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Issues Facing Private Label Suppliers in the Grocery Industry

I was recently asked about some of the issues facing private label suppliers in the grocery industry. I pulled together some thoughts based on a study we did with a major grocery store chain two years ago, which I’m happy to share with you here.

A fundamental shift in the supplier-facing organization structure is an imperative in developing a resolution to the current set of disparities and conflicts that exist in the current organizational model.

Part of the problem that exists with the current set of supplier relationships is a function of the diversity of different supplier governance roles that exist. Supplies are often at a loss as to who really owns the relationship. I recommend establishing a global, regional, and store-level governance mechanism. A more aligned set of supplier-facing roles, policies, and procedures at the global, regional, and store-level will produce a most consistent set of decisions, and will make more sense to suppliers.

Grocery chains should consider standardizing those parts of the business that do not add value due to diversity and local requirements. One of the areas that falls squarely into this category is distribution. A diversity of approaches exists both in supplier inbound shipping policies and procedures into distribution centers, as well as in outbound store distribution from suppliers and distribution centers. In today’s market environment, there are significant cost issues that arise from these policies that are eating into store margins and increasing distribution costs. Grocery chains should seriously consider a national receiving policy, as well as a centralized distribution strategy covering policies and procedures for all regions. Again, this action does not propose to change autonomy for marketing, merchandising, or other decisions at the store or regional level, but simply requires that some fundamental and sensible policies exist for getting the product from the supplier to the store in a cost efficient manner.