Factors that influence ranging with grocery retailers
We in New Zealand like to believe we have the most unique grocery trade environment in the world or at least in the developed world. Yes it is unique to some extent with the Foodstuffs North Island model, but nothing that can't be overcome with some insightful strategies, having the right field sales team and a relevant commercial offer. There are a number of practical factors to consider when attempting to gain ranging with grocery retailers.As is expected a number of these factors are common across most developed markets, but we are unique. Needless to say different variables of different factors influence outcomes
Margin: This is critical as most retailers net profit margins are half and below of most FMCG manufacturers. Looking at it globally P&G for FY 14 had a net profit margin of 14.1% while Walmart was at 5.7%. Yes they are different businesses, but retailers have limited room to move in terms of margin when compared to manufacturers. Therefore, having your products offer above category average margin ticks the first box. The key here is to figure out what the category average margin is. This vital piece of information can make a difference to your profitability, as in most cases, margin is a zero sum game - if you give more to the retailer, you get less for yourself. Major retailers are unlikely to tell you clearly what the category average margin is, however, they are quite vocal if your offered margin is much below. The number they want you to be at is normally a couple of points above the category average margin.
Product Substitutability: If your products are so unique (taste, flavour, performance etc.) that shoppers will not buy another product to make up for its unavailability or will change their supermarket to get it, you have a winner.The reality is most products sold in supermarkets if operating in a large, mature category have a number of substitutable brands and products at varying degrees. The stronger ones are less substitutable than others, therefore end up normally offering the retailer lower margin, which forces the retailer to try and build competitor products with higher margin.
Brand Strength & Support: Fact of business is, if you are big, strong with the largest market share and growing, you will get your products more easily ranged than if you are small and unknown...….provided your margin is acceptable. Any commitment of supporting your brands / products with mainstream media will change the lens from which your proposition is viewed. The last thing a retailer wants is a line of shoppers wanting the product but not finding it on shelves. That creates a problem for the retailer in terms of disgruntled shoppers and lost sales.
Role in Category: This is critical as it colours the lens with which the retailer views your brand, business and organisation. From a retailer’s point of view this clarifies what role you are playing in the category are you the market leader with average or low category margin, the challenger brand with a great innovation pipeline, the niche player who has not innovated since the 1970s but offers great margin and have some unique shoppers who might all die in the next 20 years or the maverick with edgy advertising and high margin offering. Whatever role you position your brand/business in, influences the retailer lens.
Flexibility and Enthusiasm: If every engagement with the retailer ends with : I need to check with London, Singapore or New York, that makes the bigger retailers wonder whether they should directly deal with London, Singapore and New York ? Having very rigid guidelines and limited flexibility to play in the local market will definitely not make you the darling of your retail buyers. Retailers understand that large global FMCG organisations have processes, guidelines and authority levels, but where that stops can influence the relationship. This includes keenness to take part in retailer driven initiatives – like special event weeks and national retailer promotions. If your brand always declines opportunities to participate because it is not part of some strategic guideline, you might find that by the time the internal guideline changes, the retailer is keen to only talk to your competitors
Supply Chain Reliability: This is a hygiene factor, if ranging and launch dates have been aligned and you can’t deliver the product, then all else will matter little
There are more factors that influence decisions including things you have no control over like your competitor initiatives, new unannounced retail direction, change in category role............among others. Please feel free to suggest factors I may have missed