Extensive summary of the mandatory papers for Marketing Channel Management. Included are the following papers:
1. Retailer power in the grocery industry
2. Do you really want to be an ebay?
3. How to win in an omnichannel world
4. The power of trust in manufacturer-retailer relationships
5. ...
,ARTICLE 1: RETAILER POWER IN THE GROCERY INDUSTRY (I. GEYSKENS, 2017)
INTRODUCTION
Retailers nowadays rank among the biggest corporations in the world. Through their sheer size, retailers have
become the gatekeepers to shoppers, the end users of consumer packaged goods (CPG) products. This means
that a relative handful of retailers now controls access to enormous numbers of consumers. As a result, these
retailers can confront suppliers with various demands and may temporarily stop selling certain products is a
manufacturer does not comply with their demands.
This article provides and overview of why retailers are in the driving seat. It looks at two sources of retailer
power: (1) growing retailer scale, and (2) growing retailer sophistication. Retailers have grown in scale through
internationalization, a consolidating wave of mergers and acquisitions, and buying group membership.
Moreover, retailers have also grown into sophisticated businesses, that are growing organically through multi-
channel operations and that have become competitors to their suppliers by selling private labels.
SOURCES OF RETAILER POWER: GROWING RETAILER SCALE
Larger firms tend to have more market power because they enjoy economies of scale. Retailers have achieved
these economies of scale through setting up international operations, engaging in mergers and acquisitions,
and entering buying groups.
INTERNATIONALIZATION
The fact that retailers have set up international operations has undoubtedly contributed to the remarkable shift
in power from manufacturers to retailers. In a first wave of internationalization (1970s/early 1980s) retailers
expanded to neighbouring countries. The true internationalization fever starter in the late 1980s, when many
of the industry’s main players in both Europe and the U.S. started rushing into Western-European countries
and into a variety of transition economies in Eastern Europe. They did this to reduce their reliance on the
stagnant markets in North America and Western Europe. The players that fared best (in terms of both long-
term sales performance and in terms of efficiency) were those who
- Entered early
- Entered with substantial scale
- Used greenfield investment for entrance
, - Offerd a store format that was at the same time new to the host market and familiar to the parent
company
Today, the desire of the world’s biggest retailers to seek growth beyond their home markets is still very much
alive. But the target markets have changed, and cross-continental moves, such as to Africa, have become more
prominent. However, firms entering emerging markets may need to rethink their strategies instead of using
their developed world wisdom as a default option.
Interestingly, in addition to entries, also exits have become more common. Nevertheless, net,
internationalization activity is still on the increase. The fact that retailers are starting to focus on certain regions
and withdrawing from others may be a signal that they cannot be leading players everywhere around the
world, although they can be very powerful on a more limited, regional basis.
MERGERS AND ACQUISITIONS
When entering through greenfield expansion, being early is critical to success, since being able to pre-empt the
most attractive store sites may substantially increase the sales potential of the retailer’s new stores in the
country. Firms considering an entry in countries where many retailers are already active should realize that the
most attractive positions have been taken for some time. This issue is less important when opting for a merger
and acquisition, as the retailers may acquire or merge with an earlier entrant that occupies the better locations.
Consumers exhibit outlet loyalty after a store changes ownership. Moreover, acquiring outlets with a clientele
in place leads to higher store traffic levels than the acquiring retailer could reach by opening new outlets, which
implies that acquisitions increase retailer power more than organic growth does. Besides this, larger retailers
are better able to withstand the increased competition (due to Walmart’s entry) as they have better resources
and more room to invest in strategic changes. Size can be increased through mergers and acquisitions. As such,
one merger or acquisition sparks others in a chain reaction, further contributing to overall increase in retailer
power.
BUYING GROUPS
Buying groups are horizontal, typically cross-border collaborations through which retailers purchase from
suppliers. By pooling volume and using their clout, larger buying groups can keep suppliers “on their toes” and
extract better buy-in prices than might be achieved through individual negotiation. Lower buy-in prices may
result in higher margins but also enable retailers to (selectively) reduce retail prices, which in turn may increase
retailer sales. Buying groups are the most powerful participants in the market. A study has found that, on
average, buying groups generate scale advantages for their member: group scale increases group member’s
productivity and sales and decrease their cost of goods sold.
Still, bigger is not always better. Retailers benefit less from buying group scale when the group is more
heterogeneous in terms of member size. Moreover, relatively smaller members win the least, presumably
, because they must agree with the whims and wishes of their larger counterparts. As such, when buying groups
are on the lookout for new members, they should try to attract similar sized retailers. In the same vein,
retailers that want to join a buying group should prioritize groups that are made up of similarly sized firms.
Having a wide geographic scope in a buying group allows for insight in price differentials across countries.
However, a high degree of geographic market overlap between the members of a buying group should be
avoided. Indeed, if geographic overlap is high, advantages of buying group participation are also available to
one’s direct competitors.
While a wider geographic market scope of a buying group increases retailers’ power, a wider product-market
scop (i.e., the number of different store formats represented in the buying group) does not. The narrower the
product-market scope of a buying group, the larger the beneficial effect of the group’s scale on its members’
performance. This is because agreeing on the product range to be sourced may be more difficult when the
buying group covers many different retail formats.
The influence of buying groups has risen sharply over the last couple of years also due to the following reasons:
- Some buying groups increasingly use aggressive negotiation practices and even impose sanctions on
supplier businesses.
- Retrospective bonuses tend to be demanded after almost every significant move between groups, and
these moves are frequent due to ongoing market consolidation.
- There is further pressure on suppliers as also buying group executives are frequently switching
between groups, leveraging insider knowledge of each other’s terms, and making buying groups even
more powerful.
SOURCES OF RETAILER POWER: GROWING RETAILER SOPHISTICATION
The growing retailer scale is not the only source of its increased power. What once was a simple way of doing
business has been transformed into a highly sophisticated form of management and marketing. In particular,
better availability of customer data is contributing to retailers’ power surge. Due to these data, retailers have
become much closer to the consumer than manufacturing companies. They have seized that opportunity to
diversify into different channels and to develop their own private labels.
FORMAT DIVERSIFICATION
Nowadays, many successful retailers are diversified multi-format operations. While not every store format may
be a long-term success, this diversification strategy allows retailers to target different consumers and cater to
different shopping occasions. In addition, it provides some “insulation” of their power should a certain retail
format run into difficulties.
In their diversification move, retailers are prioritizing growth channels, hard discounter concept, the
convenience channels, and the online channel. A number of retailers have ventured into the hard discounter
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller mgaroelofs. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.59. You're not tied to anything after your purchase.
