The retail power-performance conundrum: What have we learned?

The conventional wisdom that retailers have grown more powerful relative to packaged goods manufacturers in the packaged goods industry has not been supported by empirical analyses of the relative profitability of retailers and manufacturers. This is despite increases in trade and consumer promotion, and the prevalence of store brands, all of which were viewed as indicators of growing retail power. In recent years, researchers have developed a much better understanding of the role that these purported "indicators" play in manufacturer-retailer interaction. The objective of this article is to synthesize what this new research teaches us about the impact of promotions and store brands on the relative performance of manufacturers and retailers. It concludes that promotions are just as beneficial for manufacturers as for retailers, if not more so. Store brands do provide leverage to retailers and allow them to improve margins., but a competitive national brand assortment is still necessary for retail profitability. This helps explain why manufacturer profitability has not worsened relative to retailers even as trade and consumer promotion spending have grown and store brands have become strong in many product categories. (C) 2001 by New York University. All rights reserved.