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Manufacturers & Retailers: Best of Friends or Worst of Enemies

Kerry Foods closure axes 900 jobs. It announced the closure last week, the result of the company losing a contract to supply ready-made meals to Tesco.

While the government is pouring millions of pounds to help boost the manufacturing sector like the 'Made Smarter programme' this announcement comes as a shock.

   Kerry Foods - which has 18 factories across Ireland and the UK - held the contract with Tesco for 19 years before it went to another supplier in October. It is great to see the support from all sections of the society rallying around the employees of Kerry Foods offering jobs, advice and consolation. The government is taking measures to minimise the impact of job closures. All these steps are like trying to stem a geyser, but the reality is most of us are left pondering with these questions.

Why did this mess happen in the first place? 

Could this have been prevented? 

Can manufacturers learn a lesson from this and prevent the repeat of this scenario?

Are manufacturers too reliant on retailers?

In this article, we will discuss how manufacturers can stop being too reliant on retailers and instead form an effective partnership. 

Manufacturers should be looking for clues.

Manufacturers should look for two simple clues. Does it sell goods faster than it pays for them? i.e. does the retailer have a working capital gap and if there is a gap, is this a result of efficient operations or delayed payments to suppliers?

 The ideal situation for a retailer is to have a negative difference — to sell products faster than they are paid for.

Manufacturers have the knowledge to provide retailers with market intelligence, sales guidance and buyback programs to address those retailers that are most concerned with working capital efficiency and can thus form an effective partnership.

Exclusive Product Partnership

Manufacturers can also consider developing exclusive products or assuring retailing companies that they will be the first to receive new products.

Manufacturers should also take advantage of other tools for building close relationships with retailers, including package design and logistics that minimise handling costs and transit time.

Manufactures working jointly with discount retailers

A study of European discounters found that there are three ways that national brand manufacturers and discount retailers can cooperate profitably. First, the price differential between the national brand and the private label must reflect the perceived quality difference. Second, the price of national brands at the discount store needs to be lower than at mainstream retailers. And third, because discounters frequently offer products in large quantities, manufacturers should invest in packaging and case designs.

Power of Information Sharing -Big Data

Some retailers, like Tesco, have seized opportunities to jump ahead of their competitors by connecting information about transactions with data about individual consumers, thereby enabling them to know who buys what when, and at what price, their ability to understand and target individual consumers 

Consumers cite the Clubcard program as the No. 1 reason they want Tesco rather than a competitor to open a store in their neighbourhood and as the leading driver behind their decision to switch to Tesco for their regular shopping.

Unfortunately, not all retailers can exploit the Loyalty card scheme to their benefit; they just use it as a way to offer a discount.

Manufactures have a big opportunity here. Many manufacturers have the experience that can help retailers use information more effectively. E.g. Retailers have access to only their store, but manufacturers can see the bigger picture as they sell to other retailers. By sharing their experiences and knowledge, these practices can be profitable for both the retailer and the manufacturer.

Creating own Loyalty Brand

Manufacturers have opportunities to construct their own loyalty programs and use them collaboratively with retailers.

Manufacturers can create their own label.

Manufacturers that manufacture private labels can encourage the retailer to position the private label to compete with other national brands and differentiate their own products with distinctive packaging, product sizes and quantities.

Manufacturers with extensive category knowledge can make real contributions. Retailers want to broaden their offerings into mostly uncharted territory, including ethnic foods, nutritional supplements, organics and environmentally friendly items.

Manufacturers can often their extensive experience across the world, allowing retailers to be more regionally focused.

The grocery business is challenging for both manufacturers and retailers. With skinny margins, intense competition between manufacturers and between retailers, and swift change in technology & other factors, there are incentives for retailers and manufacturers to find ways to cooperate. When manufacturers work with retailers to optimise shelf layouts, or when retailers approach manufacturers to reach specific consumer segments, they both gain by moving more volume and appealing to more consumers. Manufacturers can enhance their competitive positions by not just negotiating on prices but rethink their strategies toward retailers.

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