Large retailers are often portrayed as margin-grabbing ogres. But, if they are to increase customer loyalty, expand internationally and maintain profits, they need closer ties with big suppliers more than ever. Increasingly, both suppliers and retailers are recognising this.

The Routes to Market Association dedicated its November 27 meeting to looking at how to forge these closer links.

The day was hosted by Electrolux, and speakers included Marcelo Bravo, the head of new business opportunities at Boots, Peter Nolan, vice-president of sales at Electrolux Europe and Sjaak Vermeulen, who heads up HP’s retail arm in Europe.

Firstly, Michael White, director at management consultancy VIA International, argued that both supplier and retailer have more to gain by working together to ensure that the consumer has a unique experience. He sees a move away from confrontational short-term transactions, based on price, towards a model where retailer and supplier work together to create and fulfil consumer demand.

But how does this really work out for the supplier? Both HP and Electrolux are trying hard to form deep relationships with retailers. How do they do this? What works and what fails? What are the frustrations?

There are plenty of the latter. Peter Nolan at Electrolux says: 'Many electrical retailers are expanding internationally. But they do not appreciate the differences between consumers in, say, France and Germany.’

Nolan also points out that few retailers who expand internationally do so with one format – Carrefour and Tesco are the exception, rather than the rule. Many other retailers have different stores in different countries.

For Nolan the problem runs even deeper. 'Some large retailers still define their relationship with suppliers purely in terms of price. Such companies have little or no idea of what their consumers want. And it is only when there is a recession that they can be bothered to find out.
We are occasionally still told "we just sell things at a price; why would we want to know about the consumer?".'

Yet many suppliers reckon that a sea change is gradually taking place. Specialist electrical and pharmaceutical retailers now understand the
threat they face from cash-and-carry or food formats. Companies such as Boots, John Lewis, Carrefour and Quelle-Karstadt were picked out as examples of retailers who want stronger relationships.

But not all retailers are moving this way. A manager from a major food supplier said: 'Retailers such as Tesco are moving back to seeing price as the most important thing as they face more competition from Walmart.'

Bravo at Boots gave a unique insight into the frustrations retailers often feel in dealing with suppliers. Boots is keen to identify new products and services. Yet often he finds himself stymied by account managers who have little real knowledge of their own companies. It can be
extremely difficult to get access to research and development departments or to business development departments that can think laterally.

Both Nolan and Vermeulen say that they carefully assess retailer attitudes before deciding whether it is worth investing time and money in joint ventures.

Nolan says that it is vital that both the retailer and the supplier have coherent strategies that are internally aligned. There is no point in talking to a director about grand alliances, if the buyer is rewarded for buying on price. But, ultimately, Nolan says such relationships do depend upon buy-in at director level. 'Without access to the boardroom, we cannot work successfully.’ On the other side of the fence, Bravo at Boots agrees. 'We need directors in the supplier company who are prepared to push for closer links.’

For Nolan, this means always going the extra mile: 'I know of no more important job for the directors of Electrolux than forging strong and
deep relationships with retailers. You have to lead from the top if your company is to work successfully with large retailers.' Electrolux is
even prepared to pay for consultants to work within the retailer to facilitate the relationship.

That priority becomes ever higher as retail itself consolidates. Suppliers have to be one of the top three in a category to have any chance of forming the sort of deep relationship that is essential.

But to make these relationships really work, suppliers have to be truly customer-driven. This means understanding precisely what the consumer wants. It is only by doing this that suppliers can come up with compelling product offers, marketing and in-store formats.

This customer insight forms a large chunk of what Electrolux, for instance, brings to its closest retailer relationships. The company recently
completed a survey of 5,000 European consumers, which showed totally different buying patterns from one country to another.

This focus on the consumer is also vital if these companies are to look successfully beyond their relationship with the retailer. Vermeulen says: 'HP itself needs to have a relationship with the consumer. We know that if you deal successfully with teething problems in the first 30 days of ownership, then you massively increase the likelihood of a repeat purchase. It is our job to provide that support.'

Given the commitment, given the customer insight, what can suppliers achieve? Some of the gains are spectacular. HP, for instance, gets weekly sales figures from retailers representing 40% of its European sales. The benefits to be gained from such data are immense

HP now knows where merchandising and demos will pay off. Sjaak Vermeulen says: 'Before, we felt we needed to launch in all 600 branches of one chain. Now we know that launch success is determined by only 100 of them, so we can concentrate our efforts.'

He has also learnt to concentrate merchandising in the more successful stores. 'If you go to a retailer and offer merchandising or in-store training, they will immediately direct you to their worst performing stores – not the places you want to be in!'

But to see where the information revolution can carry suppliers, you have to look at the data Tesco is selling, via Dunnhumby, its 53%-owned data-mining agency, to its suppliers. Dunnhumby director Patrick Rohrbasser says: 'For one producer we studied 200 launches over two years, and we can now predict launch success after eight weeks.'

'Armed with our sales data, suppliers are able to argue about category management with Tesco, using Tesco's own sales data!'

Electrolux has managed to save millions through joint ventures aimed at optimising the supply chain and sharing its profits with its retailer
partners.

Ultimately, some retailers use Electrolux to manage entire product categories. Wickes, the home-improvement chain, employs Electrolux as joint manager of its entire white-goods business.