Wal-Mart is keenly focused on leveraging its assets to boost the bottomline profits in an era when sluggish growth and hyper competition have curtailed top line revenue growth.
But suppliers who ensure the mega retailer has product to sell are also feeling the effects of tepid growth. Jim Hertel, managing partner with Willard Bishop consulting, said 83% of the consumer packaged goods companies it represents anticipates slow growth ahead.
Suppliers on the whole are not moving quickly enough to the e-commerce retail segment, which experts say represents the greatest potential for growth in this decade. Hertel said national brand manufacturers are finding themselves in competition with many of the retailers they supply in the era of more sophisticated private brand initiatives.
“This is bringing new wrinkles to the competitive retail landscape,” Hertel said. “Even if the retailer doesn’t have its own brand to compete directly with your product, most are growing their private label offerings and this is diverting store space, management time and attention away from national brand manufacturers.”
He said as top line growth remains tough, suppliers also have shortened time horizons for proving return on investment in this era where “productivity” is the new mantra.
Craig Rosenblum, who leads business development and e-commerce for Willard Bishop Consulting, said large mature players like Wal-Mart will likely see marketshare growth wane over time because they are already so big.
“It’s likely the newer players (e-commerce, fresh format) will further fragment the industry and then weave the new opportunities for growth,” Rosenblum said.
From the supplier perspective, Rosenblum said it’s important to have a game plan. The first movers will be those who are willing to take risks, taking advantage of the changes in population demographics and gain marketshare in return, Rosenblum said.
“There is not a better example of a first mover than Procter & Gamble as they are moving beyond consumables into digital and mobile channels,” he said.
He said the second movers like Campbell’s have less risk but are clearly evolving to better accommodate the changing retail landscape.
“Campbell’s efforts in product innovation is having a disruptive effect on its competitors, this is key for growth potential in the coming years,” he said.
Experts agree new product innovation is one of the last untapped growth avenues for manufacturers. One need look no further than Greek yogurt to see a product category that has exploded with growth in the last few years.
Carol Spieckerman, CEO with New Market Builders, said Wal-Mart continues to try and get suppliers onboard the digital train with their “retail development kit." But it is not clear how many suppliers have signed up.
Stephen Quinn, chief marketing officer at Wal-Mart, said recently that Wal-Mart’s huge scale, often seen as sluggish moving forward, would not be left in the dust. He challenged dozens of suppliers to hitch up with the Wal-Mart as they work to integrate multiple retail channels and provide genuine customer satisfaction.
“Take the Scotts lawn business. I can see Wal-Mart partnering with them on a YouTube commercial, as an example,” Quinn said. “Think of Wal-Mart as an experience platform, that you can work with for retail development kit. Seek us out proactively and increase score card performance.”
Spieckerman said, “Wal-Mart is clearly looking for ways to harness its massive multi-channel reach beyond simply serving as a distribution point for products.”
Hertel said there are a lot of retailers that can’t find a consumer packaged goods partner who is really interested in e-commerce. He said the reason could be the typical structure of a brand manufacturer’s profit and loss statement for sales and marketing. Many are spending 15% of their sales dollars on trade promotion and another 0.5% on retail coverage.
In an e-commerce world, Hertel said, the consumer is not necessarily price sensitive and suppliers could free up a lot of price promotion funding toward innovative new ways to drive demand online.
He said in an e-commerce world there is also no need for retail coverage expenditures which would push 0.5% or more directly to the bottom line.
“Manufacturers will find e-commerce very attractive based on cost-to-serve,” Hertel said.