Time to rethink those fees

Are retailers shooting themselves in the foot by imposing too many charges on manufacturers?

There's clearly turmoil in the
Canadian grocery industry today. And there are signs that things could get worse.

Take, for instance, our Annual Market Survey. Published earlier this year, the survey showed a total sales increase at traditional grocers of just 1.4%—more or less the rate of grocery industry inflation.

Sure, the economy had a role to play in grocery’s lacklustre performance, in some regions more than others, but the entire industry was affected by intense competition from Walmart, Costco, drugstores and specialty stores.

Canada’s top grocers are doing what they can to improve sales and profits. They're investing in e-commerce, home meal replacement and, recently, meal kits. They’ve also trimmed head office staff. But amid all this activity, many manufacturers are beginning to feel ignored and mistreated. I fear these suppliers are getting fed up with their treatment, and this can only lead to problems for retail down the road.

Because of the increasing costs of dealing with large retailers, suppliers have been reducing their investment in new product innovation. The funds normally going toward product development are being used to maintain the status quo at retail. Not a good development, especially since successful retail depends on the availability of exciting new products. Rather than offering more unique products to Canadian retailers, suppliers are setting their sights on the export market.

One reason for this state of affairs, say manufacturers, is that some big Canadian retailers have been squeezing money from them at an ever-increasing rate. This goes beyond the steep listing fees imposed by retailers and includes myriad charges and penalties that are bordering on unfair.

For example, if a supplier’s truck is not at the loading dock at the appointed hour, in some cases the manufacturer can be punished with expensive fines (even if the holdup is caused by store staff). There can be penalties for billing errors, even when they are the retailer’s fault. And even when the retailer admits its mistake, there are usually demands to the supplier for something in return for a partial refund.

What has pushed manufacturers’ buttons most is one major retailer’s move, last fall, to impose a 0.79% handling fee on suppliers using its distribution centres. The fee came on the heels of its move in September 2016 to apply an automatic 1.45% price deduction on shipments it receives from suppliers.

Add to this the ongoing demands for product and mandatory price reductions when retailers open or renovate stores or streamline their supply chains, none of which ever seems to result in additional sales or productivity for suppliers.

There is also the disconnect between category managers and supplier reps. The category managers are focused on category profitability, not so much the profitability of the supplier. Not to mention that at some retail head offices there’s a revolving door for category managers, making it impossible for supplier reps to establish a useful relationship based on mutual interests.

As manufacturers get increasingly ticked off by the treatment they’re receiving from big retailers, and as their costs continue to climb, there is the real risk retailers will not see any new products and some known brands will no longer be available.

To my mind, it seems like retailers are shooting themselves in the foot. Manufacturers say it’s time for a reboot.

This column appeared in Canadian Grocer’s May 2018 issue.

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