Page 270 - Performance Leadership

Chapter 14 Supermarket Performance Network • 259

Consumer Packaged Goods (CPG) Suppliers
Full-service supermarkets cannot afford not to carry the A brands in
their assortment. At the same time, distribution, pricing, promotions,
and eye-height shelf space compared to their competitors is crucial
for the CPG suppliers. Sometimes this power balance is disturbed.
For instance, if supermarkets start a price war and try to recover part
of the loss of margin from the CPG suppliers or if private labels
come close in quality to CPG trademarks. CPG suppliers and super-
markets often have a very transactional relationship, focusing on
price and quantities for special promotions. The relationship is pri-
marily based on contractual trust, or, in order words, basic ethical
behavior.
At the same time, the relationship between CPG suppliers and the
supermarket has one important characteristic of an added-value rela-
tionship: value-chain integration. The large brands are delivered on a
continuous basis to the distribution centers of the supermarket based
on online sales and stock information. For some brands, the suppliers
even manage their shelf space in the individual supermarkets them-
selves, a concept called rack jobbing. However, within this transactional
relationship value-chain integration is simply needed to deal with the
large volume of products being delivered on a daily basis, not a better
relationship per se.
If both stakeholders are happy with the relationship, there is no need
to change. However, from the supermarket perspective, there are ways
to intensify the relationship. For instance, there are examples of rela-
tionships where a retailer and a few strategic suppliers discuss their
mutual margins, creating a deeper level of transparency. The retailer
understands that by leaving more margin for the supplier in the price
negotiation process, the supplier is able to invest in a process and infor-
mation exchange to improve the logistical process, leading to cost sav-
ings far beyond the savings achieved by squeezing more margin out of
the supplier. In this case the supplier has an added-value relationship
with the supermarket.
Supermarkets should also consider sharing point-of-sale (cash regis-
ter data) analysis. Consumer packaged goods (CPG) suppliers can save
some money on the data they obtain from the market research agen-
cies. But more important, supermarkets can share sociodemographic
information with CPG suppliers, where their products are sold for local