With consumer packaged goods in decline, what will wholesaling’s engine of growth be for the next 60 years, asks Nick Shanagher.
More than 1,000 people took part in the 60th birthday party of Spar UK in Manchester in October – a wholesale and retail success story that aims to go on for another 60 years.
Back in 1957, the family-owned wholesalers who set up Spar UK made a big bet on the future of their businesses and their customers’ businesses. They were inspired by the example of independent Dutch retailers in the 1920s who had decided the best way to achieve success was to work closely together. Spar’s 33 founding wholesale branches decided to change their business relationships with retailers, ceasing to supply around 14,500 customers and putting all their energies into supporting the 600 best-run independent stores instead.
The Dutch magic was repeated and the founding independent retail members, joined swiftly by others, enjoyed 20 great years until the rise of the supermarkets threatened their survival.
Today, Spar UK is growing, but despite the optimism, everyone is nervously looking at changes brewing in the wholesale channel in general and Tesco’s move for Booker in particular.
The question for Spar UK has to be whether its business model can continue to thrive in a trading environment that is changing so rapidly. The successes it enjoyed in the 1960s, 1980s and 2000s related to how effectively it dovetailed with the prevailing direction of consumer packaged goods (CPG) marketing: CPG firms invested in TV marketing to create consumer demand and in the distribution channel to fulfil that demand.
However, analysis of the top 50 CPG companies shows they are no longer growing. As recently as 2011, they were achieving organic growth of 7.3%; last year, they shrunk 0.7%.
Today’s shoppers are swayed more by peer reviews and social media than by TV advertising. The internet means they have far more choice and can exercise it in favour of the smaller local ‘piranha’ brands, so-called because they can take chunks out of the big brands’ market share as ecommerce enables them to bypass traditional distribution routes.
Mark Schneider, chief executive of Nestlé, says digital change means that once smaller competitors have a product, getting it to market is now cheaper and faster. For the big CPG manufacturers, this means pressure to create smaller brands and invest in their own ecommerce channels.
If the market stays as it was, a combined Tesco and Booker could be a category-killing consolidation. But if it changes, wholesalers will need to find the next big river of cash they can ride for 20 years.
Will foodservice be the answer? It is hard to tell. Interestingly, cracks have started to appear in the unstoppable edifice that is Just Eat, with the Financial Times (FT) reporting that independent restaurant owners are starting to question the 14% cut it takes from their orders.
The FT highlighted a tech start-up called Preoday, which markets a system to make it easy for local restaurants to have their own digital hubs. Its pitch is that customers buy 25% more when pre-ordering.
Despite the cracks, Just Eat remains confident. Its pitch to business owners is that it will negotiate discounts with food wholesalers and give them data to run their businesses better.
The bigger weakness, however, may be the problems that independent retailers have in improving the skills of their staff. Mark Palmer, a board director at Pret a Manger, told retailers at Newtrade’s Local Shop Summit that Pret’s success was driven by investing more in staff training than in marketing.
The next big thing is likely going to concern retailer discipline, and will probably involve clever use of local data. What is not clear is how the profit model will work. The only good news is that Booker and Tesco are probably unsure what the model will be, too.