There is a lot in the press about the seeming mal-practice of Premier Foods in their demand from their suppliers for loyalty payments. There used to be a time when the manufacturers complained bitterly about the retailers negotiation tactics and the additional costs levied against new line introduction, promotional support, POS, additional space etc. It seems that the retailers are not alone in being tough to do business with and suppliers to suppliers are treated in a similarly tough manner. Buy what’s changed, why the increasingly tough stance ?
The over-arching drive for retailers is to drive revenue growth that in turn creates profit growth that in turn creates share-holder confidence and the stable increase in share price, making share-holders richer. Sounds simple, and if this lens is applied to the vast majority of big decisions retailers make then you’ll find it is true. The fact that they are continually seeking to improve their profit on products means they have to reduce the profit they give to brand suppliers, again sounds simple but is usually dressed up as something other than a straight negotiation. So the fact that brands find themselves under pressure to maintain their space and their margins is a natural consequence of the retailer’s negotiation. Add in the fact that the UK is the second largest adopter of Private Label food in the world and you realize that the brands have a tough future. If they fail to maintain an absolute primary choice to the consumer then the retailers will look at them and ask if they can evolve their own product to take it’s place. It makes innovating new product one of the most important factors in maintaining shelf space and therefore sales. Maintaining brand presence and trying to differentiate it is an equally important hygiene factor, albeit perhaps even more difficult to deliver.
Premier find themselves with a portfolio of well-known but not necessarily unique products. Products that have been copied by supermarket’s private label, making the retailer more margin and maintaining the sales without the costs the suppliers have in maintaining that brand strength. Truly Global brands will survive by mass alone but get in the least bit tertiary and the writing is on the wall. The arguments for private label are compelling, especially when you add in the loyalty some own label products can generate. Premier are trying to recoup their losses from the supply base and it appears to be an act of desperation rather than inspiration and definitely not one of innovation.
The future of brands is a tough of in the UK and the discounters private label count cannot be offering any succour. The future of brands in the UK could be in the manufacturing of private labels for big retailers, board rooms have undoubtedly talked this through over the years, none of them think it the ideal but it may be the way to survive long-term.