Reversing the mirror

In the world of FMCG as in the rest of society, to quote the eponymous Bob Dylan, the times they are a-changing. Nowhere is this more evident than in the construct of today's trade channels and customer universe.

Not long ago the retail trade in most markets consisted of thousands of small, independent outlets and the balance of power in the trading relationship lay largely with manufacturers and distributors, since no single customer was important enough to influence the sales of a brand.

How things have changed. In many European markets today, the five biggest customers can account for up to 70% of total grocery ACV (all commodity volume), often leading to the marginalisation or even closure of small neighbourhood stores. In the GCC the trend towards concentration began later but the pace of change is just as fast. In the UAE many FMCG companies get 50% or more of their sales from a handful of customers while in the region's largest market, Saudi Arabia, the arrival of international retailers will likely have the same effect on the market as dropping a match into a can of petrol.

With this concentration comes a major shift in the balance of power in the retailer/manufacturer relationship. Large chains will not allow themselves to be dictated to in the way owner-managed stores may once have been. Indeed, many key account managers would ruefully tell you that it is the big retailers who do the dictating, leaving them, the KAMs, to make the best of a tough situation.

While it is true that trade concentration significantly alters the power base, this need not be all bad news for manufacturers and distributors. Whereas a single independent store cannot make or break a brand, the relationship with a retail chain that contriutes 20% of total grocery sales certainly can. So if a KAM can influence that relationship into positive territory he is on the way to creating a successful business.

In our work with manufacturers on customer management one of the biggest failings we see is that KAMs have too much of an ‘internal focus' on the business rather than looking at things from the point of view of the customer. This is an easy trap to fall into; if Acme Products is a market leading and highly profitable company, its employees can come to believe that the ‘Acme way' is the only way and that customers should fall into line. Guided by this false sense of security some sales people fail to realise that retailers also have strategies and KPIs for their business, which may not align completely with the Acme view of the world. Therein lies a danger for manufacturers. KAM's continue to pursue the Acme strategy ignoring the fact that their customer views the world differently. When the customer refuses to buy into the Acme way and proposals are rejected, the KAM blames the retailer. Consumers may force the retailer to support Acme's products to some extent but rarely will this be to the level of potential that exists when their two strategies are in harmony.

The enlightened KAM accepts that he must acknowledge the customer's strategy and objectives when trying to develop his business with that customer. For example, if the customer differentiates himself by using an ‘Everyday Low Price' strategy, the annual business plan with Acme should be very different from his competitor, whose consumers are less price sensitive and respond more to added value offerings.

If the KAM understands the business KPIs on which his customer's buyer is measured and can tailor proposals to help the buyer achieve his objectives, the relationship will be more productive and Acme's sales should be improved. This does not mean that Acme should abandon its strategy and embrace that of the customer, but it should at least endeavour to see how its own objectives can be achieved by working with rather than against its customers. Without customers there is no business. Companies who recognise this and seek out win-win solutions with their customers will always outperform those who plough their own furrow.

Nick Pearson is managing director of Pearson Consulting. Email: This email address is being protected from spam bots, you need Javascript enabled to view it

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