Why we must get the right margin on PMPs

Within the intricate web of consumer behaviour and market dynamics in the wholesale fmcg industry, the price marked pack (PMP) has become a linchpin for suppliers, wholesalers and retailers. The amount of trust embedded within PMPs cannot be overstated.

However, the sustainability of this strategy heavily hinges upon a fair and acceptable shared margin across the whole supply chain. A delicate balance must be struck to maintain consumer trust while ensuring the viability of PMPs to protect and grow sales for a sustainable independent retail marketplace.

The trust factor

At the heart of the PMP strategy lies the consumer’s trust: a priceless asset. We know from years of analysis that PMPs present a clear and consistent pricing structure that resonates deeply with consumers.

A prominently displayed price fosters a sense of reliability, honesty, and familiarity, making it easier for consumers to confidently make purchasing decisions in retail outlets that don’t necessarily have a strong brand identity above the door.

Consumers believe they are getting value for their money and are more likely to return for repeat purchases when they feel assured they have been treated fairly. This is more important than ever in the cost of living crisis, which shows no evidence of dissipating in 2024.

The margin conundrum

While the trust element associated with PMPs is undeniable, sustaining this strategy requires a delicate equilibrium in margins across the supply chain. If margins become too tight, it creates a ripple effect that reverberates through the entire ecosystem.

While suppliers will face challenges in maintaining profitability, wholesalers and retailers will struggle to sustain viable margins against a significant increase in operating costs. Ultimately, the consumer will bear the brunt through compromised product quality or increased prices elsewhere in the store, where a retailer can offset the impact.

An acceptable shared margin is therefore central to PMP sustainability. We recognise suppliers must receive fair compensation for their products. Otherwise when margins are too low, retailers might pivot to straight packs, eroding the trust built on consistent and clear pricing.

The implications of margin imbalance

If independent retailers are forced to transition away from PMPs due to unviable margins, it could trigger a damaging domino effect. Consumers may perceive the absence of these clear price indications as a breach of trust.

Evidence suggests a dramatic decline in sales during 2023 for suppliers that have removed PMPs for efficiencies in their production processes.

In a category such as petfood, where the consumer has strong loyalty and does not want to risk purchasing unfamiliar brands for their pet, there is the risk of consumers shopping elsewhere to find value and price security. That risk is particularly high considering the major multiples and discounters are no longer out of town but on the doorstep of many independent convenience stores.

Sustainable trust and viability

The sustainability of the PMP strategy lies at the intersection of consumer trust and supply chain viability. It necessitates a collaborative approach whereby suppliers, wholesalers, and independent retailers work in harmony to maintain fair and sustainable margins.

An acceptable shared margin ensures suppliers are adequately compensated for their products, while wholesalers and retailers can offer competitive prices. Most importantly, it means consumers continue to trust and value the transparent pricing structure of PMPs in independent convenience outlets.

Running an EDLP strategy in outlets that do not provide a strong brand loyalty and value proposition is challenging. Therefore, we need to keep retail outlets vibrant and exciting, and promotional activities are key to this.

The right way forward

The PMP strategy for the independent retailer channel can only continue if the delicate balance between trust and viability is maintained. The invaluable trust delivered through PMPs must be sustained by ensuring a fair and acceptable shared margin across the supply chain. Failing to strike this balance risks not only the erosion of consumer trust but also the potential migration of consumers away from the independent retail channel – a scenario detrimental to all stakeholders involved.

PMPs are vital if we wish to deliver growth in 2024 – and more importantly, ensure the sustainability of a healthy, vibrant independent wholesale and retail landscape for many years to come.