No-one is disputing that shelf-ready packaging (SRP) works. Suppliers and retailers agree that it improves availability, makes better use of space, reduces breakage and boosts visibility - all things that should, in theory, drive sales. So why is it suddenly one of the most contentious issues in the grocery market?
It is a question that goes to the heart of the buyer-supplier relationship. And, once again, the fault lines are over who should pay and whether retailers are making unrealistic demands on suppliers.
Tesco sparked the debate with its bullish plans to switch 10,000 chilled, ambient and fresh products by the end of the year.
Suppliers say this is putting the cart before the horse and doesn’t allow enough time for testing changes to operating processes and machinery. Many are also angry about having to foot the bill, even though the amount will vary.
Suppliers being asked to provide shelf-ready trays, with a lid or side that can be opened by a tear strip, face an initial outlay for new packaging design but not for major operational or mechanical changes. However, some are being asked to supply their brands on wheeled merchandising units, an expensive undertaking if they have to develop new processing technology or factor manual packing into automated systems.
As one senior source from a major brewing company puts it: “While these units are excellent for retailers, they create major operational problems for suppliers, who are set up to pack different-sized units. Getting around these issues would have a significant impact on margins.”
Yet, as Commercial Advantage Consultants chief executive Aidan Bocci points out, not many suppliers are going to be able to say no to Tesco now that its decision on SRP has been set in stone - or, for that matter, to the other retailers that are queuing up to follow suit. The only consolation is that they appear to be adopting a less aggressive approach than Tesco.
Asda’s general manager for package and process,
Alex Elberg, insists that it is taking a collaborative approach on SRP.
He says: “We are certainly interested in SRP, but we will only implement it when and where we feel it is appropriate. For us to consider SRP in a particular category, it must meet three conditions. The most important of these is: do we have the right case size? And we feel that there is still work to be done about this in many areas of our stores. It is also critical that SRP makes it easier to merchandise shelves, and whether it will improve availability.”
Elberg says Asda is taking a pragmatic approach. “We are talking to our customers to find out what solutions are most appropriate for them,” he explains.
Keith Prosser, programme manager for SRP at Sainsbury, confirms that it too is looking at SRP, but adds that it has no plans for an aggressive roll-out.
“We are in the middle of a category-planning process and will be aiming to develop appropriate timelines for implementation,” he says.
On the thorny issue of who should pay for the developments, Prosser is adamant that it shouldn’t be the consumer.
He argues: “The business case for SRP has been proven. Together with suppliers, we have to find a cost-effective solution that takes in a timely investment in order to achieve the best results. We do not want the consumer to notice it.”
Tesco’s announcement has certainly opened the debate and has inadvertently got retailers and suppliers talking constructively about it through the IGD.
Tesco, Asda and Sainsbury have all worked closely with the IGD and suppliers to find common ground and help interested parties come up with industry-wide solutions.
IGD’s Blue Book on SRP, which will be available next month, sets out SRP definitions, why it is needed, and key considerations and steps in order to help implement it.
The suppliers’ natural concern is that this is yet another cost thrust upon them in an already tough trading environment. Sales may improve as a result, but will they be enough to make the initial investment worthwhile?
Bocci argues that suppliers should try to turn SRP to their advantage. It should be seen as another aspect of their trade investment, rather than another add-on cost to manufacturing, he suggests.
The smart manufacturer will be able to find the right balance between investment in SRP and less visible trade spend, he says. If they take an in-depth look at where their trade monies are going, they would be able to reduce spend in areas where the returns are not as good and re-invest it in any number of areas, including SRP.
Bocci says: “Too often manufacturers become defensive when asked by the retailers for help. They shouldn’t be. Suppliers should take advantage of the situation to build better relationships with retailers.”
He adds: “Retailers do not have all the answers, so the proactive supplier should go to the retailer with solutions. Too often, suppliers don’t communicate with their customers. Yet, developing SRP with a retailer gives suppliers access to trading directors and the people who can make a real difference at store level.”
Bocci says he is not suggesting that suppliers should meekly accept retailers’ demands. He says: “Retailers don’t actually like yes men. They like suppliers who can offer ideas and will often compromise if it is to both parties’ advantage. The truth is that retailers are not just trying to shaft suppliers all the time, but if you aren’t the one who is in there from the outset offering these ideas, then one of your competitors will be.”
Bocci did offer one caveat for suppliers and retailers alike. He says there is likely to be a dilution of the benefits on SRP as it becomes an accepted industry norm.
He warns: “The spectacular results in terms of availability will not continue at the same levels over time. Manufacturers should take this into consideration when assessing how much to spend.”
In other words, SRP is going to make a huge difference in the short term, but it is not the panacea to all availability ills in the long term.
It will also need constant monitoring if it is not to fall victim to the next great idea in a few years’ time. And, if this does happen, we will no doubt see the same round of arguments taking place all over again.