Profit taking of supermarket by...

[ksl]

This stuff is really interesting. I had no idea this is how supermarkets work. Is this just supermarkets in general or just in Asia ??

I found this stuff interesting not because I have something to sell to supermarkets (wish I did), but because I had done work for Supermarkets back in UK and work in retail now - but from a finance perspective and would like curious about the wider operations.


Thanks for the Info.

Not only supermarkets but other department stores as well. I distributed map books into Walmart, Target, Sam's Club, etc. On average, they charged us one dollar per shelf foot per month to display the merchandise, and the price went up as you went to higher shelves or a competitor came in and offered to buy up your shelf space.

Then, the companies started an online inventory system for suppliers to be able to check stock. So, not only did we pay Walmart for the pleasure of putting map books on their shelf (at a horrid discount off retail), we had to manage our own inventory, ensure that each store had sufficient stock, and in some cases, actually restock the shelves.

Places like Walmart and Target are killing suppliers. They squeeze every last nickel of profits out of a supplier's selling price. Then they charge for shelf space and insist that the supplier handle inventory and stocking.

Then they charge for shelf space and insist that the supplier handle inventory and stocking

Stll the same in most place's, though it's really a matter of scoring the win win situation from the overseas manufacturing agent, to get sufficent margin and marketing subsidy for the product, otherwise sustainability maybe affected. So there is a chain of obsticles to overcome from producer to seller to especially in the F&B sector, which must conform to legal requirements of the importing Country。

[Strong Eagle]

Stll the same in most place's, though it's really a matter of scoring the win win situation from the overseas manufacturing agent, to get sufficent margin and marketing subsidy for the product, otherwise sustainability maybe affected. So there is a chain of obsticles to overcome from producer to seller to especially in the F&B sector, which must conform to legal requirements of the importing Country。

Translated: You play ball with us, and we'll stick the bat up your ass (applies to baseball or cricket). Used to be that a retailer wanted to stock a product to satisfy consumers... now they stock products based upon the raping of suppliers... with price as the only objective.

And can I tell you stories of major American department stores, clothing department, that buy dresses, slacks, other apparel from smaller suppliers that sell well, then stiff payment for 180 days or longer? A major airline tried to stiff me on receivables... until they walked in trying to buy 50 map books (to deliver lost luggage), and we said, "cash please".

[archcherub]

hey this is a really useful thread! thanks.
i know i am 5 years late to this thread... haha

but it is great info. May i ask how can i get the relevant email or tel contact of the procurement department or purchase? its really difficult to get..
trying my best to get major supermarkets and retail stores....

[JR8]

It certainly is a very interesting topic, in a 'learn something new everyday kind of way'.

Until relatively recently I'd perceived shops as companies that bought products, added margin and sold them to earn an overall net profit on their operations. This is how it used to work, back in the days when you had high streets and a grocer, butcher, and dairy shop etc.

Then I was aware that some department stores have 'concessions'. Selfridges in London is one such example. If you go there and stroll through section (Paul Smith?) to section (Pringle?) then those brands have paid for a concession, i.e. they've paid to effectively sub-let that area of floor-space and act as a shop within a shop, even is the whole huge floor is open-plan. Again you can see how that works, Selfridges has a very good reputation and is a retail magnet for $middle/+ retail spenders. To the extent that when a new or small brand gets a concession there you get a feel they're a company going places (there's still a sense it's mutually beneficial and equitable).

The less equitable, often far-less, is for example where the UK supermarkets get a strangle-hold over the commercial-purchasing side of the market. There was a stage (c10-20yrs ago) they nearly killed off the UK dairy and lamb industries by extremely aggressive bulk purchasing methods; in many ways by acting as a purchasing cartel. Especially important on staples like milk, bread, eggs and so on, as these are the kind of headline products upon which a shopper will judge the 'value' of an entire supermarket; so the retailer was mega-incentivised to buy these in as cheaply as possible. IIRC this was part-remedied by the government introducing minimum purchase prices, as many farmers ended up being forced via cartet-purchasing into selling their goods at sub-cost, and the farmer's margin that allowed him simply to survive was the state subsidies (introduced after WW2) in place to ensure that there is production capacity what ever the sales price and sales margin. Effectively the retailer was taking most or all of the production margin (+ any retail margin), and leaving the producer to survive on the safety-net of state subsidy.

