No more small grocery shops
Hermans cites two reasons for the increased conflicts between manufacturers and supermarkets. ‘First, the balance of power between manufacturers and supermarkets is much more equal today than it used to be when small grocery shops were very dependent on suppliers,’ Hermans explains. 'Nowadays, supermarkets have their private labels and have huge amounts of data on consumer buying behaviour. This allows for more competitive negotiations with manufacturers.'
Inflation also plays a big role. 'As commodity prices rise, manufacturers want those costs to be reflected in the prices of finished products. Supermarkets of course want to keep their prices as low as possible. That's why we're seeing more conflicts between the two parties.' Hermans says the disputes are mostly about prices. In a few cases, conflicts can also arise over issues such as the range to be included or the position on a shelf.
Reduce price? Or advertise?
Although conflicts are increasingly common, little is known about what manufacturers and supermarkets can do about marketing to limit the damage. ‘Companies try all kinds of things, such as lowering prices or advertising products, but little research has been done on the best strategy during a conflict,’ Hermans explains.
Until now, that is. ‘We have created a model in which both manufacturers and supermarkets can see what the best approach is by type of conflict.’ Who is the initiator of the conflict, what is the elimination size (how many products disappear from the shelves) and how much publicity does a conflict get? Such factors all influence what the best tactic is. 'For example, for manufacturers, a price cut is almost always a smart choice, especially if the manufacturer isn't the one that started the conflict. For supermarkets, a price cut can also be positive if they are the instigator of the conflict, the elimination size is small, or if there is little publicity.'
And who is the loser again...?
While there are good and not so good choices to be made during conflicts, they cost money either way. 'On average, a conflict costs 58 million euros, but there is a lot of variation. In 55 percent of cases, a conflict has a negative outcome for the party involved, while in 45 percent of cases a conflict has a positive outcome.' Based on such figures, it is strange that conflicts arise so often. Hermans: ‘If companies can ultimately haggle a better bargaining position then it is a ’short-term pain, long-term gain. In addition, manufacturers and supermarkets naturally work with multiple parties. Although a conflict may cost them money, they do show other cooperation partners that they do not blindly agree to all terms.'
Regardless of the ‘winner’, one party always suffers during a conflict: the consumer. ‘Sometimes products are unavailable for months,’ says Hermans. ‘On average, it takes eight weeks for the parties to come to an agreement.’ Sometimes it means that certain partial products don't return to the shelves. 'Very occasionally, products are even added. For example, this was the outcome of a conflict between Lidl and chocolate manufacturer Ferrero.'
