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Almost two-thirds of consumer packaged goods (CPG) manufacturers that moved retail sales activities from internal teams to sales and marketing agencies (SMAs) saw a positive effect on selling costs after the switch, according to a recent study commissioned jointly by the Grocery Manufacturers Association (GMA) Sales Agency Committee and the Association of Sales and Marketing Companies (ASMC) Foundation, and conducted by Bain & Co.
“Maximizing the Impact of Outsourcing: How CPGs Can Best Use Sales and Marketing Agencies in a Changing Environment” found that using SMAs costs 23 percent less than employing a direct sales force at retail. Undertaken with the aim of helping manufacturers determine how to deal with ongoing economic turmoil and shifting consumer spending patterns in an ever more complex retail landscape, the study offers an analysis of performance results of CPG companies before and after outsourcing to SMAs.
“In the face of a turbulent economy, CPG manufacturers are looking for new opportunities to improve efficiencies so they can continue to deliver maximum value to consumers,” noted Logan Kastner, senior manager of industry affairs at Washington-based GMA. “This study demonstrates that there are considerable efficiencies to be gained from effectively partnering with SMAs and provides a road map for doing so.”
The report’s results are based on survey research and qualitative interview data gathered by global business consulting firm Bain, and organized into three categories: SMA usage in retail selling and merchandising; SMA usage in selling to retail headquarters; and how the SMA-CPG relationship structure affects performance. As well as a positive effect on selling costs, 56 percent of companies polled saw a positive impact on merchandising. After moving customer headquarters selling activities to an SMA, 73 percent of small-cap companies surveyed said they experienced a positive impact on overall sales, and 45 percent reported a positive impact on selling costs. Of the large-cap companies polled, 63 percent said they saw a positive impact on selling costs.
“CPGs are partnering more deeply with SMAs to gear up for an increasingly complex and escalating war in the store,” said Kara Gruver, head of the North America Consumer Products Practice at Boston-based Bain & Co. and lead Bain author of the study. “This isn’t just about cost-cutting. CPGs are using their relationships with SMAs to better understand their customers and to exit this downturn in a position of strength.”
The research highlights several downturn-driven trends that are driving CPG companies to transition retail sales outsourcing to SMAs from a vendor management model to a partnership model:
• The retail sector is consolidating: Over the past four years, the largest five grocery/mass retailers have consolidated and are leveraging their strength to demand more service at lower cost from CPG suppliers.
• Retailers are customizing their merchandising approach by location, season and category: This focus on localization means that CPG companies need to offer custom products, shelf sets and promotions; SMAs provide the vehicles to amass store-level information and execute on localization plans.
• The increasing market share of store brands is blurring the lines between customers and competitors.
• Retailers’ headquarters are exerting more control over almost every decision. CPG companies must be increasingly disciplined about where to concentrate internal resources for the greatest impact. The best retail access and the best retailer relationships are essential.
“In light of these trends, consumer product makers are rethinking their core capabilities, and this report shows that partnering with SMAs can be an effective [m] and profitable [m] way to bolster those capabilities,” observed Barry Maloney, CFO of the ASMC Foundation, a Washington-based organization devoted to research, education, training and charitable contributions for SMAs and their industry partners.
An earlier GMA and ASMC Foundation review of sales agency use was conducted in 2007. Both that study and the new one are available online at www.gmaonline.org/publications.