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“It’s a win-win game”
Key account retail strategy for FMCG Company.
By Vincent T. ZHAO
Nov, 2014

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Index
Main Purpose of the Project..............................................................................................03
Background...........................................................................................................................03
Define the Problem..............................................................................................................04
Place (Space in the Hyper Market)..................................................................................05
Price ..............................................................................................................................................09
Product .......................................................................................................................................11
Promotion....................................................................................................................................13
Win-Win Game .........................................................................................................................14

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Main Purpose of This Project
Since the modern trade of retail business is highly professional and the relationship of the supplier,
the retailer and the consumer is very complicated and sensitive. For the FMCG companies, it is
difficult to fulfill the powerful retailer especially the world scaled companies such as Wal-Mart,
Carrefour and Tesco. This Project is on the purpose of determining a better cooperation form for
the retailers and the FMCG suppliers on hypermarket channel.
Background
A FMCG (Fast Moving Consumer Goods) Company is aiming at providing high turnover products
to the consumers which are at relatively low cost. A multi-company always has its own production
line and product research center. That could be defined as an industrial company. When the
product are produced to meet the market, A FMCG company need various channel such as the
general trade channel, e-channel, modern channel and so force to do the distribution. For the
platform choosing, A transnational FMCG company that has long production line will have all the
possible channels to obtain as much the market share as possible.
When those FMCG companies build their channels in the market, they tend to choose modern
trade retailers as one of their most important channel. The reason is that big retailer companies
such as Wal-Mart and Carrefour. Why choosing those world’s largest retail companies:
-These customer based retailer can offer a good platform to introduce your product and to have a
good sales;
-The big modern trade retailers occupy a very huge market share and have a constant growth over
years;

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-These retail companies are always in a more stable level comparing to the alternative channels;
-These retail companies are well organized, very skillful for the promotion implement and very
adoptable for the market change;
With the above reasons and the appeal for the high turnover rate, the FMCG companies are no
surprised to build relationship with the huge retail companies.
Define the problem
In the purpose of building long-term cooperate with the big retailers. A FMCG company will build
a reasonable contract and a concrete promotion plan. Some FMCG companies even propose a JBP
1
with the retailers. However, it is always very difficult to achieve a balance between the 2 forces,
since the big retail company has its own fixed sales procedure and cannot be easily changed by the
providers. The high appeal for the profit of the retailers makes them to obtain more not only from
the consumers but the suppliers. There is always conflict between the FMCG companies and
retailers. So for the FMCG companies, how to well cooperate with these retailers and to make
more profit, and what attributes are the contradictions that have to be resolved? We will focus on
the 4 majority aspects, determine the what the real conflicts are and see how to resolve them. And
we will select an international hyper market (Wal-Mart) and a worldwide FMCG company
(NESTLE) as an example.
1
Joint Business Plan

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Place (Space in the Hyper Market)
Wal-Mart has 2 kinds of outlet, the hyper market and the CC (Cash and Carry) outlet, both can
offer the display space for all the products in Nestle. The display form includes main shelf display,
the secondary display and theme activity outdoor or indoor space.
Let’s take the most important display, the main shelf display for the example. The way that Nestle
wants is to highlight the brand. For Nestle, the rule is to concentrate all the related product
together to highlight the variability of the brand, and also place the new product in the eyesight
level to get high visibility level.
However, for the Wal-Mart, it has its own principle of display, the principle includes 3 procedures,
let’s take coffee main shelf as an example:
 Need tree fabric: According to the potential need of the consumer, Wal-Mart divide the coffee
and related product that could be put in one shelf into 6 main categories (Table2)
Table 2
 Build T.O.S.M%2
.( sheet: According to this sheet, Wal-Mart can see the margin contribution of
this brand in the department, and Wal-Mart can evaluate the total number of the layout for coffee
2
Total Sales and Margin%
cube sugar
coffee mate Weight:
gift box Weight
sugar small bag
box
mixed coffee box
box
instant coffee bottle
636 coffee roasting coffee bottle

