A White Paper from Conlego
Daniel Duty, CEO, and Mark Mathews, Senior Engagement Manager.
Conlego recently met with leading brands and retailers at Cornell to discuss the current state of difficult affairs between retailers and brands, and how they might return to an environment of joint problem-solving, greater profitability, innovation, and growth. The discussion led to several potential paths both retailers and brands might consider moving forward in this intense environment.
At Cornell, there was agreement from both sides on the dynamics of the current environment:
- Layers of cost changes have obscured traditional funding structures and margin assumptions, eroding trust.
- Retailers are investing in input cost assessments and planning aggressive negotiation pushes to reclaim costs/funding.
- Public comments, a flurry of inflation/deflation-focused stories in the press, and glowing financial results from large brands are further animating retailer angst.
- Commodity inputs and distribution appear to be regulating and returning to trend (or well beneath trend).
- Unit velocity is down as the customer weighs new budget realities.
- Brands have been unartful in delivering cost increases and have turned a deaf ear to requests to work together.
- Likewise, retailers have turned a deaf ear to brands’ needs and the costs they may still be facing.
Considering this, participants agreed both sides have doubled down on competitive and highly aggressive tactics in their negotiations, while joint problem-solving, partnership-building, and joint innovation have mainly fallen by the wayside:
- Anger on the side of retailers is stimulating interest in payback.
- Large consulting firms are fueling the flames on the retail side, after telling brands to maximize cost increases. They are recommending retailers do the following:
- Cost Input Exercises, such as asking for more data from brands on their cost structures.
- Commodity Input Tools where retailers are developing their perspective on costs and floating large asks.
- Funding Rate Analyses to recoup trade % of sales.
- Smash-and-Grab tactics to recover large funds now.
- Retroactive compliance fee claw backs.
- Extreme demands.
- Traditional partnership frameworks like Joint Business Planning have been twisted into competitive negotiation forums.
- Retailers are doubling down on private labels now that supply is starting to regulate, and legitimately considering drastic change.
- More retailers are launching Retail Media teams with high expectations for success.
- Retail Media asks are becoming more aggressive to make up for the real or perceived funding gaps in trade.
- Brands are cutting trade funding and making extreme demands as well.
As a forum, we discussed two potential paths forward to prevent players in the retail ecosystem from potentially falling off the cliff:
- More strategic negotiations with a bias for cooperation in important relationships.
- A return to True (or elevated) Joint Business Planning for the most important relationships.
In the retail ecosystem, retailers generally employ a spectrum of processes for negotiating, ranging from RFPs and Competitive Line Reviews on the competitive end, to “one-on-ones”, Joint Business Planning, and Top-Tops on the collaborative end.
Both sides have the opportunity in these processes to engage in competitive or cooperative behaviors. In the past, strategic players have used a mix of cooperative and competitive behaviors to achieve the best results. Today, however, we have seen both sides get stuck in the arena of competitive behaviors.
This has resulted in extreme and mostly unreasonable demands from both sides, creating a large gap in partnership relationships and opening negotiation positions. The use of manipulative tactics like extreme demands, the “flinch”, going silent, or presenting arguments instead of showing how proposals meet each other’s most important needs seem to be the order of the day. After all, isn’t negotiation a problem-solving exercise in meeting each other’s most important needs?
So how do we move forward and get “unstuck”?
- Undertake a tiering exercise to help understand where you want to use different processes and behaviors for negotiating and building value-creating partnerships. Being clear on the value of your relationships can lead to better processes, behaviors, and save a lot of time.
- Even in competitive negotiation processes, assess where you might use more cooperative behaviors to build more value.
- Take the lead and change the process if it isn’t working for you. While retailers generally dictate the process, brands can push back for a different process that creates more value. We saw this work extremely well for a large CPG negotiating an annual JBP with one of the largest retailers.
- Improve your story. What we know from years of experience is that “Best Story Wins”. Are you telling a story that creates a desire for more investment? Or are you telling a story that satisfies only your own needs?
- Elevate your power and leverage. Leverage and power are built on several factors, including having great alternatives, building the confidence and skills of your negotiators, and leading the negotiation.
- Don’t rely on arguments that don’t resonate with your counterpart. Instead, ask questions to understand and frame up your proposals in terms of the important needs they have expressed.
- Return to true Joint Business Planning for your most important partners:
- Joint Business Planning was originally imagined as a process for retailers and brands that were strategically and financially aligned to find new ways of outsizing growth and profit opportunities. Today it has become an annual competitive negotiation process whereby both sides attempt to beat the other.
- A return to true or elevated JBPs would include:
- Sharing more information about respective goals, strategies, and investment plans.
- A time commitment from senior executives.
- A dialogue and brainstorming on aspirational sales and profitability goals.
- A jointly developed plan and building blocks for achieving those goals.
- Regular check-ins to adjust the plan to achieve the goals.
These are just a few of the many steps both retailers and brands might take to return the retail ecosystem to more productive engagements that return both sides to an atmosphere of joint problem-solving, growth, and value creation.
For more information, please reach out to us at daniel@conlego.com or markmathews@conlego.com
