Private label manufacturers encounter plenty of cost-increasing obstacles when they collaborate with retailers, but their partnerships with hard discounters are much more efficient. What can we learn from that?
Name brand manufacturers often complain about the hard negotiations and difficult circumstances in which they work with major supermarket chains’ buyers, but their private label counterparts do not have it much easier according to a recent IPLC (International Private Label Consult) study. Earlier this year, the organization surveyed 113 private label manufacturers’ senior managers from all types of industries, hailing from sixteen different European countries.
The major conclusion was that the collaborations with major supermarket chains could become much more efficient. Retailers often to make things needlessly complex, lose knowledge when they replace staff members and are not always willing to engage in a full partnership agreement, which all represent lost opportunities. Remarkable to notice is that private label manufacturers indicate that their collaborations with hard discounters are much more balanced.
“You have to realize that the private label manufacturers’ relationship with retailers is very intense. Every step of a product’s development requires a lot of discussion and that requires a very efficient collaboration between both parties. If that fails, then one should look for the reasons”, IPLC managing partner Koen de Jong said.
Tough negotiations need not be a problem, but when the system fails to bring the best products to the consumer at the best possible price, then something is wrong. “It is interesting to see that they collaborate much more easily with hard discounters, which shows there is a model that does work.”
Demanding but dependable
The survey shows that it is not as complex to work with hard discounters, which makes the entire system much more efficient than with traditional retailers. For instance: there is only one person to talk to with hard discounters, speeding up the entire decision process. Even though discounters are very demanding, they are also considered to be dependable. They respect agreements much more and they have a much reliable order process.
A bottleneck when working with traditional retailers is that their buyers and category managers often leave for other positions, which means their expertise is also lost and the projects lose continuity. It is basically impossible to create good working relations, which in turn leads to “cold” numbers-focused meetings. “We never had two meetings with the same person, because of eight position changes in eighteen months’ time. It is a complete lack of respect”, one manufacturer said. Hard discounters’ buyers stay on longer, giving them more knowledge about the products and the market.
The decision process at major retailers takes a long time because several divisions have to be involved and they may have different objectives. Sometimes, it is not even clear who has the final say and internal politics obviously play a role in major organizations. Purchase alliances’ involvement also adds to the entire process’ complexity, because these position themselves between manufacturers and the national supermarket chains. Their goal is to obtain better purchase conditions by stacking contracts, which makes sense from their point of view, but often fails in reality because consumer preferences often vary between countries.
De Jong says it is true that traditional retailers have to manage more complex organizations, because they are larger and have a more extensive product range than hard discounters, “but that should be exactly why they should not complicate things further, like when they change their buyer or category manager every year. Look, if you notice that both the consumer and suppliers feel that the hard discounters are doing better, then that should be reason enough to reconsider your purchase process.”
Will the surge of name brands at the hard discounters’ stores not impact their relationship with private label manufacturers? “Indeed, the hard discounters’ organization will become a bit more complex, bureaucratic and slower, turning them into “normal” retailers in that regard. However, private label manufacturers point out that discounters know the market better, because their staff does not shift every year and because they are more trustworthy.”
De Jong has three recommendations to improve retailers’ standing with private label manufacturers:
1. Keep your staff in the same position for more than a year. This is the only way to create valuable partners who know what they are talking about.
2. When you buy something, do not only consider its pricing, because its quality will suffer and that will harm the entire private label industry. Innovation, market expertise and advice also need to be paid.
3. Treat your private label manufacturers as a full partner. “You do not need to become friends, but accept their knowledge, because then both will benefit more from the relationship.”
“In the end, private labels are no longer “me too”, they are more “me first” now. Innovation in private label brands often begins with manufacturers that have knowledge and ideas. Let retailers show off the results”, Koen de Jong remarks. You can download IPLC’s “Driving Private Label Growth through Collaboration” report here.