Collaboration Survival Skills: How to Get Closer to Consumers
Retailers who don't yet understand the business case for collaboration throughout the supply chain might be wise to have a chat with an investment banker.
The banker likely will talk about consolidation in the industry and the retail chains that have gone belly-up.How is that trend related to collaboration?
Retailers on the decline often have lost touch with their consumers, explains Paul Mariani, director and food and agriculture practice leader at Variant Capital Advisors, a middle market investment bank in Chicago. Collaboration can be a highly effective way to better understand consumers and better serve them with the right amount of inventory at the right price.
The specialty retailers that have come on strong in recent years work closely with their suppliers to give consumers the fresh, healthy, innovative products they've come to expect. "The Fresh Market, Whole Foods and Sprouts–they've carved out a wonderful niche. They understand their consumer better than anyone. They're picking up share with higher margin products," Mariani says.
The growth of specialty players coincides with the so-called "locavore" trend of shoppers seeking out products grown or made locally. A recent A.T. Kearney report indicates sales of local foods have climbed 13 percent annually since 2008 to become a $9 billion market. To encourage production of locally grown food, Whole Foods provides about $10 million in low-interest loans to independent producers, A.T. Kearney reports.
"What the CPGs are realizing is they need to be responsive to this change in consumer purchasing complexity....It probably calls for a more partnered or collaborative approach, so the CPGs along with the retailers can be more flexible and more responsive," Mariani says.
Variant Capital Advisors |
"What the CPGs are realizing is they need to be responsive to this change in consumer purchasing complexity....It probably calls for a more partnered or collaborative approach, so the CPGs along with the retailers can be more flexible and more responsive."IDENTITY CRISIS
At the same time, the channel conflict stemming from changing consumer purchase patterns has caused an identity crisis among some traditional grocery retailers, Mariani says. They are starting to ask, "How do we stay in front and satisfy our consumer and not lose share, and importantly, [how do we] grow share?"
Retailers and manufacturers both stand to come out ahead from reduced costs and increased sales when they relay information about demand forecasts and inventory supply. While retailers such as Walmart have developed their own platforms for the exchange of supply and demand information between the retailer and its vendors, the industry lacks a universal protocol, making it cumbersome for brands that serve many retailers, says Amitabh Mudaliar, associate vice president at Infosys in Atlanta. "We have had numerous conversations with the large players. Everyone gets the concept and [some] are starting down the journey, but I don't see anybody doing it today. It's just too complex," Mudaliar says.
WHERE'S THE TRUST?
In the United States and abroad, technology improvements designed to make the flow of information throughout the supply chain more efficient are becoming more prevalent, but a tool has yet to be invented that will solve what many say is the biggest obstacle to collaboration: trust.
"The reality is, you've got to be careful with the data, but the data is a terrific tool," Mariani says. "At the end of the day, it's going to benefit the retailers" to share it.
Perhaps the importance of transparency is best learned from a food safety crisis, particularly one that ultimately shuts down a company, says Michael Bromme, executive vice president of global customer development at Trace One in Boston. "We're not in a business of saying we're going to eliminate your food safety crisis, but we do gather information and allow owners of the brand to more effectively manage their trading partners," he says.
Trace One |
"We're not in a business of saying we're going to eliminate your food safety crisis, but we do gather information and allow owners of the brand to more effectively manage their trading partners."WISCONSIN CO-OP
The Wisconsin Food Hub Cooperative, which includes about 100 family farms from 27 farmer entities, sprouted up to help family farms become more productive by sharing infrastructure to reduce expenses, while also helping to expand access to the farmers' fresh produce and improve traceability.
"Certainly food safety is of the utmost importance to the cooperative, and creating the traceability logs so we can trace all the way back to the farm and which field they came from, that's one of the projects or programs of the co-op," says Sarah Lloyd, interim general manager.
"The collaboration with the [Wisconsin] Food Hub brings fresher products to market for our customers and at the same time supports the Midwest farmers especially our [Wisconsin] farmers," says James Hyland, vice president of investor relations, corporate communications and public affairs at Roundy's, a Milwaukee-based retailer.
SAVINGS AND GROWTH
Collaboration in the supply chain often lags marketing partnerships, such as shopper marketing campaigns between a brand and retailer, because the results are less immediate and often come in the form of savings instead of top-line growth. But having sufficient inventory of a product in demand also contributes to revenue growth, says Peter Wietfeldt, partner in the retail advisory practice at PwC. "You don't want empty shelves at 5 o'clock or you're probably losing sales," Wietfeldt says.
Forecasting tends to be strongest in the fresh food categories on the perimeter of the store because the producers support the store on a more frequent basis. It's not just produce that has become a focus for grocery retailers. Fresh bread suppliers have reduced the amount of in-store bake time required by delivering par-baked products, resulting in a proliferation of fresh bakery products available in grocery stores, Wietfeldt says.
Collaboration can increase Return On Capital Employed by 30 percent through improvements in order fill rate, production sequencing, packaging, yields and accounts receivables management, says Rich Sherman, CEO of Gold & Domas Research and the author of "Supply Chain Transformation: Practical Roadmap to Best Practice Results."
"The supply chain is critical, obviously," he says. "How efficiently we can move that product to the shelf and reduce the cost associated with that makes it profitable for all the participants."
Gold & Domas Research |
"The supply chain is critical obviously.... How efficiently we can move that product to the shelf and reduce the cost associated with that makes it profitable for all the participants."WALMART AND P&G
Sherman points to Walmart's supply chain optimization as an example of how it can result in lower prices. Perhaps its most famous collaboration is with Procter & Gamble, when it worked with Walmart to reduce transportation costs by shipping full truckloads of product to the retailer, though the retailer only paid for product when it withdrew it from the warehouse to its store shelves. Collaboration between P&G and Walmart dates back to the 1980s, and the companies routinely share marketing information, with P&G developing new products or packaging specifically for the retailer for mutual gain.
The advent of mobile applications that help shoppers find merchandise and compare prices is becoming a haven for retailers looking for location-based information on consumer demand, Sherman says.
While major brands and retailers often collaborate with tech startups instead of developing new technology themselves, the innovators also are looking for partnerships to help distribute their latest and greatest inventions.
Alter Eco, a marketer of Fair Trade chocolate and quinoa with annual sales of about $15 million, has been working for the past 16 months with 30 brands from the natural foods industry on a compostable stand-up pouch that is produced without genetically modified organisms, says Mathieu Senard, co-founder and CEO. Alter Eco collaborated to achieve the economies of scale required to drive down the price, Senard says: "It's a huge endeavor. We can't do it on our own. We have to collaborate."
"Whole Foods' 365 Everyday Value is looking at this and they use a lot of volume," Senard says. "This package is going to end up on their shelves."
Alter Eco plans to launch its Fair Trade Rainbow Quinoa in the pouch this October. "We're six months ahead of everybody," Senard says. But Whole Foods' 365 brand also has plans to test the package to determine how sturdy the bag is and how long it will last on the shelf.
"I think everybody understands we need to remove petroleum-based plastic. It ends up in the ocean," Senard says. "We need a few innovative companies to push the envelope."