While the proliferation of new products, personalized services, and digital channels are giving consumers more shopping options than ever, they also are making it tough for traditional retailers and consumer goods manufacturers to capitalize on the demand being created. Succeeding in this environment will require a new level of seamless retail-supplier collaboration.
The retail and consumer goods marketplace is undergoing sweeping and profound change. Companies that historically have been competitive are struggling to keep pace with shopping preferences that are evolving at an unprecedented rate. Investing more in areas, such as new product innovation and development, marketing, supply chain management, and customer service, will no longer be enough to remain competitive. Growing consumer reliance on social networks as channels of mass peer interaction and influence; adoption of mobile and smart technologies; and a greater desire for price transparency and information – typically via online channels, is increasingly influencing purchasing decisions.
Underscoring this shift is a recent Accenture, comScore and dunnhumbyUSA study revealing that shoppers’ online experiences with consumer packaged goods brands can influence up to 35% of total in-store brand sales in the United States1. As shoppers’ adoption of digital technologies and social media grows, most likely so will their desire for greater connectedness, more knowledge about product and competitor promotions, and their expectation for on-demand access and full engagement. To further engage shoppers, traditional retailers and manufacturers will need to seize upon the opportunities these trends represent. And, be prepared for the considerable challenges they pose in terms of greater competition like new entrants that offer online shopping innovation in the form of group promotion deals, loyalty strategies, and mobile shopping.
Moreover, companies will need to be ready to contend with an industry that is slowing. In nearly every food, beverage and personal care category, the consumer price index increased at a greater rate than actual dollar growth from 2006 to 2011, signaling little volume growth. This suggests success for retailers and manufacturers will not come from increasing the size of the consumables landscape as perhaps it has in the past. Nor will it work for each party in the retailer-supplier relationship to be looking to maximize returns on its own. Rather, retailers and manufacturers will need to collaborate more closely than ever before, jointly sharpening their focus on constantly evolving shopper preferences to grow in the existing market.
In essence, retailers and manufacturers, as a joint-entity, will have to function as one seamless company, acting as a “virtually vertical organization” that determines what to stop and start doing to optimize today’s shopping experience.
Making collaboration work
To begin, there are a number of operating issues retailers and suppliers have in common that can best be addressed through collaboration. These include excess and incorrect inventory; ineffective product development; irrelevant assortment; saturated space and non-productive outlets; and off-target promotional and marketing investments. Resolving these core issues together will be key to enabling retailers and suppliers to develop the greater focus needed on today’s elusive shopping choices.
Achieving seamless collaboration also will mean connecting the businesses of industry partners, preparing people throughout the organizations for the transition, and truly sharing the supply chain. Given the number of participants involved, this will be a major undertaking that may require a third-party collaboration services provider to help manage the process, freeing companies to concentrate on leveraging their new relationship to meet shopper needs. Suppliers, too, may want to offer retailers financial incentives as part of trade terms and performance levels, such as reducing the cost of shipped merchandise by a few cents per case to further demonstrate their commitment and enhance collaboration.
The seamless collaborative model should be built around three key areas – strategic business planning, common platforms, and four joint partner capabilities – that will help address operating issues and place retailers and suppliers in a better position to compete. In terms of the four capabilities, manufacturers and retailers should:
1. Tailor innovation by jointly developing products that will cater to the needs of a more fragmented set of shoppers. Rather than fill shelves with undifferentiated products and line extensions, cannibalizing sales of existing products, retailers and suppliers need to focus on the rapid and flexible introduction of new products that are shopper-driven and create scalable demand within smaller markets.
2. Drive demand by delivering more tailored promotions, optimizing assortments and investments, and integrating channels. The market no longer is defined by a single group of shoppers, but rather highly fragmented segments, each with expectations of having their unique needs immediately met. Retailers and suppliers must work together to move away from mass promotions, standardized assortments and untargeted pricing and discounting.
3. Enhance and manage supply by planning together and integrating inventories to improve in-stock positions and make the right product available for the shopper at the right time. By employing cross-enterprise communications, multi-level collaborative planning and more precise tracking technologies, retailers and manufacturers can improve forecast accuracy, inventory visibility, and time-phased replenishment. Moving beyond CPFR (collaborative planning, forecasting and development) into a new era of cross-enterprise sales and operations planning will enable both companies to have greater trust in their demand forecasts, which will mean pushing inventory through with greater confidence and efficiency.
4. Assure execution by sharing data, including analytics engines for predicting what “will happen” not what “did happen”, and better managing the growing number of distribution points. Also, driving in-store efficiency by using out-of-stock demand-signal sensing and visual merchandise recognition technologies to ensure what is available on-shelf accurately reflect joint retailer-supplier forecasts and plans. These technologies can lower labor costs and allow in-store labor to focus on new strategies for the outlet
While the success of collaboration will be reflected in real performance improvement metrics between trading partners, the ultimate measure of success will be the enhanced relationship developed with shoppers. Whether this improvement is an increase in the frequency of trips to the store, buying a particular brand, improved acceptance of new products, or a better purchase experience, these are the results retailers and suppliers will need to focus on in a seamless, collaborative way to achieve high performance in today’s unpredictable marketplace.
Renato Scaff is an executive director and management consulting lead for Accenture’s Retail practice. Scaff can be reached at firstname.lastname@example.org. Mark Allen is a senior manager in Accenture’s Products operating group. He can be reached at email@example.com.
1. “Accenture, comScore and dunnhumbyUSA study shows direct correlation between CPG brand websites and purchase behavior” (press release); Accenture, comScore and dunnhumbyUSA, January 30, 2012.