Few European consumer goods producers offer their retail customers incentives for adopting logistics practices that lower the cost of delivering products. Such incentives—which include performance-based trade allowances to reward retailers for placing efficient orders (say, for full pallets or truckloads of goods instead of partial ones)—represent a valuable opportunity for manufacturers to boost their margins and establish closer relationships with retailers. As retail consolidation¹ in Europe heightens the pressure on consumer goods companies, the importance of adopting performance-based logistics agreements will grow.

These are among the findings of research carried out by McKinsey in conjunction with the European Brands Association.² We collected data on the logistics terms negotiated by 12 global consumer packaged-goods manufacturers that in 2005 represented roughly 30 percent and 35 percent, respectively, of the sales of packaged foods and of home and personal-care products in Europe. The participants provided information on their relationships with retailers in five key countries: France, Germany, Italy, Spain, and the United Kingdom. We then used the data to determine the consistency of each manufacturer’s approach, both within and across countries, and the degree to which the terms associated with each transaction reflected the costs incurred to fulfill a retailer’s orders....