One does not have to rely on wizards, stargazers or tarot cards for a reasonably accurate prediction of what is going to happen in the U.S. CPG industry over the next few years.
What one has to do is focus on the current (or emerging) demands and business objectives of the industry’s mega-retailers in each trade class and the picture becomes quite clear.
The key take-aways, however, are how these changes will affect CPG brand marketers and what CPG brand marketers can do today to ensure that they are positioned properly to take advantage of these changes versus getting buried by them.
For those of you who think that trade promotion inefficiency is your number-one issue, listen up.
There is a lot going on in the CPG retail community, which for most manufacturers could go unnoticed until too late. This is particularly true of second- and third-tier manufacturers who do not have the luxury of top-to-top access to mega-monster account decision-makers or who are primarily trade-dependent for brand survival. Key trends and current priorities you should know about are:
1. Mega-retailers are changing relationship rules for everyone. What they do now will eventually filter down in truncated forms to second- and third-tier accounts as "policy." Current priorities:
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- Return on Net Assets (RONA) -- not just "profitable sales" or share growth
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- 100 percent vendor-financed inventories -- meaning longer terms, shorter lead times, pay-on-scan, etc.
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- Global sourcing, global contracts and centralized buying -- which cut across all geographical boundaries and which leverage lowest production/labor costs on a worldwide basis
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- Look for additional ways to transfer costs of doing business to the supplier community.
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- Change scorecards to evaluate the entire cost/benefit of a supplier relationship across activities, categories and markets -- not just on year ago sales increases or on contribution to overall category growth and profits
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- De-list suppliers who do not measure up and fill the vacuum with private label
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2. Because consolidation has created a veritable combustion chamber of competition, huge pressures will increase among trade class leaders to differentiate in ways that resonate with the consumer. Critical components will be:
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- True, professionally-derived differentiated "positioning"
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- Total store ''themed" promotions requiring the cooperation and coordination of a number of different manufacturers
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- Entertainment as a key promotion component
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- Focus on most profitable customers -- dramatically improved use of frequent shopper card data and knowledgeable supplier resources to help analyze these data (no more "professors")
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- Web sites, home delivery and direct mail -- anything and everything to help build the most intimate relationship possible with big spenders
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- Store-specific marketing -- defined as targeted distribution and assortment, local tie-ins and local promotions
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- To do all this -- even greater demands on supplier marketing and promotion expertise (co-marketing)
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- To fund all this -- increased pressure on suppliers for more trade promotion dollars
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3. National brands will soon come under even more pressure as retailers adopt different evaluation criteria in the crunch for profitability, efficiency and differentiation:
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- The key criteria for any new product will be the extent to which it provides a consumer solution and contributes to overall category growth
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- Redundant brands or SKUs will be de-listed to reduce costs and improve efficiency -- a key message for "pay-to-stay" suppliers who now depend solely on trade promotion spending for survival
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- The totality of the sponsoring manufacturer's contributions or ability to meet mega-retailers' scorecard criteria will play an increasingly important part in the decision process.
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- Jacks-or-better-to-open will be how well a national brand can perform vs. the account's filling the space with its own private label (especially relevant in a recession)
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4. The entire nature of the current partnership relationship will shift as leading retailers broaden and deepen their demands on the full panoply of supplier resources. Key elements will include:
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- Category management presentations that provide consumer solutions and action steps that the account can implement within the framework of present resources in a timely manner
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- The supplier's willingness to de-list its own brands on a store-specific basis for the sake of overall category sales or profit growth on a total chain basis
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- Joint planning and forecasting to achieve mutual objectives
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- Promotions that increase consumption and contribute to image reinforcement
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- Integrated information flow
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- Suppliers' willingness to adjust terms to meet the retailer's financial criteria until supplier can improve order turnaround times
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- Joint opportunity identification and new product ideation
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5. On top of all this, mega-retailers are now becoming their own manufacturers and marketers. Armed with information and costs provided by suppliers, mega-retailers are not reluctant to invest heavily in their own processing facilities once the volume warrants it.
While this may seem limited to certain retailers at present (A&P, Kroger and Costco come immediately to mind), the safe assumption is that mega-retailers will move quickly to expand this to as many categories and products as possible, not only as a means of increasing profits but as a core strategy for true differentiation.
So how will these changes impact you as a brand marketer?
We'll explain in next week's column. 
Chris Hoyt is President of Hoyt & Company, LLC, a packaged goods training and consulting organization based in Scottsdale, AZ. He may be reached via his web site at www.hoytnet.com
