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Business Practices and Differentiation Strategies Amongst Food Retailers


In a context of weak growth, consolidation and maturity (see previous blog: Dynamics of the food and beverage manufacturing sector in Quebec: the retailer perspective), what are retailers doing to differentiate themselves and address their shareholders’ concerns?

Retailers are engaged in a constant battle with their competitors because supply has outstripped demand over the past several years. At first glance, however, these retailers do not seem very different in terms of offerings; differentiation occurs mainly in relation to prices and execution, from procurement to final sales in stores.

The large retailers have implemented several strategies:

- They have expanded their range of revenue sources and their offerings, for example through referral fees, program fees, promotions, billing fees and product withdrawal fees. Suppliers often bear the burden of these fees.

- They have implemented effective supply chain management systems, operational systems and price control systems, which are critical factors for success in a sector where profit margins are thin and salaries are a major consideration, especially in unionized environments.

- They have made maximum use of information technologies such as POS and EDI , which enable, for example, category management. In order to improve their management of the multitude of products they offer, retailers have grouped them into different categories. Each category is managed as though it were a small business. This method facilitates product selection, price setting and planogram design. With the information provided by this system and different loyalty programs, retailers benefit from a wealth of marketing information that allows them to effectively segment their customers and devise strategies to increase their customer traffic as well as their profits. This sector, where an understanding of consumer behaviour is a condition for survival, benefits from sophisticated information gathering tools and very precise marketing data.

- Store hours of operation have been extended and the number of products has increased, varying from 15,000 to 60,000 depending on the surface area.

- Retailers regularly invest in updates to their image and store configurations. Shelf space is valuable and must be maximized; as required, retailers do not hesitate to remove from the shelves those products that don’t meet their profitability criteria or don't appeal to customers.

- Additionally, head offices work hard to develop their private brands, thereby generating higher profits and more customer loyalty.

- There has been an increased focus on continuing education for staff to improve customer service and ensure adherence to health and safety standards.

- In order to please consumers, many of whom are not always loyal, retailers strive to offer an unrivalled experience as they look out for new trends. They are thus involved in all emerging trends such as prepared meals, sustainable development, sustainable fishing, buying local, health food, ethnic products, fresh fruits and vegetables and organic products. They manage an array of rebate offers, loyalty cards and tools to facilitate shopping. To attract customers, they offer certain products at prices that negatively affect their profit margins, which impacts the brands that manufacturers develop at great expense.
Yet the cost of these initiatives and business strategies are not passed on to the consumers who benefit from it; pressure is rather exerted on the suppliers who, in order to sell significant quantities of their products, are left with little choice but to compromise on pricing with retailers.

How can they come out ahead in this environment where they ultimately do not wield much bargaining power?

My next blog will focus on the supplier’s point of view.

1 POS scanners in sales outlets, EDI, electronic data interchange software

POS scanners in sales outlets, EDI, electronic data interchange softwarePOS scanners in sales outlets, EDI, electronic data interchange software