But the concept of effectively sub-letting space beyond concessions, and down to the product/shelf level is new on me. Perhaps it's a logical end-point, considering inventory management, and parallel IT capability etc. But it's striking when you consider how the retail circle has turned, from farmers at the weekly market each selling their own products, to now (perhaps) having to pay to sub-let shelf-space in shops, and having to have their products 'perform' or face being kicked out. Hmmm.

I could already see why 'farmers markets' appealed to producers, by cutting out all the expenses of retailing and connecting the producer directly to the consumer. Plus they give some sense of a 'good/as it used to be' personal connection, a virtuous retail relationship. Perhaps that's why I was rather disappointed at SG-Beerfest to find you're not buying a beer from a brewery employee, someone who knows about the product, but rather from the local distributor (or more likely their hired temp weekend help on minimal pay) who have no clue about the product, can't afford it themselves etc, and the whole operation is simply to gouge as much $ out of the consumer.
[I appreciate that might sound naive, but in the UK if you go to a beer/food/wine festival, you really do expect to dealing directly with the producers, for them to know the product, and to answer *any* questions on it you might have].

So back to the matter of sub-letting shelf-space, and being responsible even for shelf-stacking (!?)... THIS explains why sometimes in SG, esp in NTUC it seems, you can walk up to a 'member of staff' stacking shelves, ask them where xyz is, and they reply 'Oh, I don't work for NTUC, you need to ask a member of staff'. That used to puzzle me until pretty recently until I got used to say seeing the staff of product X at my local NTUC, dressed in product X fleeces, restocking their products directly onto the shelves...

Amazing how far the risk/margin circle has turned... it must be pretty lethal in SG where retail is so 'cartel-ised'...

[Strong Eagle]

Shelf wars are rampant in the grocery business. I am a regular drinker of V8, that tomato and vegetable juice concoction that my wife says is the only thing that has kept me alive through all my bad habits.

At my HEB grocery store, V8 was displayed prominently at eye level, and it had about an 8 bottle wide "spread" for its wares on the shelf. Sold for $2.98

Below that was a competitor, L&A, a much lesser known competitor, and still a good tasting juice. It had a spread of only 3 or 4 bottles and also sold for $2.98.

It had been this way for at least two or three years. Fast forward to a couple of months ago, and the price of V8 went up to $3.43 while the L&A remained the same. But they still had their own shelf spaces as usual.

Then, last month, everything reversed. L&A now holds the 8 bottle spread at eye level, while the V8 has been relegated to the lower shelf, only 3 or 4 bottles wide.

What happened? Did V8 get greedy with its price rise, driving customers to cheaper brands? It did that for me. And after all, shelf spread is also a way to measure sales... the merchant has to put enough stuff out to avoid restocking every 15 minutes.

But, it could just as readily have been L&A offering a larger wholesale discount to HEB making its per bottle margin much more attractive to HEB. HEB responds by raising the price of V8 to match the margin, and retail customers do the rest... select the cheaper brand.

[JR8]

Superficially it's surprising it's as micro-managed as that, but when you get to learn (per your posts) how supermarkets strategically function then perhaps it isn't.
It seems to be out of the same strategy box as putting ultra-high-margin discretionary goods by the point on sale where shoppers have to queue. Or making the highest margin stuff easy to reach, and a hands-and-knees position required for the cheap stuff. It'd be interesting to see a 'heat-map' of gross-margin vs in-store product location.
--- V8 (and Clamato similarly), damn I thought they were vodka mixers. Either way, here's to the health benefits - bottoms up!

