Question: What drives a retailer to collaborate with a supplier?
Answer: The retailer needs to believe the supplier can provide expertise that the merchant may not be able to get on its own.
At this point, you may be thinking, “Isn't that too simple?” Couldn't all suppliers provide this? Don't suppliers know their business better than retailers? Wouldn't there be a lot more collaboration if it were this easy?
Well, it is that easy, at least in the early stages. Retailers are making that clearer.
At the recent Category Management Conference in Atlanta, sponsored by the Category Management Association, two retailers outlined what drives them to collaborative arrangements with suppliers.
At Walgreens, John Van-Renterghem is senior manager for Central Pricing, Strategic Planning and Analysis, a department responsible for non-promoted pricing of front-end merchandise involving some 15,000 items. He said collaboration is a good way to tap supplier knowledge.
“I can have my analysts do studies on some items, but this is a great opportunity for us to leverage the vendor community,” he said.
Particularly valuable are “any studies the vendor may have performed through some testing, consumer research, or other [means] that would lead them to suggest there could be a change in our pricing strategy,” he said. “It could be work their analysts have done looking at market share data, sales results, etc. A vendor may make a recommendation on price that could lead to a test.”
Walgreens makes sure to verify that recommendations aren't biased.
Now let's cross retail channels from drug store to supermarket, and you'll hear much the same perspective from an executive at Brookshire Grocery Co.
“We deal with more than 400 categories with only 11 analysts,” Keith Bejcek, category analysis manager for the retailer, told the same conference. “Four hundred category reviews is a ton of reviews. So collaboration with vendors is key.”
That's why the grocer has been growing its one-year-old collaboration program called BGC Product Insight. Brookshire shares with certain suppliers their data for a fee, and those vendors study the information to find new opportunities for collaboration.
A joint program between Brookshire and supplier Hormel Foods produced numerous performance gains for the retailer in the pork category.
Collaboration, of course, isn't just about the retailer because both sides have to benefit. But the point is, one of the biggest hurdles to trading partner relationships is bringing the retailer to the table in the first place.
Both sides also typically encounter challenges once things get underway. A recent McKinsey & Co. study found that manufacturers with the greatest collaboration success tended to cast wider nets in seeking retailer partners and eventually chose those with the greatest success potential (sales, profitability, growth outlook). The best partnerships “define a bold ambition” by pursuing growth efforts as opposed to just addressing performance issues, according to the study. They also create joint teams that cut across functional areas and track performance.
That study was unveiled at a Grocery Manufacturers Association conference in late summer, along with other pointers from panelists about what makes for successful collaboration. These included the need for focus that holds despite distractions, and the imperative to appreciate differences in company cultures and to foster trust between partners.
But all this is getting ahead of the main subject here: what brings retailers to the table in the first place. The comments from Walgreens and Brookshire make it clearer why retailers decide to get involved.
Retailers recognize suppliers are embedded in certain categories. They acknowledge that vendors can bring insights that may have a transforming impact on a piece of the retailer's business. It doesn't have to be more complex than that.