Marketing Channel Management Articles:
Module 1: Articles
Retailer power in the grocery industry - Inge Geyskens 2017:
Introduction:
Retailers now rank among the biggest corporations in the world, often dwarfing their largest
suppliers.
A relative handful of retailers now controls access to enormous numbers of consumers. As a
result, these retailers can confront suppliers with various demands – such as lower pricing,
accelerated delivery times, more tailored promotional programs, and more sustainable
products and processes – and may temporarily stop selling certain products if a
manufacturer does not comply with their demands.
2. Sources of Retailer Power: Growing Retailer Scale
Retailers have achieved economies of scale through setting up international operations,
engaging in mergers and acquisitions, and entering into buying groups.
2.1. Internationalisation:
The fact that retailers have set up international operations has undoubtedly contributed to
the remarkable shift in power from manufacturers to retailers.
Indeed, firms entering emerging markets may need to rethink their strategies instead of
using their developed world wisdom as a default option. 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.
2.2. Mergers and Acquisitions:
When entering through greenfield expansion, being early is critical to success. Indeed, 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. This issue is less important when opting
for a merger and acquisition as the retailer may acquire or merge with an earlier entrant
that occupies the better locations.
As such, one merger or acquisition sparks others in a chain reaction, further contributing to
the overall increase in retailer power.
2.3. Buying groups:
Buying groups are horizontal, typically cross-border collaborations through which retailers
purchase from suppliers (buying group AMS Sourcing). Buying groups are the most powerful
participants in the market.
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 indeed generate scale advantages for their members: group scale increases
group members’ productivity and sales and decreases their cost of goods sold.
However, 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 have to 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
similarly 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, and avoid riding the coattail of
larger retailers, a strategy that is much less desirable than it may appear at first sight.
Although a wide geographic scope allows for insight in price differentials across many
countries, which can be used to exchange information about price differences between the
buying group members and to negotiate lower buy-in prices, a high degree of geographic-
market overlap between the members should be avoided. → 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 scope (i.e., the number of different store formats represented in the buying
group) does not. The narrower the product-market scope of the buying group, the larger the
beneficial effect of the group’s scale on its members’ performance. Because retail formats
differ greatly in terms of product assortments and the consumer segments to which they
cater, agreeing on the product range to be sourced may be more difficult when the buying
group covers many different retail formats.
3. Sources of Retailer Power: Growing Retailer Sophistication
Because of retailers’ internationalization, consolidation, and buying group membership, a
relative handful of retailers now controls access to enormous numbers of consumers.
However, the enormous buying volume of a retailer is only one source of its power, with
other developments adding to it.
The 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 – to target
different consumers -- and to develop their own private labels – to increase consumer
loyalty to their chains.
3.1. Format diversification:
Diversification is an important strategic option that can be taken in search of new
opportunities. 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.
,3.2. Private labels:
Private labels, also known as store brands or retailer brands, have been extremely successful
in the past years.
Through private labels, retailers’ channel power over brand manufacturers increases
because retailers can threaten not to buy manufacturer’s products, as they now also have
private labels as alternatives. Offering a private label program thus reinforces retailers’
bargaining position and enables them to obtain more favourable terms from brand
manufacturers than would otherwise be expected under normal competitive conditions.
The vertical differentiation of private labels into premium-standard-economy tiers, and their
increased brand equity, have contributed significantly to retailers’ power rise.
Conclusion:
Retailers have become more powerful, through growing retailer scale (internationalization,
mergers and acquisitions, buying group membership) and growing retailer sophistication
(format diversification and private labels).
Internationalisation & Private labels: Retailers that are at the forefront of
internationalization capitalize on their strong private label base by offering their private label
products in overseas markets. Economies of scale arise in case a retailer’s private label sells
across multiple countries, contributing to increasing retailer power.
Internationalisation & Format diversification: Many retailers are now looking to alternative
routes to gaining an international presence – methods which carry less risk and provide
greater flexibility than greenfield expansion or mergers and acquisitions, such as online.
Format diversification into international marketplaces further increases retailer power.
Buying groups & private labels: Buying groups may provide access to own-brand ranges,
which may further increase the sales of their members. By gaining economies of scale for
sourcing private labels, retailers may further enhance their power position.
The historically fragmented retail market has rapidly moved to a more consolidated one,
with a few players holding more and more of the stakes. This is most prevalent in the
grocery market. However, concentration is also increasing in other retailing areas, such as
in electrical goods, clothing, furniture, and do it yourself. As such, the trends in grocery
retailing may forestall what is in place for other industries.
Module 2: Articles
Bell, David R., Santiago Gallino, and Antonio Moreno (2014), How to win in
an omnichannelworld, MIT Sloan Management Review, 56 (1), 45-53:
Retail customers are now “omnichannel” in their outlook and behaviour – they use both
online and offline retail channels readily. To thrive in this new environment, retailers of all
types should reexamine their strategies for delivering info and products to customers.
, Leading question: How can retailers effectively adapt to an omnichannel environment?
- Consumers’ omnichannel behaviour is spurring innovations in the ways retailers
provide information and products
- Both traditional and online retailers should consider hybrid online-offline approaches
- Hybrid approaches include inventory-only showrooms and “buy online, pick up in
store”, options
The challenge omnichannel retailers face: How can retailers provide customers with
information (about what product best suits them) without incurring downside on product
fulfilment (delivery of products)?
The best way to navigate the omnichannel environment is to:
1. Take a customer perspective
2. View the activities of the company through the lens of the two core functions of
information and fulfilment.
A customer-Focused Framework:
Asks 2 fundamental questions:
1. How will customers get the information they need to facilitate their purchase
decisions?
2. How will transactions be fulfilled?
When it comes to fulfilment customers either pick-up in store or stores comes to them with
deliveries. Which also applies to information, customer either visit the stores (offline) or
seek information remotely (online).
Before internet, 2 types of retailers:
Quadrant 1: All product info is delivered offline through stores and customer visits to take
fulfilment.
Quadrant 3: Catalogue retailers an early precursor to today’s pure-play online retailers
