WASHINGTON, D.C.—Nearly two-thirds of consumer packaged goods (CPG) manufacturers that shifted retail sales activities from internal teams to sales and marketing agencies (SMAs) reported a positive impact on selling costs after switching, according to Maximizing the Impact of Outsourcing: How CPGs Can Best Use Sales and Marketing Agencies in a Changing Environment. The study, released today, finds that using SMAs costs 23 percent less than employing a direct sales force at retail. 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 & Company, the study provides an analysis of performance results of CPG companies before and after outsourcing to SMAs.
The study was completed to help manufacturers understand how to react to continued economic turbulence and changing consumer spending patterns in an increasingly complex retail environment. “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,” said Logan Kastner, GMA senior manager of industry affairs. “This study demonstrates that there are considerable efficiencies to be gained from effectively partnering with SMAs and provides a roadmap for doing so.”
The report findings are based on survey research and qualitative interview data collected by Bain and are 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. In addition to a positive impact on selling costs, 56 percent of companies surveyed reported a positive impact on merchandising. After moving customer headquarters selling activities to an SMA, 73 percent of small-cap companies surveyed reported a positive impact on overall sales and 45 percent reported a positive impact on selling costs. Of the large cap companies surveyed, 63 percent reported 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 Bain & Company’s North America Consumer Products Practice and lead Bain author for 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 study points to several downturn-driven trends that are pushing CPGs to shift 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 using their strength to demand more service at lower cost from CPG suppliers.
Retailers are tailoring their merchandising approach by location, by season and by category. This focus on localization means that CPGs need to offer tailored products, shelf sets and promotions; SMAs provide the arms-and-legs to gather store-level information and execute on localization plans.
The growing market share of store brands is blurring the lines between customers and competitors.
Retailers’ headquarters are exerting tighter control over almost every decision. CPGs have to be much more disciplined about where to focus internal resources so that they have 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 – and profitable – way to bolster those capabilities,” said Barry Maloney, CFO of the ASMC Foundation.
Maximizing the Impact of Outsourcing: How CPGs Can Best Use Sales and Marketing Agencies in a Changing Environment follows a previous GMA and ASMC Foundation review of sales agency utilization conducted in 2007. Both studies are available online at www.gmaonline.org/publications.
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