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Retail Ready Packaging in Food Industry: Marketing and Relationship Aspects in South East Europe

Concentration processes in food industry are well known for last few decades. In the last ten years, the process of concentration is strongly expanded on transition markets of South Eastern Europe countries. Although concentration is happening on all echelons of food supply chain, the strongest effects of concentration in South Eastern Europe can be monitored at the retail level. In most of Southeastern Europe countries, market share of Top 10 retailers in food or Fast Moving Consumer Goods (FMCG) sector is higher then 60 %, and in many of them higher than 70% (Segetlija, Mesarić, and Dujak, 2012). Retail concentration resulted in change of power in food supply chain in favor of retailers, who successfully implement its business initiatives (or concepts) to other members of the food supply chain. These initiatives can be divided in two main groups: marketing (with main intention of increasing sales) and supply chains initiatives (whit main intention of decreasing costs). Retail marketing can strongly influence manufacturers marketing through retail function of filtering entrance of new products on retail shelves, joint development of new products, development of new private label, joint promotional activities, category management process, category captainship initiatives, joint new consumer segments development, etc. On the other hand, supply chain initiatives are even more preferably among retailers, as they have direct influence on decreasing retailer costs with a goal of not decreasing consumers’ satisfaction level – also recognized as retail supply chain management or RSCM (Ray, 2010 ; Gustafsson et al., 2009 ; Alagiri and Selvan, 2007, Ayers and Odegaard, 2008 ; Finne and Sivonen, 2009 ; Segetlija, Mesarić, and Dujak, 2012). Some of retailers supply chain initiatives directed towards upstream supply chain members (primarily to food manufacturers) are centralized distribution system, Radio Frequency Identification (RFID) implementation, collaborative planning forecasting and replenishment (CPFR), retail ready packaging (RRP), pre-packed cross docking, vendor managed inventory (VMI), continuous replenishment, use of information technology to facilitate supplier relationship management (SRM) as well as customer relationship management (CRM), etc. One of retailer’s initiatives in food supply chain, which encompass both marketing and supply chain reasons, is implementing of RRP for food products. RRP has large marketing/promotional potential, but also, during the negotiations on its implementation and creation, points out true balance of power between retailers and manufacturers. Main purpose of this study is to analyze potential marketing benefits of RRP use for food manufacturers in five Southeastern European countries, as well as their relationships in food supply chain. In this connection, research is carried out in the food industry in Croatia, Serbia, Hungary, Slovenia and Bosnia and Herzegovina, therefore 5 of 16 Southeastern European countries according to European Union (SEE Programme). Need for regional approach in 700 analysis arises from an international or regional character of today's contemporary food products supply chains. As this is a work-in-progress paper, here will be presented initial phase or research, respective to research conducted in the Republic of Croatia in second half of 2014. During first half of 2015, authors intend to finish research in other 4 countries of South East Europe. Research Questions This study was initiated by and based on next research questions:  How RRP influences on relationships of manufacturers and their partners in food supply chain?  What are main benefits of RRP for food manufacturers?  What are potentials of RRP for additional marketing and sales improvement possibilities for food manufacturers? Methodology After an extensive literature review, research questionnaire was developed by addapting questions from previous RRP research (IGD Supply Chain analysis, 2011 ; ECR Italia, 2010), as well as on the basis of interviews with employees of Croatian large food manufacturer from packaging, logistics and marketing department. Most research constructs were measured using multiple-item 5-point Likert scales. Study included Croatian active companies from NACE 200711 C10 (Manufacture of food products), with 50 or more employees, type of organization - Limited liability company or Joint-stock company (Register of Croatian Companies, 2014). There are 110 companies in Croatia that meet those criteria, and for research purpose they were divided into two groups: medium Croatian food manufacturers (MCFM) with more than 50 and less than 250 employees (79 companies), and large Croatian food manufacturers (LCFM) with 250 or more employees (31 companies. With sample n=34, overall response rate was 30.91 %, (nLCFM=20, response rate 64.52% in LCFM ; nMCFM=14, response rate 17.72% in MCFM). Findings After conducting literature review and deep interviews we came to basic findings regarding RRP in food manufacturing industry. RRP is a form of transit secondary packaging designed not only for transportation purposes, but also to ease and facilitate the process of in-store replenishment (supply chain function). But in the same time, RRP is packaging that enhance the shopping experience for the consumer (Pira International, 2011) and this way benefits all supply chain members (marketing function). Simple packaging is being replaced by, essentially, more complicated packaging to make activities in store easier and more efficient (Dujak, Ferenčić & 11 Statistical classification of economic activities in the European Union, abbreviated as NACE ; the term NACE is derived from the French Nomenclature statistique des activités économiques dans la Communauté européenne (Eurostat, 2013) 701 Franjković, 2014). RRP or sometimes called SRP (shelf ready packaging) has many advantages in the store (IGD Suply Chain Analysis, 2011 ; Arzoumanian, 2011 ; Verghese et al., 2013) and they are mostly oriented to easing and acceleration of product replenishment and all other cost saving benefits that result from this (less need for in-store labor, less out-of-stock situations, reduced product waste, reduces need for box cutters and, correspondingly fewer injuries). Other important benefit is based on RRP size – while on shelf, RRP is allowing more space for advertising than traditional primary packaging. This way RRP could increase product visibility and make it more noticeable, leading to increase of impulse buying in the store. Schrijver (2013) has proved that designed elements of RRP (primarily color and shape of packaging) in certain degree re-enforce brand message as well as primary packaging, and that use of one differentiating color might increase the conspicuousness more than use of various colors. The problem usually emphasized by food manufacturers in Europe and USA (Arzoumanian, 2011) is a lack of fair distribution of benefits that result from RRP. Introduction of RRP usually leads to an increase in the cost of packaging for manufacturer, while significantly reducing in- store costs and even increase sales at retailers. Research from United Kingdom has shown that almost half manufacturers in 2006 do not manage to return its investment in RRP, but they still do it “to remain competitive and maintain good customer relationships” (Food Manufacture, 2006). Due to this situation (in theory) manufacturers try to use most of RRP’s marketing potential to increase sales of its products, and partly or fully cover costs of implementing RRP. After conducting empirical research in the food manufacturing sector in the Croatia, analysis imposes several basic conclusions regarding relationships with retailers, with their supplier and internal relationships of their employees, as well as impact of RRP on their overall operating results and business. Finally, it highlights main benefits of RRP use for manufacturers. Use of RRP is highly spread between Croatian manufacturing companies with more than 50 employees - 70, 59 % of respondents use RRP, and this percentage increases with the size of the company. When it comes to prevailing sales market and use of RRP, there is no significant difference if company sells its products mostly on foreign markets or mostly on domestic (Croatian) market. Most respondents assessed their relationships with retailers as successful and extremely successful, with an average of the most successful relationships with Croatian retailers (mean = 3.71), somewhat weaker relations with foreign retailers doing business in Croatia (mean = 3.62), and worst with foreign retailers with which they operate outside the Croatian (mean = 3.26, and with it as much as 20.6% manufacturer believes that these relations are bad and unsatisfactory). When it comes to RRP effect on relationships, 54.2 % manufacturers states that RRP implementation led primarily to more intensive cooperation with suppliers. Those are mostly packaging or packaging material suppliers with whom manufacturer need to work closely on development of new RRP solutions that will satisfy all marketing and logistics needs of all downstream supply chain members. One fourth states that RRP led to better relationships within company in process of brand empowerment. In fact, it occurs strengthening the ties between marketing, sales and logistics experts among employees of the company. 702 It is interesting that only one eight of manufacturers consider that the RRP led to more intensive cooperation with retailers, although exactly RRP enable collaboration with retailers for nearly 40% of them, and half of them will implement RRP when it requires large retailer. Two-thirds of food manufacturers believe that the RRP can potentially improve their business results even though they are aware it represents an additional cost. Further, two-thirds of them plan to increase or significantly increase share of products with RRP in assortment in next 1-3 years. Regarding RRP benefits, most respondents see marketing benefits that enable higher sales as most important. And thus, most recognized benefits are better shelf visibility (mean =4, 17) and better shelf “position keeping” (mean = 4.04), followed by better product image and better relationships with retailers (both with mean = 3.88). Through these benefits, RRP is transforming from primary packaging into even more effective sales promotions tool – both for manufacturers and for retailers. Implications It can be concluded that food manufacturers are not satisfied with a fact that RRP, as an initiative coming from retailers, is only cost-demanding and not cost-sharing initiative. RRP should not be directly used to improve relationships with food retailers, but it force manufacturers to find new ways of marketing differentiation and merchandising improvement. This research results suggest that food manufacturers are starting to realize marketing and logistics potential of RRP and ways to best utilization. Through increased impulsive sales and decreased out-of-stock, both members of food supply chain gain advantage of RRP, and consequently will also improve their relationships on other business areas. RRP also can become a cohesive factor within the company, as joint instrument of employees from different departments used for increasing of product’s brand awareness and sales.

retail ready packaging; FMCG; marketing

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