Midmarket Manufacturing Suppliers Should Take a Page From Giant Retailers and Think Bigger
Huge takeover deals by larger retailers over the years has created significant consolidation and is putting a lot of price pressure on suppliers whose margins are tighter than ever. The bigger the retailer, the more stringent the demands, which include, but are not limited to, retroactive price discounts and a freeze on prices going forward. It’s tough out there for small to mid-size suppliers but these challenges also pose opportunities for suppliers willing to adapt to this new market reality.
Canadian grocery chains are also getting bigger in order to compete with massive retailers who have now entered the grocery business and are using their size and purchasing power to squeeze prices and attract consumers. These pressures are then passed on to suppliers as the retailers try to find other ways to boost their margins. Another key trend: retailers are trying to trim their supplier base, which means they only want to work with suppliers that can offer multiple product lines. One of the reasons accounting firm Fuller Landau has focused on the food and beverage industry and has become a specialist in this space is because that industry is dynamic, always evolving and to a large extent recession proof. However, what we have learned from the food and beverage industry also applies to retailer/supplier relationships in other industries.
Here are a few key strategies to help turn challenge into opportunity:
Suppliers should take their cue from their retail clients and expand either through acquisition or strategic partnerships. For a supplier who is well managed, well-capitalized and could access financing at historically low rates, this is a good time to consider acquiring. In this way, expanded sales volumes will make up for lower prices and the business can continue to grow. The key is to ensure that the targets for acquisition complement your product lines. This will then give you the opportunity to make a stronger case to retailers to buy from you.
Invest in capital equipment.
Driving efficiencies is critical in today’s “lowest-price-wins” marketplace. You must improve your processes continuously. This will require investing in new technology and capital equipment. Canadian businesses lag their U.S. counterparts on this front, and it leaves the door open for more efficient competitors to steal market share. You must look long term and ensure your equipment will allow you to optimize processes and keep you ahead of the competition.
Differentiate yourself and build your brand.
Branding is an important differentiation tool. In fact, a recent report about the state of private business in Canada shows that private company leaders planning for double digit growth have made stepping up their sales and marketing campaigns a top strategy to get there.
Grow beyond Canada.
There has been significant discussion about The Canada-European Union Trade Agreement (“CETA”), which came into effect in the fall of 2017. The trade deal represents a huge opportunity for Canadian mid-market suppliers to sell their products to Europe. Canada has a strong reputation in Europe and Canadian private businesses should consider exporting their products beyond North America to countries and customers who want Canadian-made products.
If you don’t want to be an acquirer and don’t want to invest in capital equipment or marketing, then maybe it’s time to sell. There is a lot of interest in the supplier group and beyond. You will likely get good value for your business.
While this is clearly a challenging time for manufacturing suppliers in general, there are also many opportunities. This is a time to not only get bigger but think bigger. The reality is the end user is demanding and expects low prices and businesses must adapt to get the margins they need to survive and thrive.