Global retail challenge to manufacturers (part - 1)

(Nirmalya Kumar)

To be successful, manufacturers will have to learn to work effectively with global retailers. The best approach is to develop strong brands that consumers demand.

THE past two decades have seen relentless growth of global retailing. Carrefour and Metro operate in more than 25 countries, while Aldi, Auchan, Tesco, and Wal-Mart operate in more than 10 countries. It has led to a remarkable power shift from Suppliers to retailers. Historically, power in distribution channels has rested with brandmarketers like Nestle and Unilever. In contrast to these multinational suppliers, retailers were local and fragmented. Retailing was dominated by the owner-operated sector, romantically referred to as "mom and pops." Therefore, retailing acquired an image of being a simple, unsophisticated business, undeserving of attention from superior trained minds, be they academics or MBAs of prestigious schools.

In this environment, supplier organisations were optimised for trade relations with small and, local retailers. Structurally, manufacturer organisations typically coalesced around products or countries. In terms of policies and practices, these suppliers were predisposed towards utilising their coercive power over retailers to achieve distribution objectives.

Today, the five largest global retailers may account for almost half of a consumer packaged goods (CPG) company's revenues. This gives these retailers tremendous negotiating clout, which they are known to exploit rather aggressively. Serving end-users through powerful international retailers presents a momentous challenge for manufacturers because it requires them to morph their organisations from being country- and product-centred to becoming customer- and relation¬ship-centred. It demands changes at several levels.

Nothing is as useful as a well-developed, well-articulated strategy for global accounts. It guides key account managers and customer development team leaders when they are face-to-face with global retailers and under tremendous pressure to cede to everything the retailer demands. A clear strategy gives them the confidence to say to important global ac¬counts: "No, we don't do that,' with the knowledge that they have top management support.

Global retailers push strong brands and use private labels to displace weaker brands. Consequently, manufacturers need to take a long, hard look at weak or local brands. That's why Procter & Gamble has eliminated many "also ran" brands including Aleve pain killer, Lestoil household cleaner and Lava soap, while Unilever has slimmed down to 400 brands from the 1,600 brands they owned in 1999.

While prices may differ across countries, the Structure of the pricing must be harmonised. Procter & Gamble has made significant Strides in adopting simpler as well as more logical and transparent pricing policies. While they do not reveal actual prices across customers, they do share the logic of their pricing structure and therefore are unlikely to be caught in a situation where they are unable to justify their prices across different retail customers or countries.