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USA versus Europe – Differences in Industry Fundamentals

By: Greg Seminara, Export Solutions

Export Solutions believes that our industry shares many common operating procedures across borders. Clearly each country maintains a unique set of habits and practices. On the other hand, I find that brand owners everywhere dedicated against the fundamental challenge of getting their brands listed with good shelf space while buyers are perpetually requesting (demanding ?) more favorable terms.

Recapped below are some key differences between the European industry practices and the USA as you consider your market expansion plans.

1. USA supermarkets stock 40,000 unique items vs. 18,000 items in Europe – USA stores average 35,000 sq. feet, almost twice the size of European stores. This is good news for suppliers looking to sell to the USA. Bigger stores mean more room for new brands. USA suppliers may find it more challenging to secure listings in Europe. Smaller European stores mean that each item must be unique and create real value for the category. USA suppliers should forget launch plans that include the USA tradition of securing distribution for 4-10 new listings for a brand. Consider yourself lucky if a European retailer accepts 1-2 items of your new product rollout.

2. Terms and Conditions vary by retailer in Europe- European buyers are tough negotiators and each retailer may enjoy slightly different wholesale pricing and payment terms. In the USA, a law called Robinson Patman states that all retailers should get the same price opportunity. This does not mean the same price, but in practice most USA retailers receive the same everyday list price structure. In the USA, there tends to be more flexibility around deployment of trade marketing funds and slotting allowances.

3. Private Label a Big Factor in Europe- Private Label value share reaches almost 50 % in countries such as the UK or Switzerland. Many European retailers might prefer selling your product under their label versus your brand. In the USA, private label is growing, but from a low base. Retailers are pushing private label in the USA, but with mixed success aside from a few commodity categories. Most middle-upper income USA consumers still associate private label with lower quality products and the price gap versus national brands is small.

4. Category Review vs. Annual Negotiations- Many European countries have extensive annual negotiation processes for all suppliers that may last from September until February of the next year. These difficult negotiations represent a series of tense meetings where buyers extract more preferential treatment in terms in conditions in return for new item placement, promotional support, or in some cases just remaining on the shelf. A salesman serves as a “negotiator” almost in a diplomatic sense. In the USA, most categories are reviewed once or twice per year. At this time, the buyer will perform a deep dive analysis of category trends and performance. This Category Review process is heavily dependent on key account and market level data. Each category participant is invited to present his view of the category, often following a designated template of requested information. At this point, the buyer typically adjusts category assortment and shelf planograms. A USA salesman must be an “analyst” as well as a salesman!

5. USA shoppers may visit 5 to 6 different retailers each week. It would be typical for a USA family to visit 2 different supermarkets, a Club store (Costco/Sams), Mass Merchandiser (Target or Walmart), a drug store and perhaps a gourmet store (Trader Joes or Whole Foods) every week. It’s easy, as most consumers have access to big stores with huge parking lots. Gas is only about 3.49 per gallon ( or .93 euro cents/liter). USA consumers “ cherry pick”, buying certain items or categories from each channel specialist. This keeps prices competitive and national brands are used to drive store traffic. Shopping patterns are different in Europe. Families may prefer to visit a hypermarket to make a stock up purchase 1 or 2 times per month. Then, smaller stores and specialty shops are visited several times per week for fill-in requirements. Shopping can be more of a hassle in Europe due to smaller parking lots, cost of gas, and usually narrower choices of retailers. Many European cities feature only 2 or 3 chains to choose from. Note to Europeans: for a good view of the American retail scene, visit an American city such as Atlanta, Dallas, or Cincinnati. Cities such as New York and Boston are not representative of the USA, as market leaders such as Walmart, Kroger, and Costco are difficult if not impossible to find.

6. Hard Discounters such as Aldi or Lidl represent a growth channel in Europe- These discounters feature small stores of around 12,000 square feet, low service, and around 2,000 private label items sold at prices of around 20 % less than the national brand. These stores account for at least 10 % market share in most European countries and up to 30 % market share in Germany, the largest country in Europe. In the USA, a discount store is usually seen as Walmart’s “Division 1” store format that sells non-food , apparel, and Health and Beauty care items. Aldi and a chain called Save A Lot do represent the Hard Discount sector in the USA. This sector is growing, but represents 1 % or less of the overall market.

7. Coupons, Loyalty Cards, Buy One Get One Free or EDLP in the USA- The USA industry relies on a variety of promotional tactics to drive sales. New products and big brands often distribute coupons in the Sunday papers offering vouchers for price reductions ( 25 cents to $1.00) on the purchase of a product. Loyalty cards are common, with discounts in each category available with a card. Many supermarket retailers offer weekly fliers jammed with discounts for that week. On the other handle, successful retailers such as Walmart and Costco boast of every day low prices (EDLP) and no specials. European promotions tend to be directly tied to consumer marketing events such as a special offer, sales demo, or sweepstakes. Brand owners negotiate a certain number of annual campaigns to promote their brand which may integrate several components such as display, price reduction, or bonus pack.

8. Expect to pay slotting fees to enter USA supermarkets- Slotting fees average the equivalent of 1-2 free cases per item per store. This fee can vary depending on the category, with frozen products paying more in slotting while Health and Beauty Care items pay less. Slotting fees are normally paid via check and you may get a bill (or deduction) from the retailer prior to delivery of your first order! Walmart and Costco do not charge slotting but request equivalent consideration in form of lower prices. European retailers normally do not charge slotting per se. However, there are always costs to secure distribution of new products. Usually, a package is negotiated where the retailer provides some level of in store marketing support for payment of a flat fee.

9. European Food Distributors offer broader services vs. USA Food Brokers- In major European countries, many big brands deal directly with leading supermarkets, outsourcing some services for alternate or smaller channels. European Food Distributors and importers specialize in imported brands and are often very important players in smaller-mid size European countries. Distributors are an attractive alternative as they handle all aspects of your commercial relationship, including logistics and financial. Food Brokers play a high profile and dominant role in the USA supermarket industry, handling even famous brands such as Nestle, Mars, or Unilever. The top 3 USA food brokers are massive, with more than 10,000 employees each and capabilities equal to or greater than most USA brand owners. Food Brokers perform key account selling, category management, retail coverage, and administrative service. USA Food Brokers do not offer logistics or invoicing services.

10. Shelf Compliance is a Key Issue in the USA- In Europe, listed products normally enjoy excellent availability at store level where authorized. As a result, a tremendous amount of energy is focused on getting the listing. In the USA, it is a little easier at getting your product authorized. The big challenge is retail integrity versus authorized planograms. Store level labor cutbacks translate to uneven shelf conditions. Missing shelf tags, out of stocks, wide fluctuations in brand positioning and space allocation are typical of the largest chains. Most brands invest in Food Broker services for retail coverage to improve brand presence at the point of sale.

11. Data Transparency leads to Fact Based Selling in the USA – Chain level sales figures are widely available in the USA as well as store level information in some cases. This allows manufacturers to thoroughly analyze trends for their category and perform detailed post promotional analysis, even on a demographic cluster basis. “Analysts” are core members of any USA sales team. Data is used to make fact based presentations to support a brands selling story. Data sharing is improving in Europe. However, most manufacturers purchase only country level data. In some case,European retailers do not share their data. Sales presentations still are heavily weighted towards negotiations on terms and conditions.