When is a Deal not a Deal

I recently had a conversation with a wholesale grocer who was explaining to me what a great deal they offered to the independent grocer.

He explained to me that they were the lowest cost of distribution possible and how his customer (the independent grocer) was far ahead by getting out of the self distribution game. On the surface the cost looked to be much lower but upon closer examination it may not have been all it was cracked up to be.

The independent would enter into a distribution agreement that contained a logistics charge that was very reasonable. When I questioned the wholesaler’s category manager how it was possible to run a full assortment warehouse with an extremely high service level at such a low cost. The answer was – the manufacturer.  He said, “The manufactures pays us to participate in the program.”

This model is designed to push the cost of distribution back on the manufacturer.  In other words the model is less expensive for the grocer but it increases the cost of doing business for the vendor.  When the vendor I was representing was told that he would have to pay set up fees and an ongoing incentive fee, the answer was, “then we have to raise the price to the retailer – either we raise the list or we reduce the promotions”. If this is a common answer among the wholesaler’s vendors, then is this wholesaler really a good deal?

As an independent grocer you always have to ask yourself, “When is a deal not a deal?”

-Mike

It Doesn’t Take a Weatherman to Know Which Way the Wind Blows

I made my annual trek Friday to the home of thoroughbred racing – Saratoga, New York.  Having grown up in upstate New York, going to the ‘track’ is a summer ritual that I have tried to keep up each year. Saratoga is known as the “Graveyard of Favorites” which means betting the favorite is not always the thing to do. I was there for The Whitney Stakes on August 4, 1973 when Onion upset the great Secretariat.  A perfect example of how playing it safe can be a loser. Secretariat was such an overwhelming favorite that you could only bet him to win and he would only pay 10 cents for every dollar bet, but it was a sure thing….so much for a sure thing.

On this Friday, I arrived at the track early and I reviewed the past performances for the first race. I had made my picks but I couldn’t help but notice one horse only won when the track was muddy. It was overcast and rain was likely sometime later in the day but for now the track was dry and fast. I made my pick then read my newspaper as I waited for post time. Just about five minutes before race time, I looked up from my paper to see that the skies had opened up and it was pouring. Being a quick study, I rushed to the window to bet the “mudder” and as it turned out it was the only correct pick I made all day.

The point here could be “don’t bet on the horses” … but really the point is to keep aware of changing conditions and be the first to act when you see an opportunity. As an independent you have real advantage to be able to talk to your customer and change as conditions warrant. As with Friday at Saratoga, the big guys (chains) might not have even noticed it was raining and even if they did, they sure as heck would not have been able to change their bet five minutes before post time.

By the way, if you have never been to Saratoga during race season give it a try. Even if you are not a horse player the experience at the oldest thoroughbred race track in the U.S. is something to witness.

-Mike

Walking in the shoes of the Independent Grocer

Sunday morning in my household is for drinking coffee and performing a soon to be obsolete ritual of reading the paper. This Sunday I was reading with humor the following headlines;

Capacity Utilization Uptick: Is the Recession Over?
Central Bureau of Statistics Data Suggest Recession is Over
Recession’s over. Or is it? Glimmers of hope amid continuing gloom

Why we spend so much time trying to identify when is hard to understand.  What we have to spend more time on is trying to identify what is going to happen in the future. While many financial analysts are saying the recession is a thing of the past, I believe as one writer put it “long after the Great Recession is over… the U.S. consumer is going to be in a secular downturn for years, not quarters,” Not to acknowledge that the time of high-flying consumer spending is over is like not acknowledging the blood running down your leg means something must be wrong. For consumers eating is not a discretionary decision, but what and how to eat is. As a retailer today, the challenge is to get ahead of the trend when possible but at least get with the trend and to maximize effort. Waiting for the recession to end and for the “good old days” to return is suicide.

Today’s consumer is demanding value for their dollar like never before. In order for the family to have any money to spend on back to school or for Christmas saving every penny, every week at the grocery store is a must. The retailer who is seen as to meet this need will endure over the long run. One habit from the past that is likely to survive is convenience, this means as the local neighborhood grocer you have a built in advantage.

So how do you create value? First review every operating expense, find productivity improvements and set a goal to reduce supply expense. Next, review purchasing opportunities – is the supplier that you have used for the past ten years keeping you competitive? Are there new products to consider or at least are there new ways to procure those products that are the core of consumers purchasing? Question everything and don’t be afraid to try something new.  One of the basic values of an entrepreneur is risk taking and flexibility. No billion dollar company can ever take that away from the independent, entrepreneur grocer.

-Mike