When it comes to supply contracts, retailers should always keep an eye out for their best interests.
By Steve Sandman
The last time I bought a house it was pretty clear that the world we live is entangled in contracts, agreements, understandings and any other sort of written document that either we or the other side thinks is necessary to guide our business or aspects of our personal life. It’s no different in the c-store industry.
Retailers have two distinct types of agreements: the kind that are negotiated and the kind that aren’t negotiable such as cigarette contracts. The negotiable agreements are those retailers have various levels of control over. The key elements that can be negotiated include price, duration, deliverables, fill rates, compliance, supplier support, advertising requirements and distribution.
The elements of an agreement can be overwhelming and downright exhausting, but the adherence to all a retailer agreed to can be an even worse experience, and much more costly.
When dealing with any agreement, there are some key elements that are universal, and if the retailer follows the proper steps and is disciplined, adherence to the agreement will be easy and future disputes can be avoided.
The first element is to do your homework and lay out on paper exactly what you want to achieve from your supplier. Many disputes arise from “Monday Morning Quarterbacking” when the retailer realizes they failed to ask for something or failed to clearly spell out what their expectations will be. If you agree on a level of advertising support of $1,000 per store per year, does that include the supplier’s cost of signage, of labor, placing signs or shipping the signs? Or did the retailer think they were getting a check of $1,000?
CLEAR EXPECTATIONS
If you start with a list of what you expect, you will be able to clearly define how each of those wishes is being addressed. Additionally, it’s important to get all of your expectations on the table up front; this list will help you accomplish that.
Too often, a retailer can have buyer’s remorse months after making an agreement because they didn’t receive a benefit from a supplier and they see or hear about that benefit from another retailer. This is a big cause of friction because the assumption is often that the suppliers offered it to competitor and not to them; however, maybe the competitor asked for something that was easily satisfied by the supplier and you just failed to ask.
Another key element of establishing a mutually-beneficial agreement is to deal with all of your suppliers in a specific category at one time. While some retailers will do this as a negotiating tactic, it’s more important for establishing a good working relationship in the form of an agreement. Too many times, suppliers will promise something in a negotiation because that supplier has their “sales hat” on, but what will those promises look like when they are put into writing? A good idea it take your list of what you want to achieve from your supplier, and build a checklist spreadsheet that shows which elements are satisfied by each different supplier, whether it’s a wholesale supply agreement or a makeover of your snack section.
Once you’ve narrowed down your choices, ask for something in writing and compare that against your checklist to determine if everything you thought you negotiated and agreed to is actually in your agreement.
The most important thing in developing a solid supplier agreement and avoiding any future disputes is to do the work in advance. Too many times the supplier agreement is based on a timetable from your supplier and not the retailer, and that’s a big cause of having to rush through an agreement.
Buyers are busy people and the desire sometimes is to just get through the process, but by investing the time up front in making your list and discussing it with multiple suppliers, you can avoid the regrets and disputes that are bound to arise when a contract is rushed into.
If we all looked at supplier contracts like buying a house, we would probably find ourselves living in pretty good place, all the time.
Steve Sandman has worked in the tobacco industry for more than 30 years, most recently as president of Republic Tobacco. His extensive experience includes product management. He can be reached at (812) 569-1388.