In its way, the truce is as remarkable as Christmas 1915 in the trenches – and almost as fragile. But let’s not knock it. When retailers and brand manufacturers decide to make peace after years of attritional warfare, it has to be a positive development.
In the forefront of this conciliatory gesture is Sainsbury’s – here as elsewhere making up lost ground after a series of recent reverses. The fact is own-label, having made such significant advances over the past three years, now needs to pause. There is a perception of too much own-brand and not enough choice on the shelves.
Sainsbury’s response has been to form special joint teams with brand manufacturers to achieve better merchandising of their brands – so far P&G and Mars have signed up. Naturally there are dangers: other manufacturers will be alienated if they feel excluded from the charmed circle. But that is a calculated risk – probably a well calculated one.
However, the rationale for cooperation with selected brand manufacturers by no means exclusive to Sainsbury’s. All the major supermarket chains are under pressure to rein in costs, which have spiralled as a result of diversification and expensive loyalty card schemes. Cooperation can lead to big overhead reductions in the supply chain. And this enthusiasm is shared by the likes of P&G, which is in the throes of tightening its promotional overheads. The spirit of cooperation is typified by efficient consumer response (ECR), whereby rapid replenishment of stock enables both sides to strip out costs from the supply chain. But to work, ECR requires a degree of information glasnost unthinkable in the recent past. It also tends to favour the big players over the small.
And there are other tensions which militate against collaboration. A fine example is the current spat between Tesco and Kellogg. After a lull in the lookalikes war, Tesco’s decision to mimic Kellogg’s packaging in its revamped cereal range seems a senseless provocation. Kellogg, rarely vociferous in public, has responded with a combative press and TV campaign which suggests that consumers should accept no own-label substitute for the “real thing”. The real casualty, however, is likely to be the painstakingly constructed Institute of Grocery Distribution’s disputes procedure, which was supposed to defuse the lookalikes conflict. And indeed, the ICD’s reputation as an honest broker.
Many have questioned the code’s robustness; but this is the first time it has been tested in earnest. And so far it is severely wanting. What kind of confidence can other manufacturers, let alone Kellogg, have in the procedure when it is impotent in the face of Tesco’s provocation?
News, page 9; Cover Story, page 28