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Stop Guaranteeing Retailer Margin! You don’t Decide the RSP

2013-12-14 - David Sables - CEO
Source - The Grocer

Right now, many suppliers will be arguing with customers over payments for the joint business plan. Commitments weren’t met, and results failed to generate the money you are being harassed to just pay anyway. Too many suppliers pay up because not to do so would affect the deal for the next year: a spiralling nightmare. So here it is JBP season, everybody’s having fun...

It gets worse though; suppliers are inviting these rucks by agreeing to guarantee a percentage margin across sales. Not a trading POR, but an ‘all-payments-in’ percentage on retail sales value. Unbelievable! This slippery technique has been stealthily rolled out by retailers rather than previous rip-offs such as ‘Project Sooty’ or ‘investment for growth’, which were launched Billy Smart’s Circus-style.

It should ring alarm bells if you see it coming your way. Suppliers have no say in the retail price on shelf. Legally none! So what are you doing? Do you really think the little footnote on your agreement acknowledging that you can’t be blamed for retailers crashing the price (and their margin) will exempt you from pressure to make up the margin at the end of the year? Please!

Suppliers’ naïvety in JBP negotiation and follow-through is commonplace, but this overall margin guarantee really takes the biscuit. Not only does it tie you to a battle at the end of the year, it also restricts your ability to raise cost prices when necessary.

When you take a cost price increase to the retailer they push back. “Guardians of the consumer”, they say. True, they hate to move their rsps for fear of being out of line in the marketplace. But on the most justifiable increases they still take the opportunity to get ‘compensation’ out of you. Add in this guaranteed margin and they have an incentive never to change their retail selling price. So you soak up the costs of manufacture and distribution and struggle to make it back on your sales.

Of course, the JBP concept sounds great and can work well if both sides deliver. But when retailers expect the payment without performance, a guaranteed margin is a noose. Avoid it. And if you have done it then remove it. Look to the future now, it’s only just begun.

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