The delicate relationship between buyer and seller is no better highlighted than in the thorny issue of trade funding.
The amount manufacturers invest in their retail customers now equates to 15-25% of their sales revenue, according to figures from IBM, making it suppliers' biggest expense after the cost of goods.
This figure has tripled over the past two decades and looks set to continue rising as retailers become more powerful, thanks to continued consolidation in the market, and as manufacturers put greater effort into influencing the consumer at the point of purchase.
But recent events seem to indicate trade investment is spiralling out of control. Drinks company Bulmers blamed unexpected promotional costs for the black hole in its accounts. Safeway has been under fire in the pages of The Grocer for its demands (or as it would say requests) for lump sums from suppliers to support promotions and new products.
And retailers are not immune. Ahold's spectacular reversal of fortune stems from accounting irregularities related to income including promotional prepayments. Indeed, retailers have grown increasingly dependent on this revenue stream a risk in itself.
In our feature this week (page 48) one major supplier says the practice of demanding increased trade funds is "scandalous" while another says retailers are abusing their power and failing to deliver what they promise in return, such as effective stock rotation or promotional compliance.
But rather than continue whingeing, these suppliers should go on the offensive. However unpopular, trade spend is a fact of retail life. The key to controlling this cost may lie in something much more simple measurement.
Only 6% of manufacturers claim to have a proper process to evaluate whether their money is being spent effectively. A common framework is needed to bring transparency to "grocery's last taboo" and to help suppliers put their funds where they will get the best benefit.
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The amount manufacturers invest in their retail customers now equates to 15-25% of their sales revenue, according to figures from IBM, making it suppliers' biggest expense after the cost of goods.
This figure has tripled over the past two decades and looks set to continue rising as retailers become more powerful, thanks to continued consolidation in the market, and as manufacturers put greater effort into influencing the consumer at the point of purchase.
But recent events seem to indicate trade investment is spiralling out of control. Drinks company Bulmers blamed unexpected promotional costs for the black hole in its accounts. Safeway has been under fire in the pages of The Grocer for its demands (or as it would say requests) for lump sums from suppliers to support promotions and new products.
And retailers are not immune. Ahold's spectacular reversal of fortune stems from accounting irregularities related to income including promotional prepayments. Indeed, retailers have grown increasingly dependent on this revenue stream a risk in itself.
In our feature this week (page 48) one major supplier says the practice of demanding increased trade funds is "scandalous" while another says retailers are abusing their power and failing to deliver what they promise in return, such as effective stock rotation or promotional compliance.
But rather than continue whingeing, these suppliers should go on the offensive. However unpopular, trade spend is a fact of retail life. The key to controlling this cost may lie in something much more simple measurement.
Only 6% of manufacturers claim to have a proper process to evaluate whether their money is being spent effectively. A common framework is needed to bring transparency to "grocery's last taboo" and to help suppliers put their funds where they will get the best benefit.
{{COMMENT & LETTERS }}
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