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Pundit’s Mailbag —
Vendor Selling Platforms

One vendor, who wished to remain anonymous for obvious reasons, is feeling frustrated:

Are you aware that the major retailers now require all vendors that have commodities to sell them now belong to a “Very Expensive Club”? It is called a “Vendor Selling Platform” for lack of better words.

The membership fees can range from $1,500 to $3,000 per year per retailer, and this is for only 120 Purchase Orders or twelve (12) Months, which ever comes first.

This sounds like a warranty at “Crazy Eddies” — remember him?

In the Northeast where space is at a premium, retailers order small amounts and this could easily use up 120 Purchase Orders in no time at all.

That charge is for the privilege of offering your merchandise to them at a fair trading price.

If you want to add another retailer to your list of opportunity, it will cost you another $500 per retailer setup fee.

What ever happened to fair trading? Why don’t they just come out and ask for the pay off. I guess that would be illegal. A while back some of them were asking for 3% off the invoice, just for doing business.

There has always been unfair trading practices in the produce industry in the past, buyer pay offs, etc.

However this one takes the cake!

Years ago I had the opportunity to get to know the Pundit’s father. Your father used to tell me that if the buyer did not want to buy the merchandise for its integrity and price, then look for another buyer.

As you might understand, I would like to remain nameless on this one.

Many thanks for the letter. For those not from the New York metro area, Crazy Eddie was an electronics retailer whose prices were “Innnnsaaaaane”… and many retail practices are, if not insane, not likely to produce the best results for retailers. But that is not the same as corruption or pay-offs, and we need to be clear with the distinction.

If an employee asks for something for himself, personally, without the knowledge and authorization of his employer, that is a pay off.

If a company asks you to structure business with them in a certain way, that is, for better or worse, the buying organization’s prerogative.

These buying platforms can be annoying. Some years ago, the Pundit got a dozen phone calls in an hour from unhappy suppliers to Safeway after the retailer held a meeting to tell them all about selling via Agribuys.

What annoyed the vendors was that the meeting began with a focus on all the savings that Safeway would realize through the use of this new electronic platform and ended with the fees that vendors should expect to pay for utilizing the platform.

“If Safeway was going to save so much money, why didn’t it use the savings to cover the cost of the platform?” attendees were asking.

Fair enough question, and similar questions have been asked many times on many issues: Why does this retailer make me pay 3% on all invoices via check? Why do I have to pay a quarter a box? Why do I have to pay a slotting fee?

If it is any consolation, it is much better in produce and perishables than it is in grocery.

But we can’t attack retailers as being outside their rights. We don’t like “surprise” expenditures, but if a retailer tells a vendor in advance that the vendor has to pay platform fees or rebate percentages, then it is a vendor’s decision what actions to take.

One of the most important business exercises is to analyze the profitability of one’s customers. If two comparable customers both ask for quotes and one gets a rebate of 3% on sales, something is wacky if they both get quoted the same price.

And if a vendor is selling at prices it loses money at, well, we can’t blame the retailer for that.

Sometimes you have to be willing to lose the business.

The Pundit remembers a business we had of selling raspberries to France. It was a perilous business, with lots of claims, lots of need to divert product back in the U.S. because it sat on the tarmac in some U.S. airport exposed to the heat. It was a profitable business only because we charged a substantial mark-up to cover all these eventualities.

Every once in a while, a competitor would come along, see our high mark-up and under-price us substantially. We never fought for the business; we just let it go. Then the new vendor would have a bad arrival, his bill would be clipped 90% and he either went broke, stopped selling the customer or, at least, realized he couldn’t work on such thin margins.

Basically, whatever retailers want to charge, whatever expenses they want to pass on to suppliers, the bottom line is, taking all this into account, is this good business for a vendor? If not, shame on any vendor for pursuing it.

The real problem with various fees is really on the retail side. Effective retailing requires retailers to be consumer-driven. Making payments and fees prerequisite to doing business with a retailer means that the retail organization is constricting its supply chain based on something other than what its customers would like.

It also changes the mental attitude within the chain to focus on selling real estate and selling services rather than satisfying consumers.

One reason supermarkets have been so challenged in responding to Wal-Mart and Costco is because so many supermarkets forgot about the consumer.

Our correspondent’s letter is a good reminder that, although it may be vendors who complain, it is consumers that are neglected when buyers start focusing on “who is a member of our partners-in-progress club” rather than who has the best product at the best price with the best services.

Many thanks for the thought-provoking letter.

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