The biggest challenge that this creates for revenue management is how best to navigate through the pandemic whilst embedding practices that will grow profitability for both the retailer and the manufacturer. Shifting profit from one to the other is not the way to overcome these new challenges successfully.
Here, we outline what these trends are, what the impact is for revenue management, and how the retailer and manufacturer relationship can navigate such turbulence:
A more diverse channel mix
Gone are the days where large-format stores or ‘hypermarkets’ dominated the retail landscape. This channel was once a reliable profit driver for retailers, but with the advent of the pandemic and subsequent lockdowns, consumers have ‘stayed local’ resulting in the growth of convenience and proximity stores. This is taking profit away from the more profitable super-stores.
Instead, e-commerce has boomed as consumers have avoided leaving their homes to shop for groceries. Moreover, the food service model has emerged as strategic partnerships have developed with the likes of Deliveroo and Uber Eats. It’s essential for manufacturers to learn from and adapt their revenue management strategies to fit new channel dynamics.
The fight for value
With the growth of discounters, major retailers are having to become more price competitive to retain their stake in the market. With the likes of Aldi and Lidl growing their share of the market, consumer expectations are pressuring retailers to provide lower prices. This isn’t a new phenomenon to the industry, but as an economic downturn is pending, it’s crucial for manufacturers to have their value propositions at front of mind.
The retailer’s perspective
This strain on profitability is causing many retailers to adopt SKU rationalisation programs to optimise their range. This puts pressure on suppliers to plan with an increasing focus on product portfolios. It is the best-sellers, such as the core products, that will retain priority on the shelves. Retailers may also review their promotional strategies to capitalise on value. Effectively, they will view negotiations with their supplier base as prime opportunities to orchestrate growth in profits.
The next 12 months will be critical in terms of how retailers chose to apply their model to the changes identified throughout the covid crisis.
Joint business planning
Revenue management sits at the heart of building stronger relationships between retailers and manufacturers. Going forward, retailers will look to work collaboratively to help increase profitability. This is a challenging relationship to build, with 42% of joint business plans resulting in a decrease in profit.
