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Due-diligence

Due diligence defence is dead: branded exclusives, millennials and reputation management

My first day at S4RB was a blur.

I knew something was off when the director kept nervously glancing over my shoulder into the office behind me as he welcomed me to the team. But, already sold on the company and their vision, I pushed the sense of unease to one side.

I was soon to find out that I had just accepted a front row seat for an industry-wide stampede. It was the largest food crisis in a generation and my job was to find the mustangs in the corral. 

I had joined ‘Operation: Horsegate’

It was the spring of 2013 and my new employer, S4RB, had been tasked with performing a rapid analysis of one of the UK’s largest grocer's supply chain to identify which suppliers had sourced ‘beef’ from any of the half dozen abattoirs that had been implicated in the horsemeat scandal.

With confidence in their product specification system low after half a decade of supplier data entry apathy, we embarked on an emergency supplier data collection exercise.

With the 'steaks' high – and of questionable origin – we held frequent, tense catch-ups with the client to update on progress. Often meetings were punctuated with various News apps announcing with frantic vibrations that another retailer or brand owner had been implicated in what would eventually become clear to be isolated but wide-impacting instances of food fraud.

Through a combination of email marketing techniques, supply chain segmentation, data analysis and good-old cold calling we managed to move the needle of supplier survey completion at a furious pace.

And within four hours of launch we had received a 98% response rate from suppliers.

Supermarkets’ names were dragged through the mud and sales plummeted across entire categories, despite there being very little they could have done to detect the fraud. After all, who would have thought to test for horse in a lasagne? As Malcolm Walker of Iceland famously said “we don’t test for hedgehog” either. This wasn’t about traceability.  It was about fraud. All supermarkets had met the legal obligations required of a due diligence defence.  

But it just wasn’t enough anymore.

And this problem is only getting worse.

The pervasive buzz about the rise of the ‘Millennials’ and their younger ‘Gen-Z’ siblings may fill you with as much joy as a wasp at your company’s summer picnic, but it is becoming impossible to deny their growing influence over retail.

These consumer segments place an increasing weight on trust and are more frugal in how they dish it out than their "Baby Boomer" parents. The rise of social media places peer recommendations and rants at their finger tips for which they hold in higher regard than traditional channels.

This trend is probably nothing new to you.

But scale of reputation management impact is new.

Over the past five years, more retailers have made a conscious effort to differentiate their brand to win in a world of 'unlimited' online choice and cheap shipping. The traditional way most retailers establish a clear point-of-difference is via their own brand offering. However, the speed to which trends spread to a point of affecting your bottom line now outpaces the speed that own brand products can be developed. Again, thank you social media.

A great example is vegan and flexitarian eating habits. This trend has been developing for a number of years now and yet most grocers still lack a compelling choice of products in this space. Over the past few years, mainstream retailers have lost millions of pounds of business to smaller niche health food shops as consumers look to get feed their Instagram-driven habit for the latest plant-based meat substitute or obscure superfood. Own label product development simply can't keep up.

Enter Branded and Branded Exclusives.

These companies possess domain expertise and small business agility in areas of emerging consumer interest. Therefore, retailers have rushed to increase their branded and branded-exclusive portfolios to fill the gaps in their own label product portfolio and ensure that they can continue to offer what their customers are looking for.

These smaller, often younger companies more than likely are of greater risk to retailers. Being on the bleeding edge introduces risk, especially when combined with teams with less product safety, 'big retail' or technical experience. Traditionally retailers have defaulted to their due-diligence defence approach with purely email acknowledgement to terms and conditions of supply. And from a legal sense only, this may still be adequate.

But biggest risk is not legal - its reputational.

If there is an issue with a branded or branded-exclusive product; at best you will be seen as doing a poor job of curating a high-quality selection of products for your customer. At worst, the 'brand' of the smaller company won't even register and customers will attribute the issues to you the retailer. To compound that, it’s highly likely that the media will find it easier to shift papers or page views with your high street name splashed across the headline.  There were many caught out by Horsegate, but it is the headlines and memes about Tesco we all remember.

And it is for this reason that retailers must change how they manage technical risk within their branded and branded-exclusive portfolios. For retailers to mitigate the risk, remain competitive and grow, they must have a way of more effectively managing that risk.

In my eyes, the solution is not specification management.

I'm sure you'll breathe a sigh of relief. After all, you have enough problems getting your own label suppliers to complete their 'specs' accurately on time! The approach needs to keep your technical teams lean and focused on adding value - not more paperwork. I'd recommend that this is some form of risk-tailored regular or annual assessment, covering product safety and ethical sourcing. I've experienced most success when this has been lightweight and quick to both complete and review. Affinity Engage 'Supplier Assessments' provides one of many options available to you in this space, and unlike most others, it’s won awards thanks to the praise its received from retailers and suppliers alike.

However you chose to accomplish your branded and branded exclusive risk management, the important thing is that you do something. The title of this article "Due-diligence Defence is Dead" is, of course, overly flippant. Perhaps a more accurate title should be "Due diligence defence alone is no longer enough.”

Tags: Product development

David Taylor

david.taylor@s4rb.com

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