July 15, 2013
Do CPGs Play Favorites Where Big Chains Are Involved?
Among the list of complaints I’ve heard with some regularity over the years from retailers is that consumer packaged goods (CPG) manufacturers give preferential treatment to the very largest chains, Walmart being mentioned most frequently when it comes to distribution, promotions, pricing, etc.
Forget about Robinson-Patman or any statement about how CPGs conduct business, retailers have said. If a product is on allocation, somehow Walmart, Target, Kroger and the like have full shelves where others have holes. If a new product is being introduced, it finds its way to the big guys’ shelves ahead of smaller chains and independents. Some new products are "in test" for extended periods at the biggest chains before being offered to smaller rivals. All of this chafes at retailers who allege, somewhat fatalistically, that CPGs favor the companies who need it the least.
Adding to this perception that there are two sets of rules was a recent misstatement by a Walmart spokesperson that Hostess had supplied the chain with Twinkies to go on sale this past weekend, ahead of today’s planned launch date that the manufacturer, Hostess Brands LLC, had set for all retail stores.
The Walmart spokesperson, Veronica Marshall, later provided a clarification, which said the retailer received Twinkies with exclusive packaging that marked the item as the "First Batch" of the yellow snack cake with vanilla icing inside. The decision to begin selling Twinkies over the weekend was an action Walmart took independently of Hostess.
The manufacturer issued a statement, claiming it "has not, and is not, giving any particular retailer exclusivity or preference to have products first and is making a great effort to fulfill orders equally and timely to everyone."
BrainTrust
Recent Discussions
Discussion Questions
Do large retail chains receive preferential treatment from CPG manufacturers compared to smaller rivals? If yes, does something need to be done about it? What would that be?
Poll
I’m shocked—shocked!—at the idea that CPG manufacturers and other large vendors provide preferential treatment to their biggest retail customers. These can range from early launch dates to exclusive product designs to co-branded marketing plans. Industry consolidation (on both sides of the business) has only made this trend more apparent. The onus falls largely on smaller retailers to work proactively with their vendors on product development and other two-way benefits, or to develop deeper relationships with CPG companies that may not be “household names.”
Sure they do receive preference—they move the most stuff. If a retailer wants to be part of that game, they need to do something special for the manufacturer—like truly be a partner instead of someone with their hand out.
Frequently large chains receive one-of-a-kind items from manufacturers. These items, be they custom packaging, special products or bundles with free premiums, are not available to smaller chains and mom and pop stores.
In an ideal world, there would be a level playing field, but that is not going to happen. Money talks, and manufacturers need to work with their most important retailers to insure placement and sales.
This is—on its face—a silly question.
As already noted big manufacturers favor big customers—always have, always will.
The fact is there isn’t anything anyone can do about it since promotional rules can always be rigged to favor the large guy. For example, a CPG manufacturers could say that “any customer” agreeing to build over 100 displays for a new item will receive that item earlier than the general market release.
“Special packs” are yet another way manufacturers move their branded balls down the mythical level playing field.
As the industry gets more and more consolidated, this problem is going to get worse, not better. Sadly, too many have come to accept that that is the inevitable way the game is played.
Of course larger customers receive better treatment from companies they do large volumes with. This is true of any partnership, CPG manufacturers and retailers, frequent fliers and airlines, hotel guests and “high rollers” in casinos.
On the one hand you can look at “fairness” and say everyone should be equal. But as you grow with an organization and become a partnership, there will be preferential treatment given to larger customers that hold a larger stake in your business. Partnerships such as these receive “most favored nation” status and I think it’s the right thing to do if that supports your business model and growth.
In these situations I think that where it gets hairy is when companies aren’t transparent, and appear to be doing something not above board. If Walmart is your biggest customer, and you’re offering them a promotion first, own up to it. People understand taking care of a customer. They just don’t want to feel like you’ve been dishonest with them.
Large-sized retailing, like politics, is a search for more power and preferential treatment. In various invisible ways the large retail chains do receive preferential treatment from CPG manufacturers and marketers. Is that fair? No.
