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Guest Post: The Convergence of Modern Trade

Convergence of Modern Trade

In a prior job, I worked for a company that had global reach, yet struggled sometimes to properly span the varied forms of ‘retail’ that characterize emerging versus mature economies. The answer, in part, was to recognize that there are two fundamentally different kinds of trade: modern and traditional. Modern trade is what those of us in mature economies take for granted – large, sophisticated retailers with modern stores, processes and technology. In a modern trade environment, wholesale distribution fills a niche of smaller independent retail, as well as filling shorter turn around supply needs (mainly supplying small retail), external partners must have broad coverage, and infrastructure (roads, warehouses, etc.) are generally not limitations. Traditional trade, principally in emerging regions, is typically the exact opposite, characterized by a very robust wholesale distribution industry supplying a bewildering array of small mom-and-pop retailers and mobile (i.e. bicycle) vendors. External partners tend to be highly localized, and infrastructure is a problem. The point here, and what my prior company realized, is that the approach to these very different forms of trade MUST be different, both in terms of how you approach the product (things like pack size and price points) as well as how you design the supply chain.

While it has been true that even modern trade has differed across and between regions, it is the view of IDC Manufacturing Insights that increasingly the go-to-market approach that consumer goods manufacturers are taking is converging. The reality is that modern trade in the US, for example, is just not that different from modern trade in Western Europe. OK, there are differences of course – here in the US we have the advantage of being one country, and while the EU has helped to limit cross-border trading differences, those differences do still exist. But the similarities dwarf the differences. When we talk to manufacturers about their retail relationships; particularly as those relationships relate to the retail supply chain, we hear common complaints, and opportunities:

  1. How do I respond to growing private label (more developed in Europe than in the US currently) and what is my role in direct-to-consumer; and how do I manage the logistics of shipping to consumers?
  2. Retailers are asking for shorter lead-times and smaller orders (economic order quantities) that stress my fulfillment capabilities; how do I find ways to improve execution, either internally or with the help of an external logistics partner?
  3. What are the ways that I can better tie the supply side of my supply chain to fulfillment – particularly as it relates to risk and resiliency, and the ability to respond better to changes in the external marketplace?
  4. How do I get ahead of regulatory changes – either in terms of visibility/traceability or in terms of better managing across borders and with customs authorities?

The ‘ convergence of concerns ’ doesn’t mean that the US retail environment is the same as Western Europe, but it does mean that strategically, the consumer goods manufacturer can increasingly think about pan-regional approaches to supply chain planning and fulfillment and will, if they aren’t already, be looking for globally-capable external fulfillment partners.