Many convenience stores that rely on vendors to supply their retail operations know there’s some give-and-take involved when it comes to relationship building.
By Howard Riell, Associate Editor
Part of running a profitable c-store business involves effectively negotiating supply contracts and employing solid direct store delivery (DSD) management. Both require experience, a command of a store’s statistical profile, a thorough knowledge of the market and a commitment to a win-win result.
The art of contract negotiation seems prevalent among most successful operations that dot the c-store industry.
“We just went through the negotiation process here at FriendShip over the last half a year,” said Kevin Campbell, marketing director for Beck Oil’s 23-store FriendShip Food Stores chain, based in Fremont, Ohio. “The big thing that I learned is that you have to get it down to comparing apples to apples. Each (potential) wholesaler is going to have different services, different programs, and when going through the bid process, you have to be able to try and put everybody on an even keel, whether it be their merchandising programs or their marketing programs. Getting a good understanding of what it is they are offering is key, because everybody spins it a little differently.”
The process was anything but simple, or quick, Campbell explained.
“It took quite a while getting to know each company, getting to know their programs,” he said.
TOP TO BOTTOM
FriendShip spent about a year and a half doing that with an eye on its current contract ending at the end of 2016.
“We put together about 282 items that probably covered 55-60% of our top items. We were able to compare total market basket by wholesaler off of last year’s sales and our current retails, and then we did similar things with cigarettes,” Campbell said. “We presented our bid with specifics: we were looking for some upfront monies; we were looking obviously for the market basket numbers, the cigarette numbers, and then what kind of growth incentives they had. Then we basically crunched the numbers on each wholesaler’s proposal.”
Campbell and his team then assigned values to less-easily-quantifiable factors such as service, merchandising and marketing.
“Foodservice was also a key to us. We did that by ranking each wholesaler from one to four, and then from there we just weighed what was our overall best option,” Campbell said. “We drilled it down into looking, for example, at what fees they have. Is there a fuel surcharge? Do they have a handheld that is compatible with our DSD deliveries, which we currently are able to do with our present system? I mean, we really took a hard look at what expenses were involved with each company. Our whole goal was that, if we were going to switch wholesalers, we weren’t going to step back.”
Being as fair as possible on both sides of the negotiation is best for both sides. “We were thorough about it,” Campbell recalled, “but what I learned as it got going was that we’ve got to try and make it as fair as possible, which meant being as transparent as possible with each wholesaler and straight up: ‘Here is our expectation, these are the things we’re going to need in place.’ That was important.”
FriendShip decision makers initially sent out a wholesaler questionnaire, Campbell said, covering the c-store’s needs.
“We qualified the wholesalers via that survey, then we did the bid process, and then we narrowed it down to two wholesalers,” Campbell said. “And then we went deep into the weeds as far as specifics that were important to us.”
COMING TO THE TABLE
Phil Wuest, director of operations for Wuest’s Inc., a family-owned McQueeney, Texas-based company that operates 15 Pic-N-Pac convenience stores, stressed the importance of working with solid partners from the outset.
“You want to choose companies to work with that have long-term, long-standing relationships (and) are willing to partner up and get a market together in a partnership format.”
A key to successful negotiations for Wuest is knowing what his company needs and what the vendor can provide.
“It’s important to make sure you get space for products that are actually moving,” Wuest said. “I think a lot of people fall prey to giving vendors their space for their overall business, and then the vendors will try and leverage their core products to try and get some growth out of new products, or products that aren’t moving or products that they may be trying to revitalize that have not done well in the past. I think it’s recognizing, when you’re working with DSD vendors, what they really sell and what they don’t sell, so they don’t try and leverage their good-selling products for space for products that don’t move very well.”
Bread and butter offerings such as soft drinks can lay the ground for effective contract bartering.
“Our main deals are between Coke and Pepsi, of course,” said David Collins, president of Birmingham, Ala.-based DC Oil Co., which operates 12 Quick Shop convenience stores. “Those are usually the biggest deals and the biggest money that’s out there.”
While his stores have been on a Pepsi contract for quite some time, Collins recounted that Coca-Cola recently offered the c-store a “pretty substantial” deal—one that he came close to going with.
“But they wanted a three-year contract,” Collins said. “A lot of times you can get a better deal out of them if you are willing to sign an extended contract. Pepsi came back and basically matched and beat Coke’s offer, but to do that they wanted me to sign a three-year deal just like Coke had offered. I did.”
In fact, working one vendor against another is always a crucial part of any successful negotiation, Collins added.
“If you’ve got two vendors that are competing, make sure you know your case sales, which usually they will provide you with,” Collins said. “One thing you’ve got to keep in mind is: what do you sell? With Coke, we might sell a lot of 12-packs and stuff like that, but that’s a much lower-margin item. You want to go with whoever you are selling those 20-ounce singles with, because that’s where your big profit is.”
Trust is another invaluable component when dealing with any negotiating partner. When it comes to DSD management, Collins added, dependable service is non-negotiable. One primary concern for Quick Shop is steady inventory turns.
“A lot of them that used to deliver to us twice a week are trying to cut it to once a week. Well, I would rather buy two small orders a week and spread that out than get one big order. You are guessing what you are going to move over a week’s time rather than what you are going to move over three or four days. If you’ve got a decent volume store you need to try and demand, if you can, that they stay on a twice a week delivery schedule.”
Another time-tested rule of thumb when negotiating has to do with the proverbial bird in the hand, Collins pointed out.
“A vendor will keep making me offers and trying to get me to go with them by saying, ‘If you go with our contract, David, we feel that we can get you up to that case count.’ That’s very unlikely,” Collins said. “In other words, if you’re going 70% with this one and 30% with the other one you’re just not going to do the volume. The lower-volume vendor is going to have to pay you a lot more money per case to even make it apples to apples.”