Unless the retail, manufacturing and financial communities can accept a new fairness paradigm in their hearts, it would seem more practical today, albeit not equally fair, to focus on attain power via creativity and customer-personalization rather than try to change the empowered and institutionalized secret system.
Smaller rivals, however, do have venues for success in this battleground. Their success venues lie within their innovative mindsets, not their bank statements.
What have I been saying for years has now reared its ugly head again. I know most folks don’t care about this subject, even as Walmart’s Twinkie sales over the weekend already proved what I have said for years.
None of the gurus who talk about business have an answer to this problem, as Independents are getting shafted from major CPG manufacturers every day, and it will not change. All the high tech marketing schemes and online advertising can not change the fact that there are 2 strikes against us, in everything we do, when it comes to building our business. My neighbor across the street had her daughters eating a box of Twinkies on Facebook Saturday, telling everyone, that Walmart has them.
How do you fight this??? You can’t, and it makes me crazy. This is what we have to deal with daily, with cereal, pop, chips, and special packs we aren’t allowed to purchase.
In the long run, I have resigned myself to keep pounding the perishables hard, and stay focused on creating deals to try and entice customers into my store with great foods that you must have for your special events. Many stores have given up, and are waiting to get out of the business, as they lost interest in the long hours, and smaller profits. I speak to many stores in my area, and it is a common complaint amongst us about being treated so poorly by the vendors.
Oh well! I hope to be around for many more years, but this is why others won’t, as it is brutal fighting a fight we cannot win. Have a great day anyway!!!
Many CPG companies do give preference to the larger chains because most have business models where the return on investment is much greater per spend. It’s the same when most retailers give priority shelf space and promotional space to the largest CPGs because most retailers believe that the larger CPGs draw the most foot traffic. Both the retailer’s, and the CPG’s thought processes are quite shallow, and sometimes very flawed, but that’s the reality of many years, and now.
Agree with previous post…a silly question, at best.
The REAL question: What can the smaller chains do that the larger ones cannot to leverage their smaller size for competitive advantage? Not an easy question to answer in the face of ‘favored treatment’ for the big guys…but one that the smaller chains have no choice but to answer.
If you have ever been on the buying or selling side of this transaction, you know this happens all the time. The “A” players play with other “A” players.
It’s supply and demand.
Beware too many eggs in one basket. I’ve heard from a small number of CPG execs over the years that when some chains say “Jump,” the only suitable response is “How high?”
This is a rhetorical question—yes? Have we not had many conversations about how the most loyal (defined by spending) customers in a retail store should get loyalty perks, discounts, and so on? Why wouldn’t the same arrangement apply to vendors and their “customers”—the large retailers?
The discussion is silly. A more interesting discussion might be around why a CPG manufacturer would not want to give preference to large retail chains.
Let’s start with the most simple question…should I charge the same for LTL shipments as for truckload shipments? Should I risk going out-of-stock in 3,000 stores versus 30 stores? This is real business, it isn’t up to the manufacturer to be nicey-nice.
Who would ever think that larger customers are not given preference over smaller customers? Larger customers ALWAYS receive more attention than smaller customers because it is a more efficient way to do business. Larger customers offer many advantages to vendors including good credit and efficiency of operations. It is not the responsibility of the vendor to prop up small operators, even though different government agencies seem to think that might be the case. Remember, this is not a socialist economy.
The purpose of 98%+ businesses is to maximize their income and the easiest way to do this is to sell to whales which allows for larger orders, quicker sales and turns, fewer stops in the distribution system. This ultimately results in lower prices and fresher product for the consumer. If a small retailer wants to complain I might suggest they are in the wrong business. PS, I don’t eat twinkies and wouldn’t walk 2 feet to get one. No retailer’s health should ever depend on Twinkies!
Ask not. Receive not. It is maybe not “fair” to give preferential treatment, but more so may be a bad brand strategy executed by default rather than by thought. Discipline in the supply chain begins at the top.
This is a complicated subject. There was a fascinating article several years ago in Baseline Magazine about the financial near-ruin that Vlasic endured after running a massive special pickle deal with Walmart. CPG companies need to protect themselves by analyzing offers carefully, and keeping all their business relationships healthy.
