reveries - chris hoyt - nostrahoytus (part 2)

In the near future, mega-retailers will be scrutinizing their partnerships with suppliers on a pure cost/benefit basis. If you don't measure up -- look out for lingering mistletoe -- you're about to get a kiss good-bye!
Chris Hoyt

As described in last week's column (Nostrahoytus - 2002 part one), mega-retailers in 2002 will place increasing demands on the supplier community in virtually every direction -- pricing, terms, logistics promotional and labor support. They will do this while striving to take increasing control of their own destiny by strengthening relationships with their best customers, differentiating on a basis other than price and expanding their private label offerings.

What can smart marketers do to prepare for, and capitalize, on this?

Obviously, we can't comment on your specific situation or state of preparedness to address these changes. We can, however, provide certain thought guidelines that will start you on your way to the kind of thinking that will enable you to survive and thrive in this environment. Specifically:

1. The most important (and hardest) lesson for traditional CPG marketers to grasp: Mega-retailers are no longer just conduits for product or distribution points but can potentially play an important role in helping to build brand equity -- as well as profitable sales. Building brand equity must now be a dual-pronged effort; direct-to-consumer levers of advertising and promotion are now only part of the equation. The other part is learning how to leverage mega-retailers as consumer communications vehicles. For most, this will mean elevating the entire trade promotion function from a tactical to a strategic level. Brands must get involved in mega-retailer planning from the start, and work closely with Trade Marketing and Sales to ensure best utilization of funds from both strategic and tactical standpoints.

2. Learning how to work with and through your key retailers to leverage the relationships and devices these folks have initiated to capture and hold their best customers. Key to this is the understanding that time-pressured consumers are now more "self-loyal" than either "brand-loyal" or "store-loyal." They will buy what their primary retailer carries at the time of their call and rarely, if ever, make a second stop for a brand they can't get at their primary store. Being in distribution and on the shelf at the time of the consumer's call is everything.

3. Know that "service excellence" is equally as important as brand excellence in how mega-retailers will evaluate your overall "cost/benefit" to them as a supplier.

		In this context, "service excellence" is defined as enabling your key retailers to sell it before they have to pay for it.
		This will be particularly important for second and third-tier suppliers whose brands can be easily replaced by another supplier or private label.

The net: Building "Partnership Equity" with mega-retailers will be equally important as building brand equity.

4. Learn to think "category" and "solutions" versus "brand." The days of single brand end-aisle displays are histoire. In a recent store check we did in a large Safeway in Scottsdale, there were 32 available ends. Of these, six had permanent paid-for displays. One hundred percent of the balance held multi-product displays grouped as "solutions" -- some with similar brands from competing manufacturers. What fun! Now you can pay 60 percent of your A&P budget for Trade Promotion and get a partial display, side by side, with your leading competitors or the retailer's private label. Makes learning how to think about these guys strategically a categorical imperative.

5. Be prepared to make the tough decisions about where to spend time and invest resources:

		Classify and reorganize your entire organization against your most important accounts -- i.e., "vertical partnering"
		Learn to say "no" to unprofitable retailers or even entire trade classes -- sacrifice marginal volume to increase profits big-time
		Be pro-active about limiting distribution of your brands to stores in which they sell well and de-list marginal performers in all other stores -- the key to staying-in
		Limit your mega-account representation only to those people who have the authority to make on-the-spot decisions and speak for your company -- third-party resources at this level in these types of accounts are out

6. Evaluate your organization's preparedness to meet current marketplace demands as described in this article:

Get rid of the silos -- brand marketing, manufacturing and distribution personnel must obviously take a much more active role in strategizing on an account-specific basis

o Silos insulate these people from the field and make them dependent on second-hand (and often biased) input

o Insist that brand group members get integrally involved in trade promotion spending decisions for mega-accounts (and your frustration level will drop significantly)

Coordinate all activities across all categories

Insure your promotion agency understands your top accounts' objectives and requirements and has direct continuing contact with the appropriate people in these accounts

Make certain you are prepared to deliver consistent, flawless shelf and program execution at store level

CPG manufacturers who do these things will be the survivors. While this isn't a complete list, we hope it stimulates your thinking and lays the groundwork for a productive and profitable 2002.

Happy New Year!

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