Professor Dirk Möhlenbruch, Martin Luther University Halle-Wittenberg (Marketing & Retail).
Interview: Sven Heitkamp
The food market is a hard-fought market. What are the mechanisms used to put products into retail and onto the supermarket shelves?
In general, it must be assumed that the retail sector's receptiveness to adopting a product is very low, because a good position on the shelf is a very desirable and scarce resource. A study conducted by the EU Commission showed that 1,700 new products came onto the market in 2009 across Europe, particularly in the personal care and dairy product ranges. However, these also included new packaging, different package sizes or formulations – and few real innovations. In light of this abundance, manufacturers find it very difficult to supplant other products if they bring out innovations. This applies in particular to small and medium-sized companies.
The initial proposals usually take place as part of annual business discussions. If a medium-sized manufacturer wants to get a free space for innovations on a retailer's supermarket shelves, he has to pay hefty market entry fees and advertising cost subsidies to do so. He has to offer the retailer financial incentives if he wants to forge a business deal at all. That is standard practice.
Officially, very little is known about this. However, it is known that these negotiations are no place for the faint-hearted. Both sides refuse to be drawn into comment on this, however, because they are dependent upon each other. In fact, industry is virtually dependent on the retail sector.
Industry has to pay additional shelf rental fees for prominent positions, like for example placement fees and advertising cost subsidies. The retail industry has a wealth of terminology to describe these financial benefits. However, individual courts have already incriminated such receivables by positing the argument that no benefit is received for the payments. However, in defence of the retail industry, it must be conceded that the shelf positions it offers are indeed a scarce "commodity" that is of elementary importance to industry, and that it makes a difference which positions yield particularly high sales figures.
In a supermarket, positions on the right-hand side are particularly attractive, as well as spaces at eye-level and to the right of the middle. These are the areas where customers are most likely to look at and choose products. These effects have already been studied by deliberately repositioning products, for example shifting them from right-hand to left-hand placements, or from external aisles to internal aisles. The results actually did show considerable declines in sales.
If a supplier has very strong, well-known brands that are deeply embedded in customers' consciousness, and have a crowd-pulling effect, it is in the retailer's own interest to give it a good shelf position. Thus the best thing for a manufacturer to do is to establish a strong brand that the retail industry is dependent upon. These effects can even be observed at Aldi. The discount supermarket chain is increasingly carrying popular brands in order to compete with direct competitors and supermarkets.
In fact, the opposite is the case. Numerous studies show that more than 50 percent of purchases are impulse buys. For this reason, it is in the retail industry's own interest to give strong branded products a good shelf position. Hiding them away would mean losing sales. However, sales margins are not the only criterion in retailers' considerations. Articles' turnover rates are at least as important, if not more so. Well-known brands are important for good turnover rates as well – and that is why the retail industry's initial reaction to innovations is always tempered with reservations.
That is just one line of argument among many. Particularly the large self-service department stores attempt to increase their revenue with colours, smells, music or lighting – and there, too, manufacturers seek to get attractive positions. However, part of providing a good shopping atmosphere also includes avoiding overwhelming product ranges and stress from information overload – a strategy that makes room for manoeuvre even tighter.
As a result of the increasing importance of agency portals on the internet, which are brokering inexpensive private accommodation, an increase in competition can be expected in the hotel industry as well. However, this will occur to a lesser extent because of the buying power of the new competitors, but rather because of their supply power. Because this is likely to trigger an intensification of price competition, the opportunity for the hotel industry will still lie in offering a persuasive range of services. Differentiation and customer loyalty strategies, with the aid of new media too, appear to be particularly advantageous to help compensate for cost disadvantages. (see "What can I do for you?" Check-in 2/16)
Mr Möhlenbruch, thank you very much for the interview.