The Evolving Manufacturer and Retailer Relationship in Modern Retail

For decades, the giant companies that made everyday products held the whip hand in retail. Brands like Hindustan Unilever, Procter & Gamble, and Nestlé decided what would be sold, at what price, and how it would be promoted. Shopkeepers largely fell in line. That equation has quietly reversed. Today, large retail chains often set the terms, and the manufacturers who once dictated to them now compete hard to keep their products on the shelf. Understanding how this shift happened, and what it means for both sides, is essential to making sense of modern retail.

How the balance of power changed 🔗

In the older model, manufacturers controlled the channel because they controlled the product. They built brands through mass advertising, created consumer demand, and then pushed goods down to thousands of small, fragmented retailers who had little choice but to stock what was popular. A single corner store had no leverage against a company that supplied to lakhs of outlets across the country.

The rise of organized retail changed this. When a handful of large chains began accounting for a meaningful share of a manufacturer’s sales, the relationship inverted. A retailer that operates hundreds of stores can make or break a product launch. Researchers attribute this growing increase in retailer power to the emergence of giant retailers with strong purchasing power, economies of scale, sophisticated information systems, and the willingness to launch their own store brands. The buyer, not the seller, increasingly dominates the negotiation.

From a seller’s market to a buyer’s market 🔗

The key change is concentration. A manufacturer selling through one lakh independent stores has bargaining power over each of them. But when that same manufacturer depends on five large chains for a large slice of revenue, each chain becomes a gatekeeper. Losing even one major retail partner can dent a brand’s volumes badly. This dependence is what hands the retailer its clout.

It is worth noting that this shift is not absolute or universal. A detailed study of bargaining in distribution channels found that bargaining power is not a fixed trait of a firm but depends on the specific pairing of manufacturer and retailer. A dominant retailer may still bend to a must-have brand, while a weaker brand has almost no room to negotiate.

Why information technology tilted the scales 🔗

Perhaps the single biggest reason retailers gained the upper hand is information. The barcode, the scanner, and the point-of-sale (POS) system transformed the checkout counter into a data-gathering machine. Every time a product is scanned, the retailer learns exactly what sold, when, at what price, and how fast stock is moving.

This data is gold. The retailer knows which flavours, pack sizes, and price points actually move off the shelf, sometimes better than the company that made the product. Manufacturers, on the other hand, traditionally only saw their sales up to the point of dispatch. They could not see what happened at the till. This asymmetry of information is precisely what made retailers powerful, because the party that understands the customer best controls the conversation.

Data as a bargaining chip 🔗

Real-time sales and stock information is not just useful to the retailer; it is invaluable to the manufacturer’s production planning and inventory management. A company that knows exactly how its products are selling across regions can plan production runs, reduce wastage, and avoid both stockouts and overstocking. But the retailer owns that data. By choosing how much of it to share, the retailer turns information into leverage. This makes large, technologically advanced retailers indispensable partners rather than mere distribution outlets. Modern POS systems trigger automatic stock deductions and reorder alerts, giving managers a single, accurate view of sales and inventory at all times.

The bargaining power of large retailers 🔗

With scale and data on their side, large retailers make demands that suppliers can rarely refuse. The list is familiar to anyone in the supply business: the lowest possible prices, products customized to the retailer’s specifications, exclusive variants, and strict, reliable delivery schedules. To stay on the shelf and protect their market share, suppliers often agree to operate on thin margins.

Wal-Mart is the textbook example of this clout. Its enormous purchasing volumes mean a single contract can represent a huge chunk of a supplier’s business, so the retailer can negotiate hard on price and terms. The same logic now plays out across the world wherever a few chains command large volumes.

Private labels as a negotiating lever 🔗

A retailer’s most powerful weapon is the private label, also called a store brand. These are products owned by the retailer itself, often manufactured by the same suppliers who make national brands. Private labels matter for two reasons. First, they are highly profitable: industry analysis suggests store brands can deliver 20 to 40 percent higher margins than national brands. Second, they are a bargaining tool. A retailer that can simply put its own cheaper alternative next to a branded product holds a credible threat over the manufacturer.

