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There is no perfect category relationship

This blog suggests that there is no ‘perfect’ category relationship. Successful category relationships have common factors, such as trust and working collaboratively towards common goals. However, there are a wide variety of different styles of category relationships that are successful.

Normally, retail sales are used as an indicator of the success of the manufacturer / supermarket relationship. This indicator is not always apt as different manufacturers / supermarkets have different goals. The goal could be increasing retail sales, maximising market share, maximising profitability, creating a competitive advantage, maximising shareholder returns etc. I suggest a successful category relationship is when both the manufacturer and supermarket work collaboratively to achieve their goals.  

Trust / collaboration

Research into business relationships suggest that the most successful relationships rely on trust. Personally, I would also suggest a collaborative mindset is important. Others, such as Brady, use terms such as commitment to describe this mindset.

Trust and commitment are highly interrelated concepts, and if together managed effectively, are viewed as extremely beneficial as they are focused far more on a co-operative two way exchange, as opposed to power.’

Source: Brady

The impact of the rise in private label brands on supplier-retailer relationships, Catherine Sutton Brady, IMP Conference 2014

McKinsey suggests four principles for successful collaboration between CPG manufacturers and supermarkets:

  1. Codevelop long-term strategies
  2. Conduct advanced analytics at a detailed level to jointly determine where and how to place bets
  3. Set up an agile operating model
  4. Collaborate across the full value chain

McKinsey describe a successful manufacturer / supermarket relationship as:

‘transparency breeds trust. CPG companies that have chosen to be transparent in their retail partnerships – being open about their long-term strategies, sharing insights and opportunities, aligning on metrics, and seeking collaboration beyond the traditional commercial areas – have gained the trust of retailers and, consequently, have outperformed their peers.’

Source: McKinsey

Power partnerships’: Manufacturer – retailer collaborations that work, McKinsey, 2019

This research highlights that successful category relationships rely on trust and manufacturers and supermarkets working collaboratively towards mutually beneficial goals.

Relationship Dynamics

Different relationship types

Category relationships differ due to the different relationships / roles manufacturers and supermarkets have. Normally, the more retail sales involved in a relationship the more formal / structured and resource intensive the relationship becomes. Also, manufacturers and supermarkets do have different ways of managing the category management process. The different processes can create different category relationship dynamics. This often leads to a situation where a manufacturer and / or supermarket may have different types of relationships with different business partners.

For example, Coca Cola could have monthly reviews with specific budgets / goals / scorecard with a large retailer such as Walmart. Coca Cola may also employ a team of people just to manage the relationship with Walmart. This would be an example of a formal relationship that is resource intensive. Coca Cola may also have a sales representative that calls on an independent supermarket once a month. This is an informal, limited resources, type of relationship that Coca Cola is having with a different supermarket. Even though the relationship dynamics / resources are different, Coca Cola can still have successful category relationships with the different supermarkets. In both relationships Coca Cola can share their insights / expertise to highlight how best the supermarket can serve their shoppers etc. This category approach can lead to both parties achieving their goals i.e. a successful category relationship.   

Overtime category relationship processes / dynamics can change. For example, The Category Management Assocation (Category Management Mastery: The key to growth, 2013) suggests category relationships go through 5 different stages. 1 Embryonic 2 Adopting 3 Advancing 4 Excelling 5 Aspiring. This model suggests initially category relationships have limited resources (data, software) and people still have an ‘inwardly focused culture’. As the relationship develops more resources become available, e.g.  detailed shopper / store data, and the manufacturer and supermarket enter into more mutually beneficial long-term strategic plans. Some would describe this change in the relationship as moving from a transactional based relationship to a strategic relationship. Personally, I don’t use these classifications because I believe category management is a way of thinking. As outlined in my book, category management 2020, the mindset is more important than the data / insights available or how formal the business relationship is. For these different types of category relationships to be successful they require the same category management mindset – collaborative long-term mutually beneficial relationships based on shopper needs.

The development of category relationships over time is similar to many other B2B (business to business) relationships. Ford explains the relationship development as:

buyer-seller relationships can be seen as a process in terms of: the increasing experience of the two companies; reduction in their uncertainty and the distance between them; growth of both actual and perceived commitment; formal and informal adaptation to each other and the investments and savings involved’.

Source: Ford

The development of buyer-seller relationships in industrial markets, David Ford, European Journal of Marketing, Vol 14 No 5/6, pp 339 – 353

Fact-based decision making

More recently category relationship dynamics have changed due to ‘big data’. Historically one on one or personal relationships between the buyer and seller were more important. Today data or fact-based decision making is more important in the business decision making process. For businesses to justify decisions such as promotional funding or ranging etc data, such as scan data, is widely used. Also, the adoption of customer centric strategies by manufacturers and supermarkets is decreasing the importance of the personal relationship between the buyer and seller. Businesses are now aligning their goals / strategies to meet shopper demands more. Numerous data sources, including scan / loyalty card / social media are analysed to better understand shoppers and then develop brands / ranges to meet their needs. The move towards fact-based decision making has changed the category relationship dynamic towards focusing on actual delivered business results rather than personal relationships.

Digital

It is widely known that technology has changed how shoppers’ shop. Technology has also changed how manufacturers and supermarkets manage relationships. Historically, many tasks were completed manually and required regular face to face or telephone meetings between manufacturers and supermarkets. Due to this regular contact individuals would develop personal relationships with others and could rely on a personal relationship to achieve a desired business outcome. Today  ‘digital’ has started to change the relationship dynamic. Many tasks are now being automated and the amount of personal contact between manufacturers and supermarkets is decreasing. Psychological factors, such as trust, are still important in manufacturer / supermarket relationships. What is changing is that these factors will be between businesses more than individuals in the future.  

Already some manufacturer / supermarket relationships have gone digital. For example, new online marketplaces such as Amazon, do not require personal interaction between a buyer and seller. In this example ‘digital’ has replaced ‘personal’ relationships. This style of relationship is still a very small percentage of total supermarket sales but are forecast to grow. Some may suggest that this style of relationship is an example of how manufacturers and supermarkets shall interact in the future. Personally, I suggest that when sales justify the expense that personal relationships between manufacturers and supermarkets shall continue.

Summation

This brief blog has highlighted that there is no perfect category relationship. There are a wide variety of different styles of category relationships that are successful. Traditionally, these relationships relied on personal relationships but now are evolving to rely more on actual business results. Also, a business can have different styles of relationships with different business partners. Successful relationships do have some common factors, such as trust and being mutually beneficial. The challenge for manufacturers and supermarkets is determining what is the best relationship style for you and your business partners. Good luck.

The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.

Thank you,

Tim Bowen