When reviewing vendors to meet your retail needs, it’s not always about saving a buck, but ensuring quality service.
By Pat Pape, Contributing Editor
Every few years, convenience retailers often find themselves sitting at the negotiating table, talking with grocery wholesalers or direct store delivery (DSD) vendors in an effort to work out an acceptable supply contract.
No doubt that both parties want a mutually beneficial outcome that manages their costs, maximizes their profits and grows their respective businesses.
Almost always, the c-store’s first concern is the cost of goods and services. But for small to mid-size chains, significant reduction in wholesale pricing may be nearly impossible.
“Not every retailer is going to be able to negotiate the lowest cost of goods,” said David Bishop, managing partner at Balvor LLC, a Chicago-based retailing consultancy. “If you’re not the largest, the ability to lower product costs via negotiations is going to have limited potential.”
That’s why c-store retailers with negotiating experience establish
priorities before contract talks begin and seek other opportunities to enhance their store’s position.
MORE THAN SKIN DEEP
A review of potential wholesalers is “like shopping for a car. You need to drive it,” said Andrea Myers, executive vice president of Kocolene Marketing, the Seymour, Ind.-based chain with 18 tobacco stores and 11 convenience outlets.
Kocolene reviews their stores’ supply contracts every 3-5 years. “If you’re going to have what I call a beauty pageant and let wholesalers present to your company, I think you should have at least three in the race. Preferably five,” Myers said.
At Pak-A-Sak, a Portland, Ind.-based chain with 33 locations, management typically meets with four or five potential suppliers. “We do an initial filter based on pricing. Then we look at services offered, rebates, etc.,” said Gary Tabor, director of marketing and sales at Pak-A-Sak.
A subsidiary of Jay Petroleum Inc., Pak-A-Sak also counts 12 Subways and a Taco Bell at 13 of those 33 store locations in northern Indiana and western Ohio.
“If you meet a wholesaler at a NACS (National Association of Convenience Stores) show, and you think, ‘they’re small and won’t jive with my business,’ let them present too,” Myers said. “Sometimes being a big fish in a small pond can be a good thing.”
The negotiation process is not just a dog-and-pony-show. It requires preparation on the retailer’s part, said Brian Adam, category manager for Redwood Market, the Rohnert Park, Calif.-based chain with 20 locations and 15 quick-service restaurants (QSRs).
“The most important thing for me is going into a negotiation meeting prepared,” Adam said. “It’s good to have information to draw upon. I use sales data and market trends, and I’ll sift through emails over the past year. If some managers have been concerned about service, we can talk about that.”
“There is a tendency to get pretty myopic about pricing,” said Adam, but the benefits of doing business with a wholesaler go beyond the price of goods.
“Services are important,” said Myers. “Several years ago, a wholesaler wanted to deliver at 2 a.m. Some of our stores aren’t open 24 hours, and we would have had to hire extra labor to be there.”
Pak-A-Sak looks at viable services that “even the playing field,” Tabor said, and delivery schedules are critical. The company allows only one DSD vendor in the store at a time, and because the stores focus heavily on foodservice, no deliveries are permitted between 11:30 a.m. and 1 p.m. daily.
“The big looming question is ‘are they going to cost me more to do the same amount of business or are they going to save me money?’” Tabor added. “Depending on the size of the company and the services offered by a specific wholesaler, services might outweigh pricing a little bit. A lot of times retailers fail to look at the services.”
At Redwood Market, Adam frequently deals with DSD vendors and acknowledges that they “can’t move a lot on pricing. But they may have a little room in the marketing budget. For a company like ours with a small marketing budget, some of those marketing perks are great.”
Redwood Market schedules most product promotions a year in advance and handles marketing in house. But added promos with marketing tools may be negotiated into the contract.
“The POS for other initiatives we have in mind, that’s where the negotiating comes in,” Adam said. “We are really interested in the incremental sale and attracting more customers to our QSRs, so leveraging the power of a brand like Coca-Cola means a lot to us. We like to run bundling promotions using the power of some of the larger brands and attaching our brand to theirs. We use their large-scale ability to create a POS.”
Of course, costs and value-added service usually take precedence.
“It’s important to try to put a cost on everything,” said Myers. “Are they going to have a merchandiser in your store every week or month? If not, what would it cost you to hire that person?”
And then there is one big thing that few retailers consider: Will your wholesaler be in business next year?
“One thing that gets overlooked a lot of times is reviewing the financial stability of a wholesaler, which can be difficult because some of the majors are privately held,” Tabor said. “We once went with a wholesaler, but we didn’t check on their financial stability. Lo and behold, they were sold out from under us. It really messed us up for a while. Last time, we were able to get information by going online to see the wholesaler’s financial situation.”
BEEFING UP FOODSERVICE
The supplier negotiating process is a good opportunity to look at where you want to take your business, and it may be the perfect opportunity to launch or enhance a foodservice program.
“Many convenience retailers are focused on building their foodservice business,” said Bishop. “Part of evaluating the vendor may be based on, not just the type of products, but the quality of products that you’re looking for that helps achieve your objective. In foodservice, look at the grade of products—fresh meat and produce—plus, the delivery schedule and the wholesaler’s flexibility. Can they provide the ingredients you need to deliver that fresh foodservice experience? That’s where the industry is heading.”
Over the past year, several wholesalers have hired chefs or culinary professionals to help beef up foodservice products and programs.
“That culinary support could extend to a convenience store retailer who is doing his own proprietary foodservice program, but who may not have a large enough operation to afford his own chef on staff,” Bishop said. “That’s a valuable support service that more wholesalers are looking at. I’ve seen retailers switch because one wholesaler had the ability to support foodservice, provide training to the retailer and deliver those fresh products on the same trucks that they’re using to deliver other products.”
While wholesalers are limited in negotiating on the cost of goods, they typically have trend information and sales data that most convenience stores can’t access.
“Retailers need to ask for that information and leverage it,” Bishop said. “If (c-stores) focus on negotiating down costs, they may negotiate away other support services that could be valuable to them. Suppliers should have a range of information and services that they can offer. In the end, it could be worth far more than trying to negotiate slightly better terms.”