September, 2000

Fruits of Thought

Dictates From Retailers

Suppliers are often unfair in their criticism of retailers, remembering the juicy margins on one item and forgetting that another was used as a loss leader. But some retailers seem to have a tin ear when it comes to their relations with the grower community or, even worse, they seem to hold the supplier community in a kind of contempt.

Not everyone treats suppliers this way, of course, but the exceptions are sufficiently infrequent to prove the rule.

You can see it in informal behavior – unreturned phone calls, unanswered letters and so forth. You can see it in more formal decisions, such as unwillingness to attend supplier events. The fact that retailers are so few in number at United, WGA, FFVA and similar meetings has always bespoken a kind of arrogance. The message is being communicated that “we are not partners; you work for us and do our bidding.”

Nowadays, with contact buying common, the contempt plays itself out in an astonishing way in these negotiations. In depressed fields like bananas, many supermarkets will think nothing of demanding that suppliers sign up for programs that guarantee the suppliers a loss for years on end. And these same suppliers have been working with the very same chain for decades. In most commodities, it is not a particularly well kept secret what the cost of production is. Packing and shipping costs are there for all to see. But many supermarkets just don’t see all this as their problem.

Recently one giant chain decided to handle buying through one of the e-commerce services. Nobody has issued any formal statements, but I will be surprised if we don’t eventually find out that either the chain itself or some of its influential backers have acquired options or an equity interest in this same e-commerce outfit. Still, the chain claims that by buying through this technology, it will realize substantial efficiencies and savings. Now here is the kicker: the very same chain also announced that its various suppliers will be obligated to pay a fee to this e-commerce site in the amount of a half a percent on everything that is sold through this service.

Did anybody at this retailer think about the arrogance of this statement? Did it not occur to anyone that this retailer is the one that would realize enormous advantages from the use of this service, yet would be asking suppliers – who would realize none of these advantages – to pay the freight?

The power of many retailers’ positions is such that they are now either so detached from reality that they don’t realize what their suppliers will think about such an approach or they are so filled with arrogance that they just don’t care. “What are they going to do about it?” You can hear some blow hard bellowing. “Stop selling me? They need me more than I need them.” Perhaps.

At the United Public Policy Conference in Washington D.C., I recently moderated a panel on retail trading practices, including things such as slotting fees. Perhaps the most interesting thing about the issue is that we were there at all. After all, the fact that retailers may want particular fees or to impose particular charges is not obviously a matter of concern for public policy. One could easily say that these are private contractual matters and the government should stay out.

The fact that my panelists most prominently included veterans of the Senate Committee on Small Business hearings on slotting fees and that the conference ended with everyone heading off to the Hill to observe another hearing on the same subject indicates that supermarkets should be wary of holding such attitudes.

Toward the end of his tenure, Bob Carey, the now-retired president of PMA, once told me during discussions a few years ago about the fate of United that he hoped his board would deal generously with the other produce trade association. Packed into that word ‘generously’ was a lifetime of experience. He was harkening back to a moment when a very weak PMA sent out feelers to United to see if PMA’s tattered band might be welcomed within the then very rich and powerful UFFVA. The entreaties were rejected, so the PMA stalwarts regrouped, and, in time, built a trade association that crushed United to the point where it had to completely reinvent itself.

The large consolidated retailers are in a very strong business position. But these large behemoths, substantially foreign-owned and not particularly liked by the public at large, are in a weak position politically.

Most produce growers and shippers are business people and would rather sit down with a buyer and work it all out. But if retailers elect to treat suppliers as slaves, well, the countdown to the slave revolt is only a matter of time.

Every survey indicates that farmers enjoy one of the highest esteem ratings of any profession in our society. If growers can’t get a little respect by one-to-one dealings with retailers, they will shift the field of battle to politics. Remember that famous photo of the tobacco CEOs raising their right hands before a congressional committee? They can subpoena supermarket CEOs just as quickly.  pb