BY JIM PREVOR, ORIGINALLY PRINTED IN MAY 2000
My phone has been ringing recently. It seems that a large supermarket chain recently sent letters to suppliers congratulating them on being selected to participate in a “partnership” program. Of course, what makes so many produce suppliers run for the hills when supermarket chains mention “partnership” is that the letter starts out talking about being partners and always ends up instructing suppliers on how much money to send over. This letter asked everyone for a quarter a box.
Suppliers are rarely happy about these letters and often leap to accusations of bribery, blackmail, etc. These are fighting words and not appropriate to the situation. From both a legal and moral standpoint, supermarkets, like all businesses, are free to ask suppliers to structure payments any way they might choose.
In truth, these payments probably don’t make much difference in the context of regular purchases from major shippers. After all, shippers aren’t stupid; they know they are giving a particular chain a quarter a box and are perfectly capable of quoting a quarter higher than they would otherwise sell for.
The big losers in the industry, when these programs are adopted, are the occasional sellers to the chain, such as wholesalers being used for fill-ins. Whereas a shipper selling regularly to a retailer will generally have one salesperson who can be instructed on how he or she should quote a particular chain, wholesalers are generally organized around commodities. Big wholesalers may have a melon guy, an apple guy, a western citrus guy, etc., and these salespeople may not deal with a particular chain for weeks on end, so teaching everyone to charge a quarter more to this one buyer is not likely to work as well.
These programs often mean a buyer can no longer purchase the best product, or get the best value.
The answer, of course, is that casual suppliers have to learn to just say no to these programs. When a chain needs a fill-in, it goes where the product is available and, unless a wholesaler or even a tertiary shipper can negotiate a volume incentive, it is probably better to just walk away. There is a risk, of course, but some customers just aren’t worth having and, in any case, if the chain is only coming to you when it is desperate, you’ll probably keep the business anyway.
The real loser of these programs — quarter a box, flat slotting fee, etc. — is the chain and the consumer. Both lose because the basic function of these programs is to make a store less dependent on good merchandising to turn a profit. All a sudden a buyer can no longer purchase the best product, or get the best value. All of a sudden the buyer’s hands are tied with another imperative: Has this supplier agreed to pay us a quarter a box?
It is not surprising these kinds of programs, all common for years in grocery, are increasingly being foisted on produce. Financial people, rather than good merchandisers, increasingly run supermarkets today. This does not mean they wouldn’t like to sell more food, it just means their area of competency is not in the sale of food. These managers would be acting far beyond their area of competence if they proposed to boost profits by selling more produce. They literally wouldn’t have the foggiest idea of how to proceed in this area.
But a quarter a box straight to the bottom line is something they can put in the spreadsheet. And, if shippers do increase their price as a result of this program — well so much the better. The chain bases its retail prices on a percentage mark-up. If the chain can both capture a quarter a box and get a higher mark-up because of a higher base price, the chain wins both ways.
Some larger marketers have tried to compromise with the retailers, offering to set aside a set amount per box or offer a flat fee, but require that the funds be taken in-kind rather than cash and be used to boost sales rather than to directly hit the bottom line. These programs run from direct promotional support for a shipper’s products, such as demos, advertising, etc., to a broader concept of assisting the retailer in doing a better job — training, merchandising assistance, care and handling information — often going far beyond the particular commodity a particular shipper sells.
The truth is that many a produce VP has whispered to a supplier to hang tough on this stance. That’s because it is often the only way the produce department can get the budget to do the training and other things a good produce director wants to do.
The retailer widely considered the most successful in America today is Walmart, and the company is famous for being an extremely tough negotiator. But I’ve found most suppliers don’t mind dealing with the company because they are also famous for not getting involved with nonsense. Sure, Walmart wants the quality, and it wants the price, it wants the terms, it wants the service. But the notion that Walmart would prefer one supplier to another on all these grounds and yet would exclude that supplier because it didn’t join a program would be anathema at Walmart.
One would hope that somehow, someone could get through to top management at supermarkets: Produce particularly, and perishables more generally, are different than dry grocery. These are the items that set the reputation of a store and that can drive customer preference. You hire top people to run your produce department. Well, give them some budgets to meet, then get out of their way and let them make it happen. Restricting the choice of vendors because of a “partnership” program is a loser for your stores and your customers.
Unfortunately, those imposing these programs are unwilling to listen to suppliers. But the fastest-growing supermarket in the country is Walmart’s Supercenter division. Perhaps they’ll listen to Walmart — while they still can.
Produce industry icon Jim Prevor, who founded Produce Business magazine in 1985, died Nov. 7, 2022. To honor his legacy as a maverick thought-leader, this space spotlights the best of Prevor’s “Fruits of Thought” column, which garnered more than 200 awards in business journalism.
