Monday 8 February 2016

Power play in supplier-retailer negotiation – how to level the playing-field in 2016

Power play in business is not exclusively about dealings between suppliers and retailers. In fact, it is more about interactions between large and smaller organisations…

Equally, we need to distinguish between being fair in our business dealings, and securing our fair share in negotiated settlements. 

If we choose to define fair-play as respect for the rules and/or equal treatment of all concerned, as in sport, fine. However, if we assert that all players are equal in business, we can seem naïve. Patently they are not. Business is not about equality, or fairness, and attempts by a government to impose standards of fair-play based on ‘equality’ are doomed to failure.

It is about two different organisations, often representing different business models, finding ways of accommodating their differing needs in an arrangement that satisfies each party, more or less…. 

Playing fair was something parents and teachers tried to enforce in the playground, and has little application in negotiation. In fact, in these unprecedented times, it can be more productive to talk about fair share – reflecting relative risk – as the basis for grown-up business negotiation.

In other words, given that both parties in a negotiation session take risks via the give-and-take process between ‘equal’ partners, exchanging information and insights that are capable of being abused in the wrong hands, it follows that a fair-share result is one where the rewards are divided in proportion to the perceived risks taken by the counterparties, and each is willing to continue the relationship.

If successful negotiation is defined as a series of matched concession exchanges between equal partners, it clearly cannot take place between two companies of unequal size, unless the NAM can redefine the size of the ball-park.

For instance, as negotiation success is often determined by relative size of business, Tesco's £62bn sales and 28% share of retail market will generally tip the power-balance in their favour for all but the largest suppliers.

All other suppliers need to find ways of leveling the playing field in order to make both parties ‘equal’.

In practice, this means moving from a business-to-business discussion of obvious inequality, where being delisted from Tesco can mean a factory closes, to a focus on a category or even a sub-category where your brand can be positioned as a ‘must-have’ for Tesco, compared with available alternatives, and for that moment you and Tesco can be regarded as business ‘equals’... The key is realism, and an ability to calculate and demonstrate the connection between a supplier’s product offering to the desired financial performance of a major customer. Little else matters in the current economic climate.

UK multiples are currently experiencing unprecedented set-backs, suffering seemingly irreversible share loss to the discounters and local convenience, all under the spotlight of the GCA, with Tesco’s GSCOP report merely a starting point, an investigation by the Financial Reporting Council under way, a SFO seemingly just steps away from imposing financial penalties and a government needing to optimise Corporation Tax returns.

In addition, shifts in consumer shopping behaviour to smaller, faster, closer, more frequent, more convenient purchasing, has resulted in large space redundancy, all diluting major retailer profitability, in the eyes of the stock market.

In other words, it could be said that UK major retailers are now in the market for unprecedented degrees of collaboration with suppliers, more tailor-making to local need, and could be more receptive to the idea of fair-share negotiation.

However, UK multiples are still very powerful players controlling major routes to consumer, and cannot afford to be ‘pushovers’…, but they are more vulnerable than ever before.

This has to represent a significant opportunity, a useful starting point, for those suppliers that are prepared to go back to the fundamentals of consumer need in a radically changed marketplace, re-establish the value to consumers of their essential offering vs. available alternatives, and eliminate any surplus from the consumer’s point of view.

It is then necessary to realistically assess the extent to which each of the multiples has been impacted by the above market changes and issues. Specifically, this means establishing their  ability to meet the needs of your core consumer, compared with other members of the Big Four.

This will help you to establish the specifics of the retailers need-set, as a basis for comparing your ability to satisfy those needs, better than available competition. All based on what we have, all we have, our most valuable asset, consumer trust…

You are then ready to prepare for fair-share negotiation…      

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