In both retail and consumer product goods sectors, the gap between winners and losers widens every day. What is it about the winners that make them more and more successful, extending their lead every quarter? What are the dynamics driving this "battlefront" between retailers and their suppliers in the struggle for projects, profits, customers, and market share? What can suppliers do to win more exposure and space? To answer these questions, ChainLink Research surveyed more than 130 leading retailers and manufacturers.
The research found that the processes, policies, performance, and enablers widen the gap between winners and losers. Top-performing suppliers with high volumes and strong brands are rewarded with more shelf space and increased visibility, which further strengthens their brand and volumes. Marginal performers are "starved" out of the system. This study confirms one of ChainLink Research's key tenets: Winners and losers are determined by how well each player manages the links with trading partners (see figure 1). Disconnects in processes, perceptions, and dialogues between trading partners are a major cause of problems and competitive disadvantages.
The survey showed that suppliers often underestimate the importance of yield to retailers, while overestimating their own performance. Suppliers that understand and support retailers' goals and differentiation have a much higher likelihood of success.
Shelf-space and Category Management
Shelf-space Allocation
Four of the five top criteria used by retailers' sales volume, individual product's profit, individual product's revenue per square foot, and brand/category leadership, are directly related to the strength of the supplier's product performance, value contribution, and ultimately customer preference. Top performers get more real estate, while the losers are squeezed out.
Suppliers overestimate the importance of their overall profit contribution. Category managers want to allocate shelf space based on each individual product's role and contribution in driving profit or driving traffic. This goal is complicated when suppliers price their line as a portfolio. The retailer may want decoupled pricing to give them the flexibility to select an optimum mix.
Suppliers also underestimate the importance of seasonality in shelf-space decisions compared with retailers that ranked it as the third most important factor. This is surprising, given that suppliers must understand as well as anyone the impact of seasonality on the demand for their products. They may view it as just a given—products are either in the assortment or out in a given season.
Interestingly, slotting fees, which have been the subject of much heated debate, were rated as the least important factor in shelf-space decisions, by a large margin.
Category Management
The research also asked how far the industry has gone in the trend toward suppliers having more responsibility for restocking and replenishment decisions for the shelf space. (Note: chart for this question is not included.) Retailers said they are still responsible for about 85 percent of replenishment decisions and suppliers are responsible for only about 5 percent of those decisions, although suppliers estimated slightly higher numbers for their share of the task. Retailers said 6 percent of replenishment decisions were made collaboratively and 4 percent by third parties. The survey also asked the same question about responsibility for category management
The responses reinforced how infrequently suppliers are selected to manage categories. It also uncovers a large difference in perception. Suppliers claim to make about 17 percent of category management decisions, whereas retailers say the figure is about 3 percent. This may be due to a difference of interpretation of what is meant by "managing" the category. Retailers, even if they rely heavily on manufacturers for insight and analytics, will still claim they make the final decision.
The responses in figure 3 mask the degree to which retailers rely on suppliers' knowledge and input in making category decisions. As shown in figure 4, supplier knowledge is almost as important as POS information in managing categories and shelf space. Retailers frequently are not willing to hand over the final category management decisions to the supplier, but they do leverage the information and experience of the supplier.
SOURCE:
http://www.technologyevaluation.com/research/articles/space-the-final-frontier-how-retailers-make-shelf-space-allocation-decisions-17847/
The research found that the processes, policies, performance, and enablers widen the gap between winners and losers. Top-performing suppliers with high volumes and strong brands are rewarded with more shelf space and increased visibility, which further strengthens their brand and volumes. Marginal performers are "starved" out of the system. This study confirms one of ChainLink Research's key tenets: Winners and losers are determined by how well each player manages the links with trading partners (see figure 1). Disconnects in processes, perceptions, and dialogues between trading partners are a major cause of problems and competitive disadvantages.
The survey showed that suppliers often underestimate the importance of yield to retailers, while overestimating their own performance. Suppliers that understand and support retailers' goals and differentiation have a much higher likelihood of success.
Shelf-space and Category Management
Shelf-space Allocation
Four of the five top criteria used by retailers' sales volume, individual product's profit, individual product's revenue per square foot, and brand/category leadership, are directly related to the strength of the supplier's product performance, value contribution, and ultimately customer preference. Top performers get more real estate, while the losers are squeezed out.
Suppliers overestimate the importance of their overall profit contribution. Category managers want to allocate shelf space based on each individual product's role and contribution in driving profit or driving traffic. This goal is complicated when suppliers price their line as a portfolio. The retailer may want decoupled pricing to give them the flexibility to select an optimum mix.
Suppliers also underestimate the importance of seasonality in shelf-space decisions compared with retailers that ranked it as the third most important factor. This is surprising, given that suppliers must understand as well as anyone the impact of seasonality on the demand for their products. They may view it as just a given—products are either in the assortment or out in a given season.
Interestingly, slotting fees, which have been the subject of much heated debate, were rated as the least important factor in shelf-space decisions, by a large margin.
Category Management
The research also asked how far the industry has gone in the trend toward suppliers having more responsibility for restocking and replenishment decisions for the shelf space. (Note: chart for this question is not included.) Retailers said they are still responsible for about 85 percent of replenishment decisions and suppliers are responsible for only about 5 percent of those decisions, although suppliers estimated slightly higher numbers for their share of the task. Retailers said 6 percent of replenishment decisions were made collaboratively and 4 percent by third parties. The survey also asked the same question about responsibility for category management
The responses reinforced how infrequently suppliers are selected to manage categories. It also uncovers a large difference in perception. Suppliers claim to make about 17 percent of category management decisions, whereas retailers say the figure is about 3 percent. This may be due to a difference of interpretation of what is meant by "managing" the category. Retailers, even if they rely heavily on manufacturers for insight and analytics, will still claim they make the final decision.
The responses in figure 3 mask the degree to which retailers rely on suppliers' knowledge and input in making category decisions. As shown in figure 4, supplier knowledge is almost as important as POS information in managing categories and shelf space. Retailers frequently are not willing to hand over the final category management decisions to the supplier, but they do leverage the information and experience of the supplier.
SOURCE:
http://www.technologyevaluation.com/research/articles/space-the-final-frontier-how-retailers-make-shelf-space-allocation-decisions-17847/
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