Facing mounting price pressure, the rise of hard discounters and the shift to digital, retailers need to invest better. Richard Pelz, a partner in Bain's Retail practice, shares three strategies retailers can use to improve their approach on cost of goods sold, typically a their biggest cost item.
Read the Bain Brief: How Grocers Buy Better for Growth
Read the transcript below.
RICHARD PELZ: Retailers around the world are facing tremendous pressure. There's price pressure. There is the shift to discounters. And there is the increasing share of online retail. And while they know they need to invest, they really struggle to find the funds. And one of the biggest opportunities they have is in cost of goods, which makes up the majority of their cost base.
Now when we see retailers doing it right, they actually do three things. They use advanced analytics to really understand how their customers shop their categories. They use those insights to create win-win situations with their suppliers. And they build the capabilities to sustain this approach. And we've seen retailers realize between 2 to 5 percentage points in cost reduction using this approach. And we think that this makes the difference between struggling to find the funds and realizing the value.
With new data and tools, buying for a category becomes an entirely new game.