Gifts, Bonuses, and Dues
Retailing in the Week Ahead – Edition: Week 3, 2017
Imagine, for a moment, three large stacks of money. Go on, use your imagination. Make them big stacks of money. Have you got the image in your mind? Ok, great. Now, call the first stack of money, “The Gift.” Call the second stack, “The Bonus”, and the third, “The Dues.”
Now imagine a 52 week calendar and imagine holding those stacks of money at-the-ready, for three moments in time. Here is how it would probably go. The phone rings, a retailer is on the phone. The retailer says, “Happy New Year. We’re about to open our biggest and boldest supermarket ever built. We want you to be a partner. Can you send us some of your products so we can make it come to life?” Say goodbye to “the Gift.”
A few months go by. The phone rings again, the same retailer. “Hello. Do you remember you told me we could get a 1% cash bonus if we sold 10% more of your product before July 1? Well, we did it! Aren’t you happy?” Say goodbye to “The Bonus.”
Finally, a year passes. The phone rings again, same retailer on the line. “We had a good year but the economic environment is expected to be difficult. We’re looking to lock all our suppliers in at last year’s prices with a few bigger promotions to lock traffic in at last year’s levels. Can I count you in?” Say goodbye to “The Dues.”
Does any of this sound familiar? What if I told you it was all changing?
The Changing Order-to-Cash Cycle
If the above scenario sounds familiar to you, it is likely that you have participated in some form of modernization of the ‘order-to-cash’ cycle with a major modern trade retailer. Said differently, you probably agreed to share information with a retailer in order to facilitate more agile ordering and payment processing. In order to do this, you would need to create annual contracts which would include details that we may describe as the Gift, the Bonus, and the Dues.
The way the ‘Old” Order-to-Cash data sharing system normally worked was in chronological steps.
- At a store or regional level, the retailer would signal that minimum inventory levels has been reached, or worse, were OOS. This would trigger an automatic re-order.
- An invoice would be sent from the supplier to the retailer.
- The retailer would call the supplier to discuss inconsistencies between the automated agreement and the invoice with topics like “on-time delivery %” part of the meeting.
- Typically, the retailer would call the supplier to re-negotiate in the form of a Joint Business Plan or in more recent years, “A Purchase Alliance.”
Why is the old way of doing things changing? There are three main reasons why the old, “Order-to-Cash” model is becoming less important to large-scale modern retailers. Let’s review each of the three. However, in all three cases there is one main theme: Retailers no longer want to work in chronological order, they have moved to ‘agile’ retailing models.
- Endless Aisle Merchandising. As more and more retailers embrace ‘marketplace’ business models online, the notion of having ‘minimum’ or ‘constant’ levels of in-stocks is slowly disappearing. Marketplace models allow eCommerce retailers to add other retailers to their merchandise mix and thereby have lots of flexibility on what to offer shoppers at any moment in time. The same is true for retailers in purchase alliances – if one retailer sees a product selling well and has excess supply of a product that is not selling well, the other retailer can pick up the excess supply and try to move it. These decisions can happen very quickly and effectively increases the average number of SKUs a retailer will have access to at any moment in time beyond what is in the ‘contract’.
- Ultrafresh Marketing. Increasingly, retailers are winning with shoppers when communicating Ultrafresh and Craft merchandise on offer. This means having wonky potatoes, hand-made yogurts, baked in-store products in limited batches, and so on. It also means that retailers are changing the merchandise they have in-store from morning to lunch to dinner-time. It also means that the stores may look very different from month-to-month, even week-to-week, or at different moments of the day. The result is that more and more shoppers are getting comfortable with the concept that “out of stock” is normal and to be expected. This takes pressure off retailers and allows them to be more agile in how they merchandise at any given moment in time.
- Promotional Rotations/Craft/Distinct. Probably the biggest reason why all of this is becoming less, ‘business as usual’ is that modern-trade retailers are starting to notice something very different about shoppers. Shoppers are responding with enthusiasm to promotional ‘themes’ and buying different items during each theme. For example, if a retailer were to run three promotions and include ‘Snacking’ in all three promotions, say a “Barbecue for Father’s Day”, “Movie Night for Back to School”, and “Home Decoration Weekend for Autumn”, the retailer may notice that shoppers purchased different snacks in all three promotions, despite the same products being available in all three promotions. This has got retailers thinking – and responding – by having different items on offer throughout all of the promotions of the year. This is also stimulating many retailers to introduce ‘Craft’ merchandise to stores during different promotional events and even come up with distinct own-brand solutions at each promotional event.
The result is that winning retailers are placing less emphasis on meetings to discuss the ‘Gift’, ‘Bonus’, and ‘Dues’ as a way to generate ideas for NPD or category redesign. Instead, they are looking for more agile discussions.
As we think about the week ahead, there has never been a better time to think about how you can introduce agile promotional planning to your organization to get more out of your discussions with retailers.
As always, we would love your feedback on the ‘Gift’, ‘Bonus’, and ‘Dues’ – or any other topic. Please send us your thoughts.
Ray Gaul ([email protected]) and on Twitter @KantarRetail or @RayGaul
News and Insights from the week beginning 9th January
Financial Results
Cnova Reports FY 2016 Sales Up 10.7%
M&S Reports Q3 2016 Sales Up 5.9%
Sainsbury's Q3 2016 Sales Up 0.8%; Reports Record Christmas Week
Magnit Reports Unaudited Q4 and FY 2016 Results
Tesco Q3 2016 LFL Sales Up 1.5%; Christmas Up 0.3%
Aldi UK Reports Record Sales on Christmas
European Christmas Trading Retail Results Roundup: Fashion
Christmas Ends with Mixed Results for Metro Group Companies
Management Changes
Nordstrom Appoints Chief Innovation Officer
Tesco Appoints Chief Customer Officer
Buying Groups
Lenta Joins Procurement Alliance with Euroopt Belarus
Market Share
France Market Share: eCommerce Leads Growth
Kantar Worldpanel: Record Market Share for Discounters
Service
John Lewis Extends Personalization Services
Ahold Delhaize’s Giant-Landover Division Testing Sustainability Shelf Tag Ratings
Amazon and Chase Introduce New Prime Rewards Visa Card
Expansion
Aldi to Expand in Scotland
Amazon Plans to Create More Than 100,000 Full-Time Jobs in the U.S.
eCommerce
Bol.com to Launch New Pick up Point Platform
Logistics
Tesco Streamlines Distribution Operations
Insight
Global Macro Outlook
Kantar Retail’s Top European Retailer Rankings: Who’s Tops and Who to Watch
2016 Results in British Grocery Retailing