The six pillars of retail in the new caste system - Cannondale Associates report - Brief Article - Statistical Data Included

Discount Store News, Nov 22, 1999 by Jennifer Negley

Consolidation. Mergers. Acquisitions. Mega-national companies. Super-regional companies. Are we watching the creation of a new caste system in retailing?

That's the conclusion of a study released this month by Cannondale Associates, which has been conducting a PowerRanking Study annually since 1997. The study asked executives from 56 retail companies and 194 consumer product companies to rate their peers on a number of measures. Although the study specifically targets the food retailing business, the resulting outline of investment priorities are applicable to general merchandise retailers as well.

Here, then, are the six pillars of the new caste system in retailing:

* Technology. Cannondale considers this area to be "the most important enabler." To be truly effective, however, technology initiatives need to be pursued with the end result in mind. In addition to enhancing the relationship with a company's trading partners, it also helps improve internal performance. As one survey respondent noted, "Technology toys have become tools. The retailer that has the most tools wins."

* Consumer insight. The report addresses this in terms of a retailer/manufacturer partnership and urges the implementation of a "new collaborative platform" through which partners share data to reach mutually beneficial conclusions about the direction of consumer tastes. It also recommends conducting a major consumer research project at two-year intervals.

* Brand strength. It's not about the power of the brand today, it's about investing to strengthen its power in the future. Not surprisingly, Procter & Gamble had overwhelming brand strength on the consumer product side of the survey, and Wal-Mart was the clear leader on the retailer side of the survey. Cannondale identifies this pillar as the most important key to securing a successful future. As the report notes, "Nothing tips the scales in the balance of power like brand strength."

* Training. The key is not simply to continuously train, but to continuously upgrade the quality of that training. With technology and consumer insight constituting two of the most critical operating ingredients in an organization, it is vital that associates understand how to apply, interpret and maximize both.

* Organization design. Both retailers and manufacturers have to better understand one another's needs, develop a clearer understanding of the questions they need to ask about the business and create ways to integrate shared information into their individual systems. The approach, Cannondale suggests, should be customer-focused and supplier-receptive. And in a truly challenging note, the firm recommends reorganizing the selling structure every three years. There's nothing like a top-to-bottom restructuring to force an examination of every aspect of the business.

* Positioning of expertise. For retailers, this is a matter of communicating its strategy and seeking out information that will support its brand positioning. For manufactures, it means letting its trading partners know the areas of expertise in which it excels in an effort to better impact the retailer's business. For both, it's about focusing on a core set of initiatives and doing them better than anyone else.