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Inside Advantage

Retailer Pressure On FMCG

Consumer behaviour, the growth of online and unpredictable seasonal changes are just some of the forces impacting sales on the high street along with outdated business strategies and time taken to adapt. Shoppers are moderating their spending, online is exploding and stores are struggling to display product fit for season. All this means that retailers are looking for ways to remain profitable and, with their direct access to the shopper and their wealth of consumer data, they are in a commanding position to get what they want!

OUTRAGEOUS MISFORTUNE: We think of Holland and Barrett as a wholesome and ethical brand but recently they demanded a minimum 5% discount from all suppliers as well a contribution towards a £3m investment in security measures for its stores. This is on top of a 12.5% retrospective discount from suppliers on international shipments negotiated last year. At the same time, their business is expanding globally and profits are increasing substantially! Is that ethical? MORE

To offset sluggish sales and bolster their businesses, retailers are putting the squeeze on suppliers as they attempt to make savings across the supply chain. They are demanding increasingly lenient payment terms and taking longer and longer to settle accounts. Many retailers have even requested backdated discounts on orders already placed or shipped. In addition, brands are faced with constant category changes and have to compete with the retailers’ own products, which often receive unfair prominence in-store.

Given that retailers absorb most of the gains in the supply chain, this puts incredible pressure on suppliers, manufacturers and brands to find ways to stay viable. If suppliers have to wait on payment or offer significant discounts, it limits their ability to invest in their operations to improve products and services and to innovate. At the same time, suppliers are facing increased labour and material costs making business ever more difficult.

So how do suppliers fight back? Some companies have decided not to give in and have chosen to take on the retailers legally, even scaling back their businesses rather than fold. Other solutions such as government intervention to encourage retailers to pay invoices early or to introduce reverse factoring programmes have been suggested. Suppliers could also reach out to consumers more directly through online channels, though this can be a costly move and threatens to damage retailer relationships which remain crucial. Innovating new internal processes can help to reduce costs but companies are often fearful of tinkering with their business models.

Perhaps the best solution is for suppliers to create more of an experience around their products to elevate their brand in the eyes of the consumer. This is the one area where a company can make its own unique impression on the market. But simply having a unique product is not enough these days, the ideology needs to run deep so that every person connected with the organisation believes in its products and in its brand. Today’s marketplace is about winning hearts and minds!

DISCLAIMER: The views and opinions expressed in this article are those of the author and do not reflect the official policy or position of our clients or any parties who may be referenced in the content.

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