The grocery industry's trend toward consolidation into larger and larger chains is the most significant change to hit the marketplace since modern marketing was invented, according to consultants and experts in the supermarket industry.
"The impact on every rung of the food chain is extraordinary and it is the first such shift in marketing in the history of the modern commercial world," said Jon Kramer, chief executive officer of J.Brown/LMC Group in Stamford, Conn., an integrated marketing and communications agency. "Consolidations are happening in supermarkets and every other industry, and this is going to change the way the world does business in the next seven to 10 years."
The most significant change is that retailers increasingly have the upper hand in the ongoing power struggle between retailers and manufacturers.
"This means there needs to be a closer relationship between manufacturers and retailers," Kramer added. "Whether that will actually happen or not remains to be seen."
John Opasinski, senior manager with Andersen, a business and retail consulting firm based in Chicago, said, "Retailers are continuing to gain more clout as consolidations occur and that trend is not going to stop. Think of the power and influence Wal-Mart has, or Safeway, Kroger or Albertson's.
"You can't tell me they don't have more clout than they did a few years ago."
The same market forces that are affecting supermarkets are affecting every part of the grocery industry, as well as every other industry in the country.
"Globalization is just a fact of business now; you have to deal with it," Opasinski added. "This creates partnership issues. There are some good aspects to the situation. Hopefully, when closer collaborative relations are established, it will mean some savings will result. Manufacturers and retailers can look for supply chain efficiencies."
Consolidation is also occurring on the manufacturers' side.
"The nature of business in general, including on the consumer packaged goods level, is mergers, and as firms become larger they understand where efficiencies can be made. Well-run companies have more logical pricing," he added. "This can mean a CPG will need to put a team member in place at the retailers' headquarters in order to form a partnership."
Gregory Rubin, a partner at Andersen, elaborated, "A manufacturer has to be more attuned to giving the best deals now in both price and service because the manufacturer is dealing with so many fewer clients. There has to be a focus on the large accounts on the part of the manufacturer."
Some of those efficiencies may be achieved through reductions of duplicate staffs when two companies merge. Although some employees may find themselves jobless in these shifts, the same changes can benefit consumers.
"Do consolidations make a difference? You're darned right they do," declared Tom Jackson, president and CEO of the Ohio Grocers Association, which represents more than 800 supermarket companies. "It makes a big difference if the wholesaler or manufacturer is dealing with 1,000 individual stores or is dealing with a few chains that include several thousand stores.
"The more buying power you have, the more clout you have. And it is the consumer that comes out the big winner," he added. "In reality, a retailer is just a purchasing agent for the consumer, who has a lot of choices of where to go. The retailer has to look for every good deal from the manufacturer in hopes of keeping that consumer because grocery is a consumer-driven industry, more than most. It is too competitive to allow anyone to sell a product for a lot more than what it should be sold for."
But the fact that big chains are swallowing up smaller chains and independent stores does not necessarily mean the death of every independent retailer, said Jackson, who is philosophical about the changes affecting his industry and the entire business world.
"Change is inevitable. If you fight it, it will be an uphill battle, so you might as well embrace it and use it to your advantage," he advised. "This can give the small retailer the chance to be more niche-driven -- to become more special in the eyes of the customer. A big chain cannot be all things to all customers. The little guy can know his customers and become what the big guy cannot be. He can specialize."
Consolidation can also mean new opportunities for the manufacturer, according to Chris White, a marketing consultant and financial analyst based in Scottsdale, Ariz.
"Right now the manufacturers are in disarray, fumbling for solutions to dealing with larger retailers," White said. "They feel like they pay a lot of promotion money to retailers and get nothing in return for it. That feeling is going to increase."
As retailers gain power they will demand particular types of promotions from the manufacturers, he said.
"Promotions tend to be brand-oriented now, but retailers are not going to be interested in that anymore. Retailers are going to be giving the manufacturers schedules of promotions based on things other than brand, and saying 'do it this way,"' he predicted.
In addition to the power of buying in large quantities, large retail chains are going to push their private labels, further eroding the influence of manufacturers, he said.
The manufacturers who are going to come out on top are those who are willing to undertake real co-marketing with the retailers, White added.
"The retailer is going to be able to take the top two or three brands that do 80% of the business in any one category and fill in the rest of the shelf space with private label," he estimated.
Although some large retailers do their own buying, there will still be a place in the industry for wholesalers, but wholesalers will have to work with manufacturers to bring the best deals to the retailers, said Jackson of the Ohio Grocers.
Wholesalers also will still buy on behalf of the large retailers who do not want to hold products but merely want to act as a distributor to the consumer.
"Wholesalers used to be able to ship to the back door and let the supermarket sort out the goods," White said. "That is not going to work anymore with the increased retailer power. The wholesaler is going to have to consolidate merchandise by store and put it on pallets so the supermarket can handle it more easily. The retailer has the clout to demand these things now."
The other middleman, the food broker, also is facing a change in operations because of consolidation fever, but there are differing opinions on what this means for the brokers.
To some extent, brokers are fighting back by also merging to create larger companies to deal with the large retailers. White feels these broker mergers are unimportant as far as the supermarkets are concerned.
"Brokers merging does not mean a whit to supermarkets and it goes against what brokers should be doing, which is to tailor their products to local needs. By becoming national they are becoming standardized," which is self-defeating, he said.
Kramer of J.Brown disagrees.
"Manufacturers that don't have the clout to deal with a large retail chain are going to need brokers more than ever to get into stores," Kramer said. "Brokers will take on more importance and their consolidations will give them critical mass so they will have a national presence."
Jeff Rice, chief communications officer for Crossmark, a broker based in Plano, Texas, said, "Consolidations on the retail level have caused us to revamp our entire strategy. We have to be able to service clients on a national basis without diluting on the regional level.
"We saw the writing on the wall before a lot of other people and we have an enormous focus on the big retailers," he added. "We do co-marketing work with the retailers and manufacturers on everything from point-of-purchase promotions to package design."
Despite the pressures to consolidate, smaller brokers still exist and feel they will always have a place in the market.
"There has been a lot of consolidation on the brokers' side, but we feel that is a real opportunity for the niche-sized broker like ourselves," said Robin Magaro, who with her husband, Brad, owns Maximum Marketing based in Pompano Beach, Fla. The regional brokerage deals with supermarkets in the Southeastern United States.
"Some brokers feel they have to consolidate to protect themselves," Brad Magaro said. "But it doesn't really make sense. Knowing our local market is what we do best."
His wife agrees.
"We have street people and can focus on the companies we represent and we can act much quicker than a large company," Robin Magaro said.
"Many manufacturers feel they are not getting the focus they want from a big broker. And one of the big brokers just filed for Chapter 11 bankruptcy, so maybe they didn't know the way to go.
"The retailers call the shots now, but they realize there is only so much the manufacturer can give," she added, "so everyone knows the industry has to be a partnership now."
Marketing Specialists, Dallas, and Acosta Sales and Marketing Co., Jacksonville, Fla., reached a consolidation agreement in June after Marketing Specialists filed Chapter 11.