Sluggish demand and powerful retailers have long been the twin banes of Europe’s consumer goods manufacturers. But many manufacturers hope salvation is at hand. They have been captivated by what is variously referred to as "demand-side efficient consumer response" and "joint category management," a theory that manufacturers and retailers should stop squabbling over who grabs the biggest chunk of value added, and start working together to maximize profits in any given product category.

So far, category management has received a good press in Europe. Benefits are estimated to include cost savings of more than 2 percent of the industry’s sales and substantial increases in volume and market share—more than enough to divide equitably between the two sides of the industry, most manufacturers say. To prove the point, a series of pilot studies is under way.

Scratch deeper, however, and the news is not all good. Though enthusiastic in public, many manufacturers are deeply skeptical in private. And some retailers think they can get most of the benefits of category management without any input from manufacturers. So what is going on?

We believe a dose of realism is in order. Carefully controlled pilot studies may well indicate substantial profit opportunities....