Collaborative Success by the Numbers
What's a successful collaboration worth to retailers and brands?
The value of working together for a greater outcome than either participant could achieve on its own might not be a line item on a balance sheet, but success stories abound in the grocery retail space.
Consider Blackhawk Network, the gift card mall incubated within Safeway's corporate walls in 2001 when the market for gift cards was still emerging. Fourteen years later, the stand-alone publicly traded company was worth about $2.39 billion as of Aug. 7, when Blackhawk's stock was trading near its 52-week high of $46 a share.
"Blackhawk became the most successful little venture inside of Safeway and ultimately returned to Safeway shareholders $1.3 billion."
Equally impressive is Blackhawk's track record of pulling together more than 600 brands in a network with more than 198,000 locations. "Blackhawk became the most successful little venture inside of Safeway, and ultimately returned to Safeway shareholders $1.3 billion," says David Tate, senior vice president, who has been at Blackhawk since its inception. Safeway spun off the company in April 2014, a year after it issued a 19 percent stake in an initial public offering.
While Blackhawk Network might have been unusual in its success in garnering space in supermarkets and gaining market share in gift cards, collaboration has become the de facto method of building efficiencies in grocery retailing. It exists throughout the supply chain, as businesses large and small work together to produce, transport and merchandise food items. And it's often at the heart of innovation, as retailers and brands embrace cutting edge products and technology developed by external partners.
SHORTCUT TO SKILL
At its core, collaboration can provide a shortcut to developing a skill or process in-house. Unlike a full acquisition, an alliance or partnership allows retailers to tap experts with a breadth of industry knowledge, and a collaborative arrangement also provides more flexibility.
"The fact we are a neutral and quasi-neutral party helps, and the fact we've built up all this expertise across so many different areas [means that] we almost instinctively know what the goals are," says David Matsil, president of business development at New York-based Enhanced Retail Solutions, a provider of retail analytic and demand planning solutions for suppliers and retailers. The company offers software-as-a-service as well as consulting.
"We serve a whole ecosystem. We both work with retailers and suppliers and their licensors, so that gives us a nice 360-degree view of the industry and helps us with insights that our clients wouldn't necessarily have," Matsil says. By helping customers understand the analytics and act on the information, Enhanced Retail Solutions boasts a return on investment of 6,500 percent, Matsil says: "For every dollar they spend, they get $66 back in increased sales or increased profits."
Through collaboration, retailers and brands can eliminate their shortcomings cost-effectively while continuing to focus on their strong suits. Tapping another company's expertise is akin to going to a specialist for a health issue, says Andrew Levi, CEO of Blue Calypso, which develops mobile shopper engagement solutions for retailers.
"You can self-medicate a medical issue, but does it make sense to cut yourself open and perform surgery? Absolutely not," Levi says. "So you'll go to somebody with expertise. They're not learning as they go; they're skilled at solving a problem."
While Blue Calypso provides its short-code text-messaging marketing platform to retailers in a collaborative fashion, it also works with Adventi Media Inc. and Marketing Management Inc. to round out its shopper marketing offerings for retailers. By partnering with other players, Blue Calypso also can offer retailers digital store circulars, product information, promotional offers and in-store marketing messages sent to shoppers' mobile phones. Its data analytics can tell the retailer where the consumers were when they activated and exactly what they did with the content.
"We have an IT department, but they really don't have the expertise in [mobile], and we are just in the learning process," says Bill Davidson, general manager at Minyard Foods in Carrollton, Texas, which is working with Blue Calypso to add a mobile program to 12 newly acquired former Safeway and Albertsons locations with a younger demographic. "We're a small company and we don't have a lot of resources, but this is something we can do and measure. And it worked so well, we think we have to expand."
Effective collaboration also can turn around a broken business model, as the early success of Instacart is proving in the home delivery space that has been a logistical problem for many retailers. Instacart requires retailers to choose them as their exclusive delivery partner and pay for the service it provides on a per-order basis that includes picking, delivery and the back-end technology to capture orders online. It also offers marketing support, and Instacart's brand attracts new shoppers to many retailers.