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brand. From table3, we can see that coffee category can generate 4.88% of the total sales in the
department and the net profit is 20.91%. This brand belongs to high margin contribution category,
so the total No. of the shelves in the department is 80, coffee could at least occupy 4 sets of the
shelves.
Table3
 Build the layout simulation according to the category and the total area of coffee brand. And the
simulation must also follow the principle that in horizontal direction, the product should be
displayed from the low price to high price, and in the vertical direction, the product should be
displayed by the packed size.
It is easy to find out that for Wal-Mart, when it designs the main shelf layout. It doesn’t take the
brand issue into consideration at all. While for Nestle, the brand highlight is very important,
from table4, we can see the immense different in display guide of the 2 companies.

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Table 4
How to resolve this conflict, first thing need to be clarified that Wal-Mart is not aiming at weaken
the brand influence, any negotiation regarding the Wal-Mart display principle adjustment is not
practical. The only way to solve the problem for a Nestle is to understand the Wal-Mart
calculation method for every single product and fade area of the display principle. It is true that
Wal-Mart display the product by the price and the pack size, Nestle could focus on the
EYESIGHT level of the shelf. To be specific, Nestle could occupy the eyesight level of the shelf
while not jeopardizing the display principle of Wal-Mart. Meanwhile it is a common sense that a
hyper market will display the products that have most margin or the sales in the eyesight. For a
domain coffee provider, Nestle could negotiate with Wal-Mart for a balanced main shelf
display(Table5).
Wal-Mart Nestle

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Table 5
The same principle also could apply to the secondary display and the theme activity space, Nestle
could fix a appropriate negotiation method to fulfill its demand without breaking the principle of
Wal-Mart display.

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Price
Both Nestle and Wal-Mart want to have the on shelf price fixing right. However, Wal-Mart has its
own price mechanic neglecting any suggestion from the FMCG companies. It is the truth that the
2 types of the companies base their price on the consumer to obtain the profit and the market share,
the concerns of them are totally different.
Wal-Mart’s price mechanic mainly bases on the competitors’ price in catchments area. According
to the price survey, Wal-Mart will fix a competitive price. Sometimes the products have a negative
margin. However, Wal-Mart will also put that price in the label to maintain the competitive power.
It seems unreasonable for a margin appealed company. The reason is that Wal-Mart has different
margin resource. For Wal-Mart:
Net Margin = Sales Margin + Management Margin – Markdown + Inventory adjustment
We can only calculate the sales margin via turnover in the cashier. The management margin
always consist over 50% of the net margin which involves the marketing fee sponsored by the
providers, yearly debate and other bottom line, so for Wal-Mart, it is reasonable to low the price
according to a price survey or even a price strategy.
Nestle is responsible for its overall profit, the company could only obtain profit from its product
margin, so it cannot respond to every negative margin price spring from Wal-Mart price strategy.
When it is difficult to make up to the margin loss of Wal-Mart, the conflict appears.
Another thing need to be mentioned is that for the new product, Nestle tend to maintain a
comparable high price following the product life cycle, however, for Wal-Mart, there is no concept
in new product launch, every item is evaluated by the sales volume and the gross profit. That’s
another conflict that must be resolved.

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For the price issue, it is easy to resolve the conflict if each could understand the other’s price
strategy. There is some alternatives that could be used to solve the problem.
To help Wal-Mart to maintain the competition power, Nestle could build an additional fund from
marketing fee to support the low price. However, there are some assumptions:
-The amount of support is fixed at the beginning of a financial year, Wal-Mart must take the
surpassed part if it always response to the price survey.
-In return for such support, Wal-Mart has to allow Nestle to set the new product price for the first
3 months without any price survey on those items.
This kind of terms always appears in the yearly contract between the FMCG companies and the
Retailers. It's a win-win term that could be easily accepted by the both. The only thing giving rise
to the conflict is the understanding level to each other’s price strategy to the consumer.

