Power Shift in FMCG How retailers are in control and what suppliers can do about it By Matthew Stych Research Director

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1 Power Shift in FMCG How retailers are in control and what suppliers can do about it By Matthew Stych Research Director part of

2 Planet Retail is the leading provider of global retailing information, from news and analysis to market research and digital media. Covering more than 7,000 retail and foodservice (HoReCa) operations across 140 markets around the world, many of the world s leading companies turn to Planet Retail as a definitive source of business intelligence. For more information please visit All images Planet Retail Ltd unless otherwise stated. Researched and published by Planet Retail Limited Company No: (England & Wales) Registered Office: 66 Wigmore Street, London W1U 2SB United Kingdom: Germany: Greater London House Dreieichstrasse 59 Hampstead Road D Frankfurt am Main London NW1 7EJ Germany United Kingdom Tel: +44 (0) Tel: +49 (0) Fax: +44 (0) Fax: +49 (0) sales@planetretail.net sales.de@planetretail.net Website: Website: Terms of use and copyright conditions This document is copyrighted. All rights reserved and no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form without the prior permission of the publishers. We have taken every precaution to ensure that details provided in this document are accurate. The publishers are not liable for any omissions, errors or incorrect insertions, nor for any interpretations made from the document.

3 Contents Executive Summary 1 Introduction 2 Retail scale & consolidation 4 Customer-centricity 7 Globalisation 11 Global buying? 14 Private label 18 Product proliferation vs. range rationalisation 23 Promotions: Confrontation vs. collaboration 32 Packaging & sustainability 37 Loyalty cards & shopper insights Planet Retail 2010

4 Planet Retail

5 Executive Summary T he advent of hugely dominant national and international retailers is confronting vendors with powerful entities that can insist on change. These demands can impact prices, promotional programmes, marketing support, supply chain, sustainability initiatives, packaging, sales volumes and profitability. Other initiatives from large retail customers are wreaking a seismic impact on the vendor community. These can include a drive for higher private label penetration, SKU rationalisation, inventory reduction and (with hitherto limited success) attempts to create regional or global buying/pricing agreements. Retailers are well en route to becoming the gatekeepers to shoppers, the end users of FMCG products. Collaboration and data sharing will be absolutely essential in order to ensure both suppliers and retailers are targeting the right shoppers. Ultimately, suppliers must move away from purely transactional relationships with their retail customers and more towards a partnership based on shopper insights. Most international retailers will continue to expand into new markets, with a focus on the emerging markets of Latin America, Eastern Europe, the Middle East and Asia. While new market entries will disrupt traditional retail channels and potentially drag down margins, a partnership and strategic alignment with major global retailers would be advised for most suppliers. Global buying will be further developed for non-resaleables, private label, certain non-food categories and certain unbranded commodity items. Despite the best efforts of major retail groups, global buying on branded grocery will be a drawn-out and problematic evolution, and in all probability, FMCG buying will continue to be a highly localised affair. The economic and brand-building rationale behind higher private label penetration is compelling: private label share will continue to increase across all markets, virtually all retailers and in the majority of categories. Vendor reaction to private label growth can take many forms, but there can be no real substitute for a long-term mix of innovation, marketing, category authority and collaboration with retail customers. SKU rationalisation has been a partial success: ranges and the shopping experience have been simplified, inventory has been reduced and stores have been decluttered. However, some retailers have made mistakes and selected SKUs are being added back into the mix in some instances. Expect greater demands from retailers for shopper insights and data as they seek to optimise assortments. Retailers through the development of increasingly sophisticated loyalty marketing schemes and insight capabilities increasingly own the shopper, squeezing out the relevance and efficacy of vendors traditional marketing efforts. Collaboration between vendor and retailer is therefore becoming a pre-requisite of doing successful business with major FMCG retailers. - Planet Retail