Ben Wise on Branding

Watching the world through the lens of the brand

Are CPGs Fighting Back?

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Walmart. Target. Costco. Retailing companies have grown to immense sizes in the past decade, and with their size has come power. CPG firms, who sell most of their product through these retailers, have suffered. P&G, the biggest CPG company, had revenues in 2009 of about $80 billion compared to Wal-Mart who topped $400 billion.

With the balance of power squarely with retailers, CPG firms have been forced to accommodate their every whim – higher listing fees, payments towards flyers, changes in shelf space – and haven’t been able to do much about it. The results have been a steady squeezing of margins among the big CPGs.

Additionally, most retailers now offer a private label option that the CPG firms are forced to compete with.

What can be done?

A recent article on eMarketer would suggest that some CPG firms are starting to take matters into their own hands. The title of the article says is all: “CPG Marketers Ramp Up Direct Sales”. After decades of selling products through retailers, they are finally trying to cut out the middle man.

While they may say they are doing this to reach consumers more easily and improve margin, the truth is that most consumers are going to go to the retailers for most of the regular shopping for years to come. But having an alternative sales channel, even a small one, may improve the bargaining position of CPGs.

This is the real benefit. If CPG companies can credibly claim another option then they should be able to push back to retailers on some of their demands. Retailers will remain the dominant force in the industry, but any improvement to the CPG’s is a step in the right direction for them. So buying some Tide online may scare Walmart into giving P&G slightly more favourable terms to them.

What do you think? Will CPGs gain any bargaining power with retailers from direct sales?

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Written by benwisebranding

April 9, 2010 at 9:01 pm

Posted in Uncategorized

Tagged with , , , , , ,

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