The determinants of retailer power within retailer manufacturer relationships evidence from the Irish food manufacturing industry

Abstract

This research investigates the determinants of retailer power within retailer-manufacturer relationships by specifying and testing three models of retailer power. It is based on a sample of 55 Irish food manufacturers and their experiences of relationships with Irish and British retailers. The study adopts the view that the existing body of research into relationships with retailers is fragmented, and that a more complete understanding of these power relations may be obtained by simultaneously focusing on three sets of factors. The factors are industry specific, firm and product specific, and relationship specific. Much of the existing empirical work investigating power relations implicitly assumes power to be unidimensional through the measures employed. Consequently, the current study investigates retailer power, measured as a unidimensional construct. However, the work proceeds to explicitly acknowledge that power is multidimensional by examining retailers' power over manufacturers' product related and margin related activities. In examining these two dimensions of power, findings ofa more strategic nature are obtained. The analysis draws on the importance French and Raven (1959) attributed to observability as a determinant of power. While neglected throughout the power literature, observability, by introducing monitoring activities, provides a bridge with the transaction cost literature. In this way, specific investments, and the role of retailers' branding strategies, are incorporated into our study of power. The relationship between retailers' monitoring activities and power is specified. Proceeding from monitoring activities, the analysis sheds light on the determinants of inter-firm integration between retailers and food manufacturers. The role of specific investments, symmetric dependency, brand portfolio and retail influence on price are highlighted. The analysis of retailers' product related power supports the role of retail concentration, product shelf-life, manufacturer specific investments and retailers' product monitoring activities. Examining retail margin related power points to the importance of retail concentration, own brand penetration, the importance of economies of scale in manufacturing, product shelf life and manufacturer specific investments. Finally, retail power, measured as a unidimensional construct, is found to be related to own brand market penetration, the importance of economies of scale in manufacturing, manufacturer specific investments and retailers' monitoring activities.