As the number of price-marked packs (PMPs) appearing on wholesalers’ shelves is growing in almost every category, it is time to take stock and drill down into PMP strategy and the impact it is having.
It’s clear to me that there is a large variance in not only the amount of PMPs out there, but also the approaches that suppliers take in establishing PMP strategies. In my opinion, this is creating confusion, from wholesaler to shopper and everything in between.
I canvassed every supplier at the recent Today’s conference in Rome and the message was consistent: ‘PMPs give shoppers confidence and retailers increased sales,’ I was told. But what was surprising was that 50% of the suppliers there said that PMPs stop retailers premium-pricing their products, so trust is also an issue.
[pull_quote_right]The challenge for suppliers is to ensure there is sufficient margin being generated from their products to justify the space that these have in retailers’ stores[/pull_quote_right]
This line of questioning led to an attempt to understand what shared margins the supplier believed that wholesalers and retailers should enjoy. Naturally, there was a variance between impulse, grocery and licensed, but generally, 45% of suppliers said that a share of circa 25% would be about right; 32% said that it should be more than that.
The conversation moved towards promotional strategies linked to PMPs: some brands highlight the PMP price as the promoted price while others allow retailers to further discount PMPs. Most wanted to maintain the PMP price as the promoted price but 47% of suppliers supported further discounting.
The problem here is that 68% of retailers believe that the margins offered by PMPs are not enough, which is backed by 57% of shoppers who believe the same.
There is no doubt that suppliers are keen to support shopper confidence and to continue increasing their sales. But when I asked “What margin do you think a retailer requires to run a successful business?”, 61% answered that it is between 20% and 25%. The fact is retailers’ costs are going through the roof: further minimum wage increases and staff pension auto-enrolment are on the horizon; then there’s business rates and, of course, the increased costs of utilities. These are all putting financial pressure on retailers.
Add to this the growing number of ‘services’ that contribute to retailers’ turnover (and footfall) but that deliver little or no margin, such as Lotto, PayPoint, Payzone, tobacco and Amazon Locker. Suppliers must take this into consideration when looking at developing future PMP strategies. If more and more products are appearing with a shared margin of 25%, how will the retailer manage to make that on his or her own?
The challenge for suppliers is to ensure that there is sufficient margin being generated from their products to justify the space that these have in retailers’ stores. The last thing suppliers need is for their space to be reduced to make way for higher-margin categories, such as bakery, coffee, hot food, and fresh fruit and veg, which is where a lot of retailer growth is coming from.
Having a PMP strategy that acknowledges all these factors, together with shopper trends, will be the key to success for suppliers, wholesalers and retailers. The sharing of wholesale and retail data will be the backbone to this going forward.