How can they kiss and make up?

The FT reports today on the public airing of a spat between Unilever and Delhaize in Belgium (www.ft.com/cms/s/0/6d36c0d2-f7ab-11dd-a284-000077b07658.html?nclick_check=1)

In the absence of insights into the nitty-gritty of the negotiations, it isn't possible to say definitively who's right and who's wrong. Yes -- Unilever has to address declining volume sales, and increasing price and securing additional product listings can be construed as valid tactical responses. In the spirit of win-win trading, Delhaize should also benefit from this approach, but clearly, both sides appear not to agree on this outcome. Such diverging views between trading partners isn't new, however Delhaize's delisting of Unilever's ranges represents the more aggressive posturing that we could be witnessing as the economic environment toughens.

Research I carried out a couple of years ago into retailer-manufacturer relationships indicated that these disagreements largely arose as a consequence of embedded negative perceptions of trading partner motivations and strategies. This was very much a consequence of a failure to really understand the economic, market and operational drivers impacting the manufacturer-retailer-consumer value chain. For example -- most of the CPG manufacturers interviewed had little idea about the cost to retailers of listing new / additional SKUs. Conversely, most retailers failed to understand the ramifications to their suppliers of complying with additional payments or changes to trading agreements.

On asking the UK relationship conselling service Relate to comment on the wider research findings, interestingly, they saw clear parallels between CPG commercial relationship breakdowns, and the personal relationship challenges they deal with between couples and within families. The critical issue is one of transparency of communication -- of really seeing where the other party is coming from, and of adapting behaviours to these realities.

So how does this translate to the dynamics of the CPG sector, and what does it mean for Unilever and Delhaize? Let me suggest the following issues be factored into each party's trading scenario considerations as they strive for resolution:

For Unilever -- Although Delhaize is a major player in Belgium, it is under real pressure. The discounter Colruyt is increasingly setting the shopper value agenda, and Delhaize's superior merchandising standards alone are insufficient for competing on price. At the other end of the trade, Carrefour can leverage its larger global buying power much more aggressively in competing with Delhaize. If Delhaize loses market share, Unilever will be faced with even more challenges from empowered Colruyt and Carrefour. It should therefore support Delhaize in defending its share of trade through these difficult times. A "blanket approach" should not be taken. The strategic position of each category and product segment needs to be addressed individually in terms of price, promotion and listings. In spite of all the ECR-driven supply chain optimisation initiatives undertaken over the past few years, there will still be scope for taking out cost. The resources released can offset additional contractual costs.

For Delhaize -- Unilever needs to convincingly demonstrate through market / econometric modelling the impact of price increases. They need hard factual evidence to show the effects on overall category consumption and profitability. This will require discussing the margin impact of customers switching to own brand alternatives. As for the wider range of products Unilever wants listed, this can be easily validated in a test. If category revenues and customer purchasing are negatively impacted, there is a strong justification for additional discounts / payments, or for rationalising the assortment.

As for other CPG markets and other manufacturers and retailers -- we can expect more of these disagreements as external pressures intensify. Now more than ever, manufacturers and retailers need to have a stronger grasp of the facts, be able to project alternative and evolving trading scenarios, and maintain an open, honest and wide-ranging dialogue with their trading partners.