What's
Happening?I wonder if retailers understand the need for maintaining competing suppliers.
Let’s face it, in today’s retail/supplier world, only the strong prosper.
Consequently the strong retailers look to strong suppliers to fill their
demands. Those demands include not only product, but also innovation, price and
ever-increasing pressure to actually help run the business.
The genesis for this article came from a Wall Street Journal article
entitled New Detroit Woe: Makers of Parts Won’t Cut Prices. The story
describes how American car companies have broken so many of their suppliers that
there are relatively few left. Those few suppliers have now turned the tables
on the car companies, in effect refusing the auto maker’s demands, withholding
supplies and gaining pricing power. By forcing so many suppliers out of
business, the carmakers now find themselves at the mercy of their suppliers.
In the retailing sector, large suppliers not only have the ability to innovate
and create new products, but also to change the way consumers actually live. We
only have to look at Procter and Gamble’s Swiffer franchise to see that floor
care and dusting are now accomplished with products that are vastly different
from the way cleaning was done even five years ago. P & G not only created the
product but along with some powerful retailers, actually created the market.
Powerful suppliers like P & G maintain and grow market share with innovation,
marketing power and the all-important shelf space. Is there a potential
long-term problem with large supplier dominance?
Certainly, the situation for retailers is distinguishable from the auto makers
in that the retailers are not pushing the big suppliers out of business, but
rather supporting those suppliers at the cost of the small and mid tier
companies. The big suppliers have the power and the people to help retailers
run their businesses from product to shelf. Smaller suppliers with comparable
products and at times better prices have a difficult time competing with the big
guys, and are in constant shelf space crisis...
Who can blame the retailer, since their job is to give consumers what they
want? As long as the numbers are on plan, why should retailers concern
themselves with supplier diversification? But consider this. In five years
your major detergent supplier, who now owns 80% of the business in that
category, decides to double their prices because they can. I can see it now,
buyers going to market to negotiate for a larger allotment of Tide Super Clean.
There is a need for balance and a need to keep a competitive environment, not
for the sake of the retailer, but for the sake of the customer. A mix of large
branded suppliers with smaller brands who often offer better prices and quicker
response times will serve the customer better now and the retailer better in the
future.
