It was only a few weeks ago that Tesco started its initiative on shelf-ready packaging (SRP). Already the big manufacturers that do not have largely compliant packaging are counting the cost of meeting Tesco's demands.
They are quite rightly asking what the retailer's balancing benefit might be so they can at least mitigate the adverse impact on costs to meet the new specification.
One major player is looking at an on-cost of compliance of £3.6m a year. If Tesco will not trade off some of its benefit in the 'last 50 yards', this manufacturer may be prepared to fight the imposition of SRP to the point of 'delisting' Tesco for such products.
The problem it faces is not the concept of SRP, but the lack of efficient consumer response (ECR) through the commercial divide.
Tesco is an important part of this company's business at 21% but it is already SRP-compliant on 70% of stock keeping units (SKUs). Unfortunately, they represent only 32% of sales value. £3.6m of extra cost will make not only Tesco much less profitable, but all Tesco's competitors will automatically benefit from the change since the supplier sells branded rather than own-label products and Tesco's demand will become the new de facto standard.
The best organised retailers stand to save a large proportion of the 25-35p per case they presently spend in the last 50 yards (depending on case configuration and merchandising to case quantity ratio).
It may be counter-cultural to say no to any big retailer today. In this instance it must be right to insist on a trade-off.
Beware retailer blandishments that SRP will improve sales. The truth is that the back store in most retailers is so badly managed that SRP will create very little short-term benefit to availability and sales. It is much more likely that the retailers will take the quick win and cut headcount -- especially those retailers with serious trading problems. If they do that they are effectively using supplier money to boost their bottom line.
Tim Knowles
is Director, ProActive