Areas where cpg companies need to improve. Part 2

Last week I looked at where Tier 1 CPG companies can improve the way they conduct business in order to take back some control from retailers, grow their business and retain key employees.

This week I will continue the discussion, but instead look at areas where Tier 2 companies can improve.

1.

There is a need to stress the flexibility advantages that small manufacturers have in order to win large retail business.

Many people do not realize that there has been a trend over the last couple of years where companies are returning production from off-shore because they need shorter lead times and more flexibility.

We are now seeing this at the local level as well where smaller manufacturers are able turn around product extremely fast.

The retail game is becoming even more competitive in Canada with new entrants so quick response time for new unique specialty products that meet retailer needs is the key to success.

The large retailers in Canada are now working with more tier 2 companies than they ever have in the past.

2.

Operating efficiencies are the keys to success for a tier 2 company.

Sometimes it is difficult to pay the market rate for strong operators and there is not often the leeway to allow someone to learn the job on the fly.

Good operations people are essential.

The best valued employees in this category are ones with limited Canadian experience but who have very good global experience and understand manufacturing efficiencies.

In the Toronto market, there is a surprisingly high number of people that fit this criteria. They often have excellent global experience but are unable to secure equivalent roles with tier 1 companies in Canada due to their lack of Canadian experience or because they are not deemed as the right cultural fit for the company.

In addition to their wealth of knowledge in manufacturing and their reasonable price tag, these individuals often have better firsthand knowledge of global food products and global trends that they can offer to a more accepting tier 2 company.

3.

Integrate any product development people with any senior operators that have global experience so that they can contribute to insight and company vision.(see above)

Global products are becoming increasingly accepted by Canadians and not just through ethnic super market channels.

Large retailers are trying to cater more to niche markets and want to avoid further retailer segmentation.

Large retailers have been known to severely reduce listing fees or not charge at all for listing products that provide a unique offering.

4.

For the most part, Tier 2 and tier 3 companies have a much better relationship with individual buyers and category managers than tier 1 companies.

This is because they are perceived by retailers as being the “little guy” who keeps the big guys honest which is a major benefit to the buyer.

Typically these buyers will provide excellent information that they will not provide to a tier 1 so make sure that there is someone making regular calls on the retailer instead of waiting for the buyer to ask for a quote.

Information can include retail mandates and strategies, reveal product holes in planograms as well as reveal other specific product needs of the retailer.

By working closely with category managers, it allows a tier 2 company to get a head start on product development and also the ability to use their advantage of production nimbleness.

5.

Ensure that the manufacturing facility is continually improved by gaining additional food quality certifications and designations as the company’s revenues increase.

As mentioned last week, there might be additional need for co-packing by many large food companies that try to service all of North America from the U.S.

A tier 2 company can give itself the opportunity to increase potential capacity if needed.

This is especially important for a tier 2 company because they lack brand power and tend to rely on a retailer more than what would be considered ideal.

In the case that they lose a large private label contract co-packing is a quick way to make up lost volume in addition to reducing overhead costs.

6.

There is also a re-emergence of the “Made in Canada” claims.

This is likely to continue for not only a nationalistic perspective but because these products have a reduced carbon footprint and the “buy local” movements are continuing to gain momentum.

This claim should be advertised at all times!

This is a zero cost way to assist with marketing.

We have seen excellent results from companies in Quebec that have been using the “made in Quebec” insignia which suggests further segmentation could continue.

This not only addresses consumer desires but it also allows for successful tier 2 companies to be target purchases by larger global firms in the future.

Farewell,

Mike