No less than 15 years ago, what many of us in foodservice now refer to as ‘the good old days,’ most operator discounts and allowances were rebates. This much per case or that much per pound. For special situations where the volume was large and the operator actually committed to buying your product, you would reluctantly offer a deviated price. Those prices were controlled and were only offered after a thorough analysis and justification process. The reasons most folks were reluctant to ‘open the flood gates’ back then still hold true today –
- Deviated prices carry higher administrative costs than rebates due to the ambiguity of the effective claim rate.
- Uncertainty around how much of the discount reaches the operator.
- Risk that distributors would ‘go up and down the street’ with the hot price, upsetting balance in the market and costing you money for volume that did not require the discount in the first place [the elusive ‘full list price street business’].
Flashing forward to 2017, the new reality is that Chet’s Chevron in Small Fry, Mississippi, now receives deviated pricing offers on just about every category. The flood gates aren’t open… they have been removed from their hinges and thrown away. It’s at this point in the conversation that I often hear ‘that’s just the cost of doing business in foodservice.’ Before we jump to that conclusion, consider the following statistics from a recent survey of the industry:
- 80%+ of the deviated price offers are ‘Private,’ meaning that only a single distributor is aware of the offer and has access to those discounts.
- Only 20% of the operators ‘know’ a special price is available for them.
- Less than 20% of the local [e.g., not national chain accounts] discounts affect the ultimate price to the operator [e.g., the operator price from the distributor remains the same with or without the deviated offer].
- Of the discount amount, when it does ‘pass through’ and result in a lower price to the operator, the pass-through impact is less than 30% of the full possible amount.
- More than 40% of the ‘wins’ by any given distributor are actually straight conversions of business a second distributor already had for the same item [but now at your expense].
What should you do about it?
There are 3 relatively simple yet effective steps you should take today:
- Begin notifying the operator that you are offering a discount for their business. This will help drive integrity into the market on pass-through value and take a step in the direction of building a value-added link between your brands and that operator.
- Within your agreement with the operator, define the format and delivery process for the proof of delivery. Across the industry today there are literally thousands of different formats for the ‘backup’ and a high percentage is very poor. We should no longer accept ‘scanned PDF’ or images with redacted records. The operator needs to play a role in requesting that the distributors take the first one-way flight out of the Stone Age.
- For larger volume deviations, build a clause into the agreement that will hold the operator accountable for engaging in the resolution of discrepancies. The manufacturers have written off hundreds of millions of dollars in high rates and ineligible volume over the years. The operators need to be part of the solution in making sure the distributors are claiming for the right products, at the right rates and within the eligible time frame.
To overcome operator deviated pricing challenges, you need fortitude to act. With trade promotion management software, you’ll be able to efficiently manage and evaluate your programs, billbacks and deductions.