There is still a feeling that if you are given convenience you have pissed someone off.” This comment by Tony Smith, sales director of Unilever Bestfoods, sums up much that is wrong between suppliers and convenience retailers.
Convenience is the big growth area yet major gulfs exist, as Andy Thornton, MD of Srcg, says in The Shape of Convenience 2005 report. “We made a rallying cry that collaborative working was fundamental to success in convenience. Two years on, there’s little evidence of change.”
In fact, relationships may have grown worse (see charts). While c-retailers think suppliers’ skills have mostly improved over the past two years, their performance in servicing the sector are deemed barely adequate.
Meanwhile, suppliers think the skills of traditional c-retailers have slipped. Only in shared information and margin and transparency do they nudge forward but then only just beyond the ‘poor’ rating.
Contrast this with suppliers’ views of big box convenience retailers, and they outscore traditional c-retailers on every measure. “Collaborative working should be far more developed in UK convenience. If we are to make any headway there must be a shift in focus across the industry,” says Thornton.
Suppliers see convenience as a way to boost margins at a time when they are being squeezed by the major multiples. Retailers, in turn, moan about unsuitable case sizes and unfair buying terms they get compared to the big boys. Suppliers complain at poor instore execution; retailers about a lack of understanding.
At last week’s Insight/Srcg Future of International Convenience conference, Sainsbury head of convenience Jim McCarthy highlighted case sizes (The Grocer, September 25, p10) while Musgrave UK chairman Eoin McGettigan bemoaned suppliers’ lack of commitment to the sector and pointed out: “We can help their products grow and reduce their reliance on the big four.”
Thornton says collaborative working will only deliver if the focus of both sides is directed towards instore execution. “Suppliers will provide support if they believe retailers have the focus and ability to deliver - that could even lead to better terms. But while convenience retailers seek the extra support, they have not realised their side of the bargain.”
Traditional c-retailers must produce their own compelling propositions rather than pitching against the big box convenience retailers when it comes to price. It may be unpalatable, but convenience will always be an incremental business for suppliers whose focus is on volume. Only when suppliers show the growth and volume through convenience that is generated by retailers with a clear strategy will their top management take notice.
Suppliers will invest money and knowledge if they know where c-retailers are going and if they can align their strategies. Too often the retailer is focused on trading terms. Data sharing is absent in convenience, but not in the big supermarkets. Spar MD Jerry Marwood says his organisation is now taking steps to change its buying structure to encourage collaborative working. Srcg’s research highlighted other c-retailers that admitted more needed to be done, including TM Retail, BP UK, Jacksons, Somerfield and the Co-ops.
Masterfoods trading director, impulse, Jesper Lauridsen, says traditional c-retailers could learn from the multiples. “They need better skills and resources to do battle with the grocers.”
But Thornton alludes to one convenience retailer whose IT is “so shocking” that suppliers cannot even e-mail the buyers. “Retailers talk up collaborative working in strategy briefings and at ‘top to top’ dinners but let themselves down in the engine room where the importance has not been effectively communicated.”
Suppliers, meanwhile, must commit senior time to c-retailers and move negotiation-only relationships into marketing, category management and supply chain developments. And while stories regularly appear in The Grocer about the convenience strategies of suppliers, as Thornton points out: “For many the strategy may be no more than a random collection of tactics that fail to change very much. “
But it is not all bad news. Those taking convenience seriously are gaining benefits. PepsiCo’s convenience business is growing at more than double the market after implementation of a collaborative programme called Rejuvenation. Sales increases with partner retailers are up by as much as 35% with inventory down 39%.
And it was Greencore division Hazlewood that drew the most praise for its collaborative approach at last week’s conference, with honourable mentions from both Somerfield and Boots. The company has been working with both retailers on revamped sandwich offers - and its approach is paying dividends. “They managed to tick all the boxes,” said Somerfield project director Richard Collins.
Hazlewood worked with Somerfield to relaunch its sandwich range. The retailer wanted to raise the price of the range in its convenience stores, but not in other formats, so Hazlewood developed a separate barcode for the 31 convenience stores
Together, those stores have increased the range’s value sales for Somerfield by 43% and by 18% in volume, which represents additional turnover of £520,000 a year. Rate of sale on some lines is 70% higher than forecasts for the main chain. “It’s a big thank you to Hazlewood,” said Collins.
Srcg’s research also reveals convenience retailers’ disappointment at the lack of NPD for convenience. It is an issue that Heinz has sought to address and one that Unilever says is the only way to achieve growth in convenience. However, convenience retailers say such acknowledgments have yet to translate into a new approach.
There are suppliers that are consistently praised - Coca-Cola, Coors, Cuisine de France, Kerry and Ginsters. But on the whole much work needs to be done and the barriers to real collaboration show little sign of being lifted.
And that leads Thornton to conclude that there will be little change in the next two years. “They all need to stop paying lipservice to collaboration - just do it,” says Thornton. “Retailers and suppliers need to look at their internal operations and determine whether the functions they have and the people they employ are focused on delivering to the shopper.”