Is this a trick question? Should I be looking for something in the small print that leads me to the secret answer? No? Okay, yes large box retailers receive preferential treatment that includes better pricing and delivery. What’s new?
What can be done to change this when money is the loudest voice the manufacturer is going to hear?
The silly part is that the largest retailers are almost NEVER the most profitable to serve. They are easiest because they consolidate so much business in a single sales relationship, but their costs to serve are always high and almost without exception they are charging suppliers for access to their customer base at a higher level than other, smaller and more regional customers, and their store execution programs, data costs, and program requirements are quite high.
I can’t tell you how many times I have done projects with suppliers where a fully loaded P&L causes their eyes to open quite wide.
It is also NOT true that the industry is consolidating at the top. It is actually consolidating at the middle. The top 10 retailers in the U.S. have had a declining collective share of the market for a decade.
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I’m shocked—shocked!—at the idea that CPG manufacturers and other large vendors provide preferential treatment to their biggest retail customers. These can range from early launch dates to exclusive product designs to co-branded marketing plans. Industry consolidation (on both sides of the business) has only made this trend more apparent. The onus falls largely on smaller retailers to work proactively with their vendors on product development and other two-way benefits, or to develop deeper relationships with CPG companies that may not be “household names.”
Sure they do receive preference—they move the most stuff. If a retailer wants to be part of that game, they need to do something special for the manufacturer—like truly be a partner instead of someone with their hand out.
Frequently large chains receive one-of-a-kind items from manufacturers. These items, be they custom packaging, special products or bundles with free premiums, are not available to smaller chains and mom and pop stores.
In an ideal world, there would be a level playing field, but that is not going to happen. Money talks, and manufacturers need to work with their most important retailers to insure placement and sales.
This is—on its face—a silly question.
As already noted big manufacturers favor big customers—always have, always will.
The fact is there isn’t anything anyone can do about it since promotional rules can always be rigged to favor the large guy. For example, a CPG manufacturers could say that “any customer” agreeing to build over 100 displays for a new item will receive that item earlier than the general market release.
“Special packs” are yet another way manufacturers move their branded balls down the mythical level playing field.
As the industry gets more and more consolidated, this problem is going to get worse, not better. Sadly, too many have come to accept that that is the inevitable way the game is played.
Of course larger customers receive better treatment from companies they do large volumes with. This is true of any partnership, CPG manufacturers and retailers, frequent fliers and airlines, hotel guests and “high rollers” in casinos.
On the one hand you can look at “fairness” and say everyone should be equal. But as you grow with an organization and become a partnership, there will be preferential treatment given to larger customers that hold a larger stake in your business. Partnerships such as these receive “most favored nation” status and I think it’s the right thing to do if that supports your business model and growth.
In these situations I think that where it gets hairy is when companies aren’t transparent, and appear to be doing something not above board. If Walmart is your biggest customer, and you’re offering them a promotion first, own up to it. People understand taking care of a customer. They just don’t want to feel like you’ve been dishonest with them.
Large-sized retailing, like politics, is a search for more power and preferential treatment. In various invisible ways the large retail chains do receive preferential treatment from CPG manufacturers and marketers. Is that fair? No.
Unless the retail, manufacturing and financial communities can accept a new fairness paradigm in their hearts, it would seem more practical today, albeit not equally fair, to focus on attain power via creativity and customer-personalization rather than try to change the empowered and institutionalized secret system.
Smaller rivals, however, do have venues for success in this battleground. Their success venues lie within their innovative mindsets, not their bank statements.
What have I been saying for years has now reared its ugly head again. I know most folks don’t care about this subject, even as Walmart’s Twinkie sales over the weekend already proved what I have said for years.
None of the gurus who talk about business have an answer to this problem, as Independents are getting shafted from major CPG manufacturers every day, and it will not change. All the high tech marketing schemes and online advertising can not change the fact that there are 2 strikes against us, in everything we do, when it comes to building our business. My neighbor across the street had her daughters eating a box of Twinkies on Facebook Saturday, telling everyone, that Walmart has them.
