Manufacturers have a huge opportunity to grow sales in the channel, writes NICK SHANAGHER
A million small businesses are supplied by the wholesale sector and that is a huge opportunity for manufacturers. But are they geared up to seize it? FWD chief executive James Bielby used his conference last month to put the case for a new approach. He was supported by Booker’s Charles Wilson and Coca-Cola Enterprises’ Darren Goldney.
In his memoir, Ray Kroc, the founder of McDonald’s, talks about his early career and his first big sale of paper cups to Walgreens.
‘The best part of it for me personally was that every time I saw a new Walgreen’s store going up it meant new business. This sort of multiplication was clearly the way to go. I spent less and less time chasing pushcart vendors around the West Side, and more time cultivating large accounts where big turnover would automatically winch in sales in the thousands and hundreds of thousands.’
6 important messages from the conference
- THE OPPORTUNITY IS BIG: Coca-Cola Enterprises says that the wholesale channel offers some 4.5 billion sales opportunities, compared to 36 million for the multiples.
- THE WORLD IS CHANGING: Multiples are not what they used to be. Charles Wilson told delegates that the age of the supermarket and hypermarket is “grinding to a halt”.
- CONVINCE SUPPLIERS: Wholesalers must convince suppliers of the advantages of wholesale: low-cost, day-one distribution of new products, compliance and access to places manufacturers cannot reach.
- SUPPLIERS MUST DO TWO THINGS DIFFERENTLY: Develop the right price points for the channel with sufficient margins and recognise that wholesalers can influence the whole store-proposition.
- WHOLESALERS MUST DO TWO THINGS DIFFERENTLY: Stop ‘chasing the case’ – develop the business so that the whole category grows, and maintain the focus on promotional and core-range compliance.
- BE PREPARED TO TAKE ON THE CHALLENGE: The 4.5 billion opportunities are easy to visualise
- but hard to realise, partly because shoppers are behaving differently… sales and marketing are getting harder.
In the UK grocery market, for the past 60 years, his strategy – put effort into attaching your product to a growing franchise and you can automatically winch in sales – has won. Wholesalers watched as their network power was eroded by the multiples, which enjoyed year after year of growth.
Today, wholesale is supporting smaller businesses to fight back. Part of this is down to the wholesalers’ ability to leverage a customer base of a million outlets from cinemas and sports centres to c-stores and cafes. Part of this is down to demographics.
4.5 billion opportunities
Darren Goldney, sales and customer development director at Coca-Cola Enterprises, calculates that the wholesale channel offers some 4.5 billion sales opportunities, compared to 36 million in multiples.
You need to take a moment to think about what he is saying. Can small enterprises really outsell the multiples’ 8,000 outlets by a factor of 125 to one? Is the prize mythical or achievable?
Goldney believes the latter but says wholesalers need to convince that they offer a sustainable margin and growth opportunity. “We can talk opportunities until the cows come home but if they are unrealised then that is self-defeating,” he says.
Wholesalers have to offer low-cost, day one distribution of new products, compliance for what’s paid for, and access and influence where manufacturers cannot reach (pubs for example). There are signs that wholesalers can do this. Goldney shared examples of success from his company, rival Britvic and Heinz.
What do wholesalers and suppliers need to do differently? Goldney has four points.
Firstly, instead of ‘chasing the case’, with wholesalers seeking more margin on top sellers, they should consider how to develop the business so the category grows.
Secondly, wholesalers must maintain the good focus on promotional and core-range compliance.
Thirdly, suppliers must develop the right price points for the wholesale channel, with sufficient margin to accommodate the price point.
Finally, suppliers should recognise that wholesalers can influence the whole store-proposition and should get behind these initiatives.
Do wholesalers have the focus to seize the opportunity? The answer is yes, if you are Charles Wilson, chief executive of Booker. He quipped that his audience must be bored to death with his slide about focus, drive and breadth, but this did not stop him showing it again.
This is Booker’s successful business strategy. It is simple and it works. Since 2008, Booker has grown sales by £940m by providing customers with choice, price and service, and by £60m through acquisitions. The unspoken small print is that you can trust wholesalers like Booker to deliver margin and sales growth.
“The world is changing. For suppliers for 60 years, it has been a one-way bet. If you had money, you put it into the multiples,” said Wilson.
“It is interesting to look at the latest IGD report. The age of the supermarket and hypermarket is grinding to a halt.”
However, Goldney’s 4.5 billion opportunities are easy to visualise but hard to realise. This is in part because people are behaving differently. After 60 years of using multiples to reach huge audiences, sales and marketing are getting harder.
James Bielby, chief executive of the FWD, is showcasing the best that wholesale offers. The challenge for suppliers is to make the most of the entrepreneurs his members serve. They need to invest in the right price points and margins, and his members need to help them by providing data so they can make better decisions.
The real challenge is for wholesalers themselves to act with discipline. The new networks that they create need to be efficient and customer-focused. Their new benchmark competitor may be Amazon rather than Tesco. Don’t expect an easy ride.