Coronavirus will complicate next year’s trade negotiations with retailers. Start planning now

Date: April 22, 2020
Author: David Sables is CEO of Sentinel Management Consultants - sales negotiation advisors to leading fmcg suppliers
Source - The Grocer

Annual business plans are always the area which bring out the worst in wholesale and retail customers. When they have not achieved volume or revenue thresholds, they want the bonus anyway and often scupper next year’s discussions to get it. It’s the assault that keeps on mugging.

This year, the virus has brought a whole new set of dynamics. Six months before many are even thinking about next year’s plans, it’s worth considering the new complexity.

On the face of it there are many categories having a gold rush – but the top line hides sometimes punishing underlying shifts in channel mix. Obviously, the grocery retailers are doing well while the out-of-home channels have collapsed. Less obviously, though, is the move away from hyperstores to ‘local’ and convenience. And don’t be fooled into thinking home delivery business revenue streams have made a killing: they were loss-making before and have needed to invest heavily to get a reliable service during lockdown, whilst at the same time filling social distancing supermarkets with pickers.

It’s hard to decipher the true positions and it’s different by category. In many cases, business has shifted towards those customers with top-end discounts for growth, and these big customers have smashed their targets and are earning huge bonuses. They expect these contracted payouts, most of which are uncapped, and they are analysing the categories to push hard for deeper price cuts, assuming the suppliers are rolling in new wealth.

However, those suppliers have completely lost a bucket of balancing wholesale and foodservice business along with the accompanying margin. So, actually, the profit line is flatter, and paying those bigger bonuses elsewhere is not as easy as many retailers may think. Some wholesale customers are now unable to settle their bills even on the already-extended credit days.

Forecasting is tricky: there is a glut of unsold stock in many categories and likely to be a slump in sales at some point due to high in-home stocks, but predicting when is impossible. The promotions – the backbone of business plans – rulebook is being rewritten. Throw in the international buying groups, the need for cost price increase and Brexit on top, and this is most definitely the most complex set of terms you have ever negotiated – so start your planning early.

Overperforming big customers have time to put in a low six months and get back to normal. But if they don’t, they will put in a very high year’s shipments and that will normally be used as the base figure for the following year. Growth on top of that will be almost impossible, so retailers will not want to accept this year’s performance as the base figure for next year. Now is the right time to start planning.

As we approach the 2020 halfway reviews with customers, open the discussion on base setting for next year. Expect pushback on using the virus-boosted base as the new start point.