How do you fight this??? You can’t, and it makes me crazy. This is what we have to deal with daily, with cereal, pop, chips, and special packs we aren’t allowed to purchase.
In the long run, I have resigned myself to keep pounding the perishables hard, and stay focused on creating deals to try and entice customers into my store with great foods that you must have for your special events. Many stores have given up, and are waiting to get out of the business, as they lost interest in the long hours, and smaller profits. I speak to many stores in my area, and it is a common complaint amongst us about being treated so poorly by the vendors.
Oh well! I hope to be around for many more years, but this is why others won’t, as it is brutal fighting a fight we cannot win. Have a great day anyway!!!
Many CPG companies do give preference to the larger chains because most have business models where the return on investment is much greater per spend. It’s the same when most retailers give priority shelf space and promotional space to the largest CPGs because most retailers believe that the larger CPGs draw the most foot traffic. Both the retailer’s, and the CPG’s thought processes are quite shallow, and sometimes very flawed, but that’s the reality of many years, and now.
Agree with previous post…a silly question, at best.
The REAL question: What can the smaller chains do that the larger ones cannot to leverage their smaller size for competitive advantage? Not an easy question to answer in the face of ‘favored treatment’ for the big guys…but one that the smaller chains have no choice but to answer.
If you have ever been on the buying or selling side of this transaction, you know this happens all the time. The “A” players play with other “A” players.
It’s supply and demand.
Beware too many eggs in one basket. I’ve heard from a small number of CPG execs over the years that when some chains say “Jump,” the only suitable response is “How high?”
This is a rhetorical question—yes? Have we not had many conversations about how the most loyal (defined by spending) customers in a retail store should get loyalty perks, discounts, and so on? Why wouldn’t the same arrangement apply to vendors and their “customers”—the large retailers?
The discussion is silly. A more interesting discussion might be around why a CPG manufacturer would not want to give preference to large retail chains.
Let’s start with the most simple question…should I charge the same for LTL shipments as for truckload shipments? Should I risk going out-of-stock in 3,000 stores versus 30 stores? This is real business, it isn’t up to the manufacturer to be nicey-nice.
Who would ever think that larger customers are not given preference over smaller customers? Larger customers ALWAYS receive more attention than smaller customers because it is a more efficient way to do business. Larger customers offer many advantages to vendors including good credit and efficiency of operations. It is not the responsibility of the vendor to prop up small operators, even though different government agencies seem to think that might be the case. Remember, this is not a socialist economy.
The purpose of 98%+ businesses is to maximize their income and the easiest way to do this is to sell to whales which allows for larger orders, quicker sales and turns, fewer stops in the distribution system. This ultimately results in lower prices and fresher product for the consumer. If a small retailer wants to complain I might suggest they are in the wrong business. PS, I don’t eat twinkies and wouldn’t walk 2 feet to get one. No retailer’s health should ever depend on Twinkies!
Ask not. Receive not. It is maybe not “fair” to give preferential treatment, but more so may be a bad brand strategy executed by default rather than by thought. Discipline in the supply chain begins at the top.
This is a complicated subject. There was a fascinating article several years ago in Baseline Magazine about the financial near-ruin that Vlasic endured after running a massive special pickle deal with Walmart. CPG companies need to protect themselves by analyzing offers carefully, and keeping all their business relationships healthy.
Is this a trick question? Should I be looking for something in the small print that leads me to the secret answer? No? Okay, yes large box retailers receive preferential treatment that includes better pricing and delivery. What’s new?
What can be done to change this when money is the loudest voice the manufacturer is going to hear?
The silly part is that the largest retailers are almost NEVER the most profitable to serve. They are easiest because they consolidate so much business in a single sales relationship, but their costs to serve are always high and almost without exception they are charging suppliers for access to their customer base at a higher level than other, smaller and more regional customers, and their store execution programs, data costs, and program requirements are quite high.
I can’t tell you how many times I have done projects with suppliers where a fully loaded P&L causes their eyes to open quite wide.
It is also NOT true that the industry is consolidating at the top. It is actually consolidating at the middle. The top 10 retailers in the U.S. have had a declining collective share of the market for a decade.