|
With an increasing number of international retailers now looking to implement Retail Ready Packaging (RRP) as part of their broader operational efficiency drives, IGD’s latest research, Global Retail Ready Packaging, reveals that suppliers are developing a range of different positions and adopting various tactics in response.
Common process for an individual response
Faced with a request to convert their products to Retail Ready Packaging, suppliers will adopt a very individual response. The willingness of suppliers to meet such retailer requests will vary considerably from those which are highly engaged and view it as an opportunity to grow their business to those who are highly resistant and attempt to stall the process. However, our authoritative global study of how suppliers have responded reveals four key elements:
 |
 |
| |
IGD's research reveals there are four key elements in a supplier's response to a request for Retail Ready Packaging |
- The corporate strategy
- Level of engagement
- Tactics to offset costs
- Business case
Is this for us?
At this early stage a supplier will need to make an assessment of whether to engage or not, and while many will want to determine the business case to help them make this decision, this is not appropriate at this stage as the business results will be impacted by decisions which need to be taken at a much later stage, e.g. which type of RRP solution is to be used.
Therefore, at this stage suppliers need to consider the merits of RRP from a more ideological or strategic standpoint, although the potential impacts on sales and costs will be front of mind. Key points to consider include:
- What is the scale of the change being proposed?
- Can we work to the timelines that have been outlined?
- What degree of internal change will this process drive?
- How does this initiative fit in with other plans that my company is working on?
- What is the business risk of not being part of this programme?
- How are my competitors likely to respond?
By working through this assessment, suppliers will typically formulate their corporate position on RRP, and also start to determine their level of engagement. Whilst the corporate strategy will be applicable to all retailers, the supplier’s level of engagement and response will vary for each of their key trading partners.
In, out, or somewhere in between?
Our research revealed that suppliers typically adopt one of six different engagement levels when faced with a request to convert their products to RRP. Even for those which are fairly resistant, many continue to maintain some form of engagement in order to understand how roll-out plans are progressing and to better understand the implications for their businesses. Over time, it is likely that many suppliers will develop a different response to the initiative, partly due to their experiences (e.g. gaining benefits and overcoming challenges), and partly due to the response of their competitors.
- Resistors – these suppliers seek to resist the roll-out of RRP within the category as a whole. The resistance may be due to strategic or operational reasons, or a combination of both. Typically these suppliers will provide alternative plans for the roll-out, suggesting other timelines or different categories that may be converted.
-
- Participators – these could also be described as ‘willing resistors’ and are willing to participate in the RRP roll-out in order to retain and develop their business with their trading partner. Often this will result in doing the minimum that is required, meeting the retailer’s specifications in order to secure their business with the retailer.
-
- Followers - these companies are typically active participants in the RRP process, however, as they are not the category leaders they do not have the ability to influence the direction of the category. However, they will observe category developments and will implement any identified best-practice in order to share in the benefits.
-
- Fast Followers - similar to ‘Followers’ but often take a leadership role in the category, although for strategic or operational reasons are unable to do so with regards to RRP. In order to limit the ability of other leading suppliers in the category to develop a broader category leadership role, this group of suppliers will seek to implement best practice as fast as possible.
-
- Leaders - often referred to as ‘category captains’ this group of suppliers work closely with their trading partners to set direction for the category on a broad range of issues, including RRP. They will use their leadership role to leverage further benefits and build long-term engagement strategy with their trading partners.
-
- Anticipators - this is usually a very small group of suppliers who will work closely with their packaging suppliers to develop innovative solutions for the category, usually working on the next generation of RRP solutions. These are presented to their retail partners to help shape the category in line with longer term trends and forecasts.
Each of these different engagement levels has implications in terms of the costs and benefits associated with implementing RRP, with the most engaged suppliers often incurring the highest costs but also maximising the potential benefits of RRP.
Offsetting Costs
Faced with additional costs, suppliers can adopt a range of tactics to minimise the overall impact, and these can be grouped into three key types:
- RRP maximisation – designing solutions to enhance brand appearance in the category, functionality and customer communication
-
- Efficiency measures – including converting all customers to the RRP solution, driving procurement savings and developing generic solutions
-
- Negotiation strategies - increase product listing or distribution, increase share of space within the category or adopt menu pricing
In reality, most suppliers will adopt a combination of these tactics, and different strategies will be used for different trading partners, depending on the nature of the individual relationship.
 |
| IGD's Global RRP report on Supply Chain Analysis provides businesses with help to develop their RRP response | |
| |
Determining the business case
Until a business’ RRP strategy has been developed and decisions made about which types of solutions, if any, are to be adopted, it is difficult to determine the business case. This is often a complex calculation involving over 20 different variables, with some impacting both the retailer and supplier.
Individual organisations will have their own metrics to determine whether or not a project moves ahead including thresholds for return on investment (ROI), payback periods, sales uplift and cost increases. These costs and benefits will be unique to each individual organisation, as the impact of RRP will vary from company to company, depending on their relative starting positions.
For example, some companies will have a large proportion of their products in relatively basic RRP, and therefore the costs associated with changing production or packaging lines may be relatively less than those within companies where it may not be possible to automate RRP packing on their current lines, requiring both interim co-packing and significant investment in equipment over the longer term.
Collaboration is key
While shaping a response to retailer requests for RRP is complex, in determining a response, our research has revealed that collaboration between trading partners is essential. Often there is a significant disconnect in terms of the perceived costs and benefits of RRP which can colour suppliers’ initial responses, and the strategies and tactics which are eventually deployed. This lack of alignment can delay efforts to move forward, resulting in sub-optimal solutions being developed, and only through improved dialogue, openness and honesty between trading partners will the potential benefits of RRP be maximised.
More information:
Find out more about Retail Ready Packaging at IGD Supply Chain Analysis.
|
