For the past year, pricing has been one of the most pressing topics for retailers. No other segment has come under as much scrutiny as supermarkets, where the rising prices of everyday items such as milk, eggs and fruit have had the biggest impact on consumers.
But while the focus has largely been on shoppers, pricing practices between supermarkets and consumer brands are now firmly in the spotlight following an independent review into unauthorised deductions from supplier payments.
Supermarkets and suppliers have always had a strained relationship, but the issue of unauthorised deductions could take it to breaking point. Before it gets to that supermarkets have an opportunity to get a handle on the systemic problems.
Lack of transparency
At the heart of this conflict is a fundamental lack of collaboration and data sharing.
While other retail and supplier categories face challenges managing trade agreements, supermarkets with their thousands of deals and promotions happening at any given time have sought new methods to handle the volume of deals they have in place.
To save time and improve cash flow, they’ve adopted deductions to avoid manually handling, validating, and processing rebate claims. But these deductions create challenges for brands due to the lack of transparency, they can’t easily reconcile whether the deductions being made from their payments are accurate.
The reason for this lack of transparency is the monetisation of scan data. The supermarkets know brands want to understand how their products are performing, what price points, displays and advertising types are working best for them in stores, but rather than giving this intel away, it’s sold to syndicated data houses which then resell it on with additional services to brands.
The original data provided as back-ups to deductions is usually provided as a summary to brands making it difficult to fully audit or reconcile against data purchased from syndicated data providers. The result is that brands, even after acquiring the data, can’t be confident that the deductions supermarkets are making from their payments are fair and accurate.
Avoiding long-term consequences
Promotions and trade agreements are an essential part of the retailer-supplier financial relationship, helping to drive additional revenue and margin for both parties but unauthorised deductions threaten to undermine the trust needed to make the frenemy dynamic function.
Although supermarkets hold a lot of the power, if unauthorised deductions continue, it’s possible they’ll start to see brands fighting back by choosing to focus more on other channels like convenience, mass merchandisers and club stores. It’s happened in other countries and with competition starting to open up here too, supermarkets could find themselves in unfamiliar and uncomfortable territory.
Even if it doesn’t come to this, we’ll likely see further intervention from the ACCC either in the form of more fines or enforcement of data sharing, neither of which is good news for the big grocers.
Collaboration and automation
To protect consumer brands from underpayments, rebalance the power dynamic and get back to a tolerable working relationship, both parties need to have a confident understanding of what they’re due and what they owe.
Resolving the issue and avoiding more challenges in the future requires a new approach to data from the supermarkets. In the US for instance, supermarkets have seen the benefit of bypassing third-party data houses and now sell their data directly to suppliers. This is a good revenue stream for the supermarkets and brands benefit from having access to more accurate scan data that can be reconciled against deductions, reducing the risk of error and overpayment.
By moving towards common data-sharing methods and interchanges, supermarkets could automate the deduction receipt and validation processes thereby driving down brand administration effort and costs. Inaccuracies, lost cash flow and disputes could be greatly reduced if not eliminated. With full transparency and more automation, trust and mutual reliance can be restored.
John Moss is the CEO of Flintfox International, the intelligent pricing software provider with world class IP in pricing and revenue management. An Engineering graduate from Oxford University, John went on to become an Economist in the energy industry before moving into the tech space where he has held a series of senior leadership roles. John is also trained to use explosive and radioactive devices.