[sundaymorningstaple]

I love Mott's Clamato!

[Strong Eagle]

I have a son in law who used to manage a grocery store. Some of the tricks are quite amazing. For example, a wholesaler will offer a substantial discount on a product if the retailer will put it on sale for two or three weeks. The wholesaler thinks the store will buy 3 weeks worth of product but instead the store buys three months at a discount... and either stores it or demands that the wholesaler deliver in lots. As soon as the three week sale is done, prices revert to normal and the store margins go up.

I've been looking into selling very good Vietnamese rice liquor into the US market... a friend in Vietnam has built a very good brand. Because almost all states force a three tier system of producer, distributor, and retailer, you cannot believe all the shenanigans that go on... or probably, you do believe. The distributor is in the cat bird seat and puts the squeeze on both up and down the chain. Larger retailers can fight back but smaller ones cannot.

[archcherub]

oh glad to hear so many people sharing.
is it true that supermarkets like NTUC, cold storage only pays 90days later?
thats a long time

[ecureilx]

oh glad to hear so many people sharing.
is it true that supermarkets like NTUC, cold storage only pays 90days later?
thats a long time

I don't know about NTUC, but having dealt with an associated firm, you will get the payment in 30 days if you get the invoice and DO accepted within their billing cycle closure date. Miss it, then add another 30 day for payment.

So if NTUC says 90 days, be prepared for 120 days

And be happy if they don't try to push for consignment basis.

[Strong Eagle]

oh glad to hear so many people sharing.
is it true that supermarkets like NTUC, cold storage only pays 90days later?
thats a long time

Lots of companies take advantage of accounts payable as a means to interest free financing, and the delay in payment says a lot about the overall ethics of the company, especially when it comes to dealing with smaller suppliers. It's very common for a company to aggregate invoices to the 5th of the month following, then pay 60 days after that... the magical 90 days.

I really appreciate companies that care about the well being of their vendors... for example, the one I work for now always pays within 30 days.

Anytime you are planning to sell into a big company, you need to have a clear understanding of their payables policies lest you find yourself in a major cash squeeze.

[livingontheedge]

A large supermarket chain is similar to a real estate property - the fees you would pay include listing fees, fees for A&P activities (if they run advertisements and promotions that your products will benefit a fee is charged in the form of rebates/discounts), fees for displays and shelve spaces, and distribution & warehousing fees. Some of these fees may be charged separately for each service rendered or as an annual discount/rebate on purchases (which is how it works for fellow large corporations working with the large chains) for all services inclusive (which while is more convenient makes the accounting problematic).

Also just to add to the Accounts Payable comment, unless you chase for payments, they would conveniently forget there is a liability due, and your AR system has to be very reliable since any overpayments or advance payments not correctly utilised will not be brought to your attention unless you keep track.

[thismyvoice]

oh glad to hear so many people sharing.
is it true that supermarkets like NTUC, cold storage only pays 90days later?
thats a long time

Lots of companies take advantage of accounts payable as a means to interest free financing, and the delay in payment says a lot about the overall ethics of the company, especially when it comes to dealing with smaller suppliers. It's very common for a company to aggregate invoices to the 5th of the month following, then pay 60 days after that... the magical 90 days.

I really appreciate companies that care about the well being of their vendors... for example, the one I work for now always pays within 30 days.

Anytime you are planning to sell into a big company, you need to have a clear understanding of their payables policies lest you find yourself in a major cash squeeze.

Talking about account payables, I have a story to share about Chinese firm Wahaha, back in the early days.

Wahaha innovated a novel idea where distributors were required to pay into an escrow account in the beginning of the year. Wahaha pay interest on the account (with rates above banking rates) and drew down the funds as products are delivered, in addition to offering customary discounts and rewards for early payments.