Just a few years ago, manufacturers were the ones who did most, if not all, of the hiring of merchandising service organizations for retail shelf-management procedures such as replanograms and new item cut-ins. But now, there's greater involvement from retailers.
While 78% of MSOs said manufacturers contract the work they do at retail, 22% said retailers are their clients, according to new industry indices from the National Association for Retail Merchandising Services, Plover, Wis.
That's a considerable contrast from just three to five years ago, when manufacturers contracted nearly all of the work, according to Ralph Bartolotta, chairman, NARMS, a trade association that represents MSOs. NARMS' members cover all classes of trade, though about 50% of its 215 members handle supermarkets, covering such areas as new-item introduction, planogram installation and store sets.
In the past, retailers may have suggested a certain MSO. But they didn't directly engage the MSO to provide these services in the way they are doing now.
While the trend gives retailers a greater say in how their shelves are managed, it diminishes the power of the manufacturers, said Moe Rodriguez, a NARMS board member and director of retail operations for Pfizer's Consumer Healthcare Division, Morris Plains, N.J. It means, for instance, that manufacturers can't decide which MSO gets hired or, if necessary, fired.
"Some manufacturers resist [the trend] because you lose control," said Rodriguez.
While some may describe the trend as a retailer-controlled environment, Gary Ebben, president and executive director, NARMS, put it a different way.
"I see it more as a collaboration," he said. "It's a way of seeing to it that the method becomes more seamless."
Added Bartolotta, "Manufacturers that have traditionally provided strong shelf support will support these programs." Bartolotta is also president of Division21, St. Paul, Minn., a retail space-management firm.
There are several reasons for migration of principle subscribers moving from manufacturers to retailers. For one, retailers have begun to take a more strategic look at how the shelf is managed, said Bartolotta. This could lead to an even larger number of retailer-hired MSOs over the next few years, NARMS officials said.
"This is a trend that will continue to evolve," said Ebben.
Jim Hall, immediate past chairman, NARMS, agreed.
"Retailers are seeing more value and significance to [shelf-management] work," said Hall, who's president of Advanced Retail Merchandising, Lakeland, Fla. "They want to own the shelf."
The trend is particularly evident in the food industry, said Rodriguez. This is because of the complex nature of the trade class, including difficulties in getting new items to the shelf due to the many different retail divisions and regions.
"Some retailers insist they can do [shelf management] better by partnering with MSOs, which they can control," said Rodriguez.
Rodriguez said it's too early to say if the retailer-oriented movement will help or hinder shelf management. "If it's successful, products will get to the shelf quicker. But if it's not, new-item launches could be in jeopardy," he said.
If it's the latter, manufacturers should fight back with their best weapon of defense: results. For this reason, marketers should develop ways to measure results so that they can go back to the retailer and let them know if the process is not working.
"This is relatively new, so it will take time to see the results," said Rodriguez. "It will vary by account."
Meanwhile, the longstanding question of who will pay the MSO remains. As it stands, even in cases when MSOs are hired -- and controlled -- by retailers, manufacturers, for the most part, still foot the bill.
"There's no argument that this work needs to get done at retail. The question has always come back to who will pay for it," noted Ebben.
The NARMS survey shows that retailers and manufacturers are experimenting with several payment models to find the best fit for their go-to-market strategies.
In some cases, the retailer hires the MSO directly and then collects the cost from the manufacturer. This is often done through "fair-share costing," a method in which all manufacturers that have an interest in a certain category contribute to the bill. NARMS noted, however, that while manufacturers are largely responsible for the bulk of the cost, retailers contribute various resources, including money, people, materials and systems.
Ebben cited, however, that manufacturers and retailers are still looking into other types of payment procedures.
Manufacturers are not only responsible for the bill, but paying a significant part of it before the first new item is cut in or first display is set.
According to the NARMS indices, there's been a growth in the number of MSOs that require advance payments. According to the study, 50% of MSOs said they required advance payments in 2001, up from 32% in 2000. Of these, almost 70% required between 26% and 50% of the total project cost, while 27% asked for 10% to 25%.