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Product
When it comes to the product, there are always two problems between Wal-Mart and Nestle, the
inventory control and the elimination of the product.
For a FMCG company, the inventory of the retailer’s stores respects the turnover ability of the
company. Sufficient inventory of the product will fulfill any promotion requirement and
unpredictable sales such as bulk purchase and whole sales, and the OOS3
is not tolerant for a
FMCG company. Nestle will also know that there is a linear relationship between the inventory
and the sales, Table 6 shows the off-take and the stock in one Wal-Mart outlet in 2013.
Table 6
However, for Wal-Mart, it is very important to control the order and the inventory, there are some
concerns:
 Time and energy saving;
 Less return of the goods and inventory loss because of the expiration date.
 Efficient warehouse management;
 More cash flow;
3
Out of Stock

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For a transnational such as Wal-Mart, the cash flow is very important for the investment. The
calculation of ordering pool is as below:
Order Quantity Proposal = DMS4
x (Order Cycle + Deliver Cycle + 7 x (Cycle – 1)) +
Safety stock – on the way stock.
It is easy to find that the order quantity is restricted by the above function, the system could not be
changed. However, Nestle could also balance the proposal quantity via changing the changeable
coefficient such as daily mean sales and safety stock. These two functions interact with each other
and could be changed if appropriate promotion plan is well implemented.
If Nestle wants the inventory days to cover at least 30 days. It could enhance the sales with
Wal-Mart and try to define the safety stock through negotiation.
The other conflict is the elimination of the product. There is a principle of Wal-Mart’s product
management called limited volume of unlimited items. That means for a department in Wal-Mart,
the quantity of the items is limited. It's a method that can maintain the good quality with the
procedure of eliminating the products with bad sales performance. However, for Nestle, the
variety of the product is very important, even more important than the sales to some extent. Nestle
also cannot assure that none of the products is in the elimination list because of its long production
line.
The method the resolve this conflict is to have a clear product strategy for both, for Wal-Mart, it is
true to have a high quality of products. However the balance of each category is also important.
For Nestle, if some of your products are on the elimination list, first try to identify whether to
make the product off shelf. Nestle could combine the product life cycle and the average sales to
4
Daily mean sale

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make the decision. The lost from the over shelf life and the variability appeal could be balanced.
Promotion
Normally Nestle and Wal-Mart will have the annul promotion plan separately. However, since the
time table varies from each other, the resource cannot match every time. For example, the
Wal-Mart need to launch a seasonal activity in Feb. and ask for an out-door show, while Nestle do
not have promotion plan then and marketing fee. For another example, Nestle want to launch a
baby fair in Mar. However, Wal-Mart has no secondary display for the fair. The unmatched
promotion scheme generate inefficient executive for both company.
Wal-Mart has a comparable fixed promotion plan as below. Nestle could get the information and
adjust its own promotion plan correspondingly.
 Regular festival promotion (CNY, MAF)
 DM for every promotion cycle
 Seasonal Promotion
 Theme Promotion (anniversary)
For the DM plan, Nestle can only get the information 20days in advance, for the other promotion
plan, Nestle could get to know it at the beginning of the financial year.
Also, Nestle has the regular promotion plans that can be adjusted to fit the promotion plan of the
Wal-Mart. And Wal-Mart will be pleased to offer additional support for Nestle promotion time
table and new product launch.

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“It’s a win-win game”
After the concrete analysis of the conflicts between the two companies, we can draw the
conclusion that on the basis of understanding each other’s marketing strategy, the Nestle and
Wal-Mart can play a win-win game. I propose a new JBP (Joint business plan) with all the content
involved to achieve the goal.
The related method can also be expanded to the other retail companies, and also be applied in
alternative channels.
In this case, I have learned much about the game theory, I found that many conflict in the market,
no matter between the consumer and the company or between the companies themselves, rises
from the misunderstanding, so the information will help a company get more opportunity