This dynamic is well documented. Educational analysis of retailing notes that private labels offer retailers better bargaining power over suppliers and better margins, while giving customers a wider range of price choices. Faced with a private label that occupies prime shelf space, a national brand must either cut its price, fund promotions, or risk losing visibility.

The Indian retail scenario 🔗

India offers a vivid picture of these forces at work, though with an important twist. As organized retail expanded, large chains began securing discounted and customized products from manufacturers. In the consumer durables space, chains negotiated special deals and exclusive models from electronics makers such as Videocon and LG, while large-format grocery and general merchandise stores pushed packaged-goods companies for better terms. Big Bazaar, which once symbolised the rise of the modern hypermarket in India, was a classic example of a chain using its footprint to demand favourable pricing from suppliers.

The landscape has since consolidated around players like Reliance Retail, Avenue Supermarts (which runs DMart), and the Tata Group’s retail ventures. Major retailers including Pantaloons, Trent, Shoppers Stop, and Spencer’s are actively building their private-label businesses, which now form a meaningful slice of organized retail sales and an even larger share in categories like apparel. The technology and supply-chain investment that organized retailers bring, including efficient logistics and cold storage, is reshaping how products move from factory to shelf, a point highlighted in analyses of India’s evolving retail and investment environment.

Why manufacturers are not powerless 🔗

Here is the twist. In India, organized retail still accounts for only a modest share of total retail; the vast majority of sales still flow through kirana stores and unorganized outlets. For a packaged-goods major, a single large chain may represent a small fraction of national revenue. Because customers walk into stores specifically looking for trusted brands, those brands continue to pull footfall, which is a genuine source of supplier power. A retailer needs the strong brands as much as the brands need the shelf.

Academic work also urges caution about declaring a clean victory for retailers. A well-known survey of the grocery channel questioned whether power had truly shifted, finding that both manufacturers and retailers saw their profitability squeezed, with consumers often the real beneficiaries through lower prices. Power, in other words, is contested rather than simply handed over.

From confrontation to collaboration 🔗

The most useful way to view the modern relationship is not as a tug-of-war with a clear winner, but as a shift toward interdependence. The smartest manufacturers and retailers now share data, plan promotions jointly, and coordinate inventory so that both reduce costs and avoid stockouts. When a retailer shares scan data and a manufacturer responds with reliable, well-timed supply, both win.

Manufacturers are also finding ways to reduce their dependence on powerful chains. By opening direct-to-consumer online channels, a brand can reach customers without a retail intermediary. Research shows that such direct channels let a manufacturer depend less on retailers and capture value on its own terms, which rebalances the relationship yet again. The rise of D2C brands in India is a direct expression of this strategy.

The relationship between manufacturer and retailer, then, is not static. It moved from manufacturer dominance, to retailer dominance driven by scale and data, and is now settling into a more negotiated, technology-enabled partnership where leverage swings back and forth depending on who controls the customer at any given moment.

What do you think? If the party that owns customer data holds the power, does the spread of D2C and online selling shift that power back toward manufacturers, or simply create new gatekeepers? And in a market where kirana stores still dominate, how long will it take before organized retailers in India hold the same clout that chains like Wal-Mart enjoy elsewhere?

References

1. https://www.sciencedirect.com/science/article/abs/pii/S0969698923003521
2. https://www.gsb.stanford.edu/faculty-research/working-papers/larger-slice-or-larger-pie-empirical-investigation-bargaining-power
3. https://www.indianretailer.com/article/retail-business/retail/private-label-vs-national-brands-navigating-choice-indian-retailers
4. https://www.isme.in/private-labels-their-growing-importance-in-retailing/
5. https://www.indianretailer.com/article/retail-business/retail-trends/surge-private-labels-and-d2c-brands-indias-thriving-market
6. https://www.deloitte.com/in/en/about/press-room/retail-fdi-in-india.html
7. https://pubsonline.informs.org/doi/10.1287/mksc.14.2.189
8. https://link.springer.com/article/10.1007/s11747-025-01084-7