"I would say, especially early on, we were met with a lot of skepticism. The industry has been there, done that," says Nilam Ganenthiran, vice president of business development and strategy for Instacart. The failures of early players, such as Webvan, contributed to the skepticism, he says.
But after explaining its cutting-edge technology, the speed-to-market advantage of partnering and its overall value proposition, Instacart has added retailers of all sizes, from Whole Foods and Mariano's to independents.
"Instacart is able to deliver the service that is more cost-effective than anybody could do themselves in-house," he says. And requiring exclusivity provides a simpler solution and ensures the financial sustainability of Instacart's offering, Ganenthiran says.
Even so, it takes time to build trust with retailers. "The retailer has to get to know you as a provider," Ganenthiran says. "These are true strategic partnerships."
Pete's Fresh Market, a chain of 11 stores in the Chicago area with plans to open its 12th store in September, is partnering with Instacart to offer home delivery. "This is unusual for us. Being family-owned and operated, we tend to do everything ourselves," says Vanessa Dremonas, executive officer. "The fact we're trusting another company and bringing them into our operation is a big step for us."
Pete's decided to pay Instacart to provide home delivery because it had the system to manage the process cost-effectively while also ensuring its workers would carefully pick orders. "Can we do this better ourselves? Not right now. We said, let's find the best of the best and tackle this growing demand we're not really comfortable with," Dremonas says.
" We said, 'Let's find the best of the best and tackle this growing demand we're not really comfortable with.'"
Pete's Fresh Market
Collaboration picked up steam during the recession and has continued to accelerate, says Ric Noreen, managing partner of Waypoint Strategic Solutions in Vernon Hills, Ill. "When business was tough from 2008 to 2012 or '13, I just think it opened people's minds to different ways of doing business," he says.
"When business was tough from 2008 to 2012 or '13, I just think it opened people's minds to different ways of doing business."
Waypoint Strategic Solutions
At the same time, as the marketplace became more fragmented, reaching consumers became increasingly difficult and expensive. Slim profit margins encouraged retailers, manufacturers and other vendors to pool their resources for a singular dialogue with shoppers, while the explosion of point-of-sale data has provided retailers and brands with a common language and a means for measuring success, he says.
To be more efficient, retailers increasingly are working with brands on joint business plans, which include mutual growth objectives, Noreen says. For example, Target Corp. invites manufacturers to an annual Marketing Partner Summit where its leaders explain the company's strategic priorities, timetable and overarching expectations, Noreen says. "As a result, Target is successful in long-term growth planning and development. They have all their manufacturers rolling in the same direction," he says.
The summit is "also a chance to discuss the business–what is working well for our guests, as well as where we should consider changing our approach to even better meet guests' needs," says Target spokeswoman Erin Conroy. "We want our vendors to be our partners in the truest sense. Delivering a great guest experience is Target's goal, and collaboration with our partners is a critical component of making our goal a reality."
Target also has embraced the brand power of the products it stocks, Noreen says. Target is "absolutely unabashed about promoting the brand equities of the major vendors, because they know their shoppers understand those brands and their ability and their innovation and that there's a rub-off on Target itself."
STARTING AT THE TOP
Blackhawk Network also understood the power of the brands it collaborated with, and went for top-tier merchant brands from the start. When Nordstrom agreed to sell its gift cards through Blackhawk, it became easier to persuade others to participate.
"Getting the first few large companies that had big brands was critical," Tate says. The next milestone was persuading Steven Burd, who was then chairman and CEO of Safeway, to agree to allow other grocery retailers to offer the gift card mall in their stores. "He had the No. 1 gift [card system] that was growing exponentially. It was driving incremental traffic to his store, traffic that would have gone to Hallmark," Tate says, so allowing competitors to participate required a leap of faith.
But in 2003 Burd agreed to add grocers in the Northeast, where Safeway didn't have a strong presence. Then the Northeast supermarkets had similar success, with the mall attracting incremental shoppers who often picked up other items in the store. And on the redeeming end, participating merchants reported gift card recipients often spent more than the value of the cards in their wallet.
As a result, Tate recalls, in 2004 Safeway's directors decided to open the mall to other U.S. retailers throughout the nation: "We passed that tipping point. The board said we should go everywhere."