Retailer Shelf Space: Another potential loss for CPG Manufacturers

In theory, the relationship between CPG manufacturers and retailers is one of mutual interest and cooperation. A retailer needs healthy manufacturers to stock their stores with quality products that consumers want. One of the subtexts to my earlier article on Dean Foods is that retailer consolidation is weakening the power of manufacturers to the point where they are now at a significant disadvantage. This was the key section.

Starting around the 1980s, the political economy of the United States became focused on one thing: lowering prices for consumers.

It may seem like a small thing, but in reality, it drastically changed the power dynamic for every CPG firm. In the 1960s, the U.S. government blocked a grocery store merger because it would control 7% of the Los Angeles market. Today, Walmart controls 50% of the grocery market in 43 metro areas. This hands-off approach shifted the balance of power to retailers and large manufacturers. Consolidation was now the principal growth strategy for almost every actor. The bigger a company was, the more it can dominate negotiations.

Manufacturers got bigger to counter strong retailers. Retailers got bigger to counter growing manufacturers. It was an arms race — only it favored stores. Manufacturers had to sell to retailers to reach…