Once upon a time in a land far, far away, there lived the enchanted Queen of the Foodservice Rebates. One day, a plan was hatched to reward all of the brave knights of the realm (AKA dealer principals) for swearing their fealty to her - and to the factories that were part of her Buying Group Empire. If the knights would exclusively (well, most of the time) be pure of heart and not wander away from these factories for purchase and sale of equipment and supplies, they would, in addition to the plunder that they were accumulating during the year, be paid handsomely (rebated) at year end. They all lived happily ever after.
This, of course, is a fractured fairy tale. In the E&S business, group purchasing has created a culture that relies almost solely on sheltered income for profits. We have, in fact, wandered far into the enchanted forest of less than exclusive deals. Back in the mists of time, the various buying groups once touted mutual benefits for producers and distributors alike. The producers got guaranteed payments in exchange for allegiance to the brand offerings within the construct. The distributors got limited distribution in exchange for their fiscal prudence.
The enchanted Queen used her charms to convince all of the Cinderella dealers that they could compete at the ball with their larger and better capitalized ugly step-sisters. This self-fulfilling prophecy came true, much to the dismay of all involved. Be careful when you wish upon a star – you just might get what you wished for. Artificially leveling the playing field has spawned many incongruities.
Many believe that if they don’t sell at (or below) cost, that someone else will. Specifications are written based upon BG affiliations which ill-serve the end-user.
Slaying the E-commerce dragon also became a cause célèbre. “Fill the moat with MAP (minimum advertised pricing) and MPP (minimum purchase pricing) dictates so that no-one can undercut us” cried the townsfolk. If only they knew what Pogo did: “We have met the enemy and he is us.”
We, in the foodservice equipment and supplies biz live in a fantasy world where demons and ogres are lurking around every corner. The true enemy is not our trading partner; it is a lack of fiscal discipline. This is the same force that causes countless folks to rely on tax refunds as a forced savings plan – without accruing any interest or benefit!
Most business people would never give an interest free one year loan to anyone. Yet that is what our dealers and distributors do every day. They unsustainably sell at or close to net in order to drive volume, hoping that profits will eventually be realized at year-end in the form of a rebate. Unless all conditions are met, the payout is not even guaranteed.
We’ve all created this situation where sheltered income is the only profits that we see. Now we all need some magic to solve it together.
· Factories must not absorb the freight costs on single unit shipments.
· Drop shipments from factories should be handled at a different discount rate than stock orders.
· Dealers must commit to training their sales staffs to compete on value rather than strictly on price.
· Local stock of E&S has to be encouraged.
· Prohibit reps and regional managers from facilitating the poaching of business outside of their marketing areas.
· MAP and MPP should be strictly enforced where they are in place.
We can turn the tide on profit erosion, and in turn better serve our ultimate customers.
The truth is that there are no villains here. No monsters, no ogres, no wicked queens, just a legendary industry trying to survive and emerge stronger.
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