Powerful Partnerships Between CPGs and Retailers Are Key to Operational Success
Given the retail industry’s challenges of drastically changing consumer shopping behaviors, the growing power of e-commerce behemoths like Amazon, and the pressures around digital transformation, CPG manufacturers and retailers need to find new ways to succeed. One important – and sometimes overlooked – strategy is cultivating and activating strong, collaborative relationships between CPGs and their retailer partners.
Recent research from McKinsey & Company shows that “the CPG manufacturers that are clearly winning relative to their category are those that have deepened and broadened their collaboration with retail partners, forming ‘power partnerships’ that yield meaningful growth in both revenue and profit.”
Illustrating the urgent need for these collaborative partnerships, McKinsey’s research points to the fact that manufacturers’ median revenue growth has slowed from “9.7 percent at the end of 2011 to a mere 1.2 percent at the end of 2018.” At the same time, the costs of working with retail partners has been rising “by an average of 40 basis points since 2016.” The manufacturers who have already entered into collaborative partnerships have broken the cycle and are experiencing “above average growth sales growth and profitability,” according to McKinsey.
McKinsey’s Commercial Excellence Benchmarking (CEB) survey, developed in partnership with the Grocery Manufacturers Association and Nielsen, found the following four principles to be essential for successful, profitable CPG/retailer partnerships:
- Co-develop long term strategies for growth
- Use advanced analytics to gather insights that help create those joint goals
- Create an operating model that supports nimble execution
- Work together across the full supply chain – from trade optimization to merchandising to supply-chain improvements
You can read about McKinsey’s CPG/retailer partnership study here.