Stock reduction and store brands

Like any other sector, the good consumer industry is struggling to overcome the effects of the global financial crisis we’re facing. This situation looks like ending up in a more consolidated industry in which survivors will be fewer, bigger and stronger.

The fierce war of prices we have seen lately doesn’t seem to be close to an easy ending; in fact, it’s becoming increasingly stronger and looks like remaining until consumer pockets are filled again.

The pressure on cash flow has increased exponentially in the past few years which has made inventory management one of the key success drivers; keeping low inventory levels has become critical and has been approached in different ways: one way involves a reduction of the brands available at the stores (Mercadona’s approach), another one relies on a ”just in time” look like approach: which means, having in stock just what is needed for the following business day (safety stock excluded).

Several times, this stock reduction means some customers won’t be able to find the products they’re looking for at the stores. If we take as true the believing that 1 out of 3 times a customer who doesn’t find a certain product will buy a substitutive product; 1 out of 3 will look for it in a different store; and 1 out of 3 won’t buy anything, we will surely come up with the conclusion that there is a high risk of customer satisfaction and business reduction. Nevertheless the competitive advantage provided by available cash flow enables lower prices not possible otherwise. Keeping a good balance in both, price and selection, can be the difference between succeed or failure.

Another clear conclusion is that high quality-low price store brands are a must for any company which wants to succeed in this industry; bringing both, customer loyalty and stable source of income. The combination between stock reduction and own quality and store brands seems to be a constant for the supermarkets overcoming these tough years.

Companies such as Mercadona (the agreed absolute winner of the industry since the financial crisis started back in 2009) have shown how to win in this environment with drastic measures and a well-defined strategy: market leader brand (sometimes top follower too) + store brand for each line of product on their shelves, and nothing else.

We don’t know how this and other successful  companies will deal with the economic recovery expected and how they will readapt their strategy, but for now, that is the way to go.

Comentarios desactivados en Stock reduction and store brands / 27 Nov 2011 por Alberto Rengel Bueno
MERME /

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