new products with multiple retailers.
To help retailers and manufacturers move past such barriers, Severin and Brandeisky presented five principles that could be the basis for a successful collaborative relationship: engage in joint business planning, create win-win opportunities, collaborate on innovation, move beyond price and create mutual commitments.
According to Brandeisky, joint business planning requires annual “top-to-top” discussions, along with quarterly check-ins to see how the plans are progressing and what changes need to be made. During these meetings, retailers and manufacturers should discuss joint sales and merchandising goals, support, costs and opportunities to align on innovative concepts so as to share both the risks and the rewards.
To create win-win opportunities, both the retailer and the manufacturer must approach each discussion with the common goal of creating success for both partners, Severin said. Both companies must change their “mental approach” to these discussions. One way to do this is to focus on the shopper as each company’s common ground because if the shopper doesn’t return to buy the product, neither company wins. Additionally, both companies must be transparent during these discussions. Retailers should reveal what their desired margins and terms. Manufacturers should reveal their cost structure and the supply minimums needed to make a profit.
To achieve collaborative innovation, retailers and manufacturers must be willing to share information, Brandeisky stressed. Retailers have tremendous shopper insights, which can be extraordinarily valuable in identifying what could be a success within their stores, while manufacturers are able to identify broad consumer trends within their categories. And both companies need to make a commitment to join together for the long-term to drive success, including when designing and developing a product. The burden of success cannot be limited to one side. Both retailers and manufacturers should co-invest in resources and time when innovating.
A collaborative relationship also requires retailers and manufacturers to move beyond pricing. To do so, both parties must first acknowledge that they cannot "cut" their way to success. Instead, they need to determine the lowest cost for the defined quality by using a transparent approach to understand the manufacturer’s cost. Retailers might not understand how much money it takes to keep the production plant in business, Severin said. Once that price is defined, both parties could work together to create long-term commitments with cost considerations built in for fair marketplace adjustments.
Of course, for retailers and manufacturers to create successful relationships, mutual commitments are a requirement. Both parties must demonstrate commitment at the highest level of management; both must have financial “skin in the game;” and both must be willing to “course correct together” when change is necessary, she said.