March 4, 2021
We all are aware of how challenging the last business quarter and year have been for all foodservice trading partners.
The recent Pentallect POV discussing the results of the top three public foodservice distributors, Sysco PFG and US Foods (read it here) specifically makes it clear how challenging the business environment has been for the top 3 public distributors.
In that context, we have become aware of many distributors emphasizing various supplier fees by stricter implementation, increasing rates or implementing new fees.
While supplier fees have been part of supplier-distributor negotiations for as long as anyone can remember, the breadth and depth of the reported emphasis on fees are bound to generate significant concerns and questions from trading partners.
Let the negotiations begin!
Some of the more prevalent fees include
- Supplier Fill Rate Fees
- Item Content Fees
- Supplier Billback Fees
- Non-Standard Operator Negotiated Supplier Form Fees
- Supplier Invoicing Efficiency Fees
It is always important to understand the “why” along with the “what” of various fees.
The rationale/justification for some of the more prevalent fees is primarily to offset cost and improve the distributor’s ability is to ensure their customers receive the products they need when they need them. Additionally, on content fees, the premise is to make sure the operator shopping experience is not diminished resulting in lost sales.
What varies and will be the crux of many negotiations is 1. the fee value/cost for each “violation which may or may not be related to actual “out of pocket costs” or may be seen as onerous, 2. some distributors are/will be auto-deducting fees which could be the basis for disputes and potential administrative costs.
Fees have implications, including but not limited to:
- Need to clarify shared supplier – distributor performance responsibilities
- Margin impact and cost of doing business with certain customer types
- May increase operating costs
- May translate to higher cost of goods
- May be in conflict with existing contracts
These and other issues should be factored into discussions/negotiations.
A few basic considerations for suppliers:
- As with any request for funds, ensure that you know and strictly consider your actual costs involved.
- Ensure that you review your operational processes to identify any improvement opportunities. (example: are your order lead times and order add-on processes appropriate?)
- Assess and review specifics of your marketplace leverage (ex: push-pull, brand strength, sales resources and competitive strengths and weaknesses).
- Ensure a clear understanding of all current contractual obligations and terms of each contract.
- Review the real profitability of your push versus pull business.
- Maintain clear focus on accounts receivable processes and promptly address disputed deductions.
- Update objectives, strategies and tactics incorporating new economic realities as necessary.
Final Comments:
Pentallect fully supports “collaborative” efforts to make the foodservice industry supply chain more effective and efficient and also supports the GS1 standardization efforts.
It is, however, Pentallect’s Point of View that now is not the time to be punitive, especially as accurate forecasting is virtually impossible in an environment when operator closures, capacity level changes and re-openings are taking place with little or no advance notice. Further, suppliers are struggling with their supply chain due to dock delays, material shortages etc.. Additionally, distributor’s practices on forecasting, order accuracy and add on orders can contribute to issues.
Bottom line: Pentallect believes this is the time for increased collaboration rather than increased fees!
By: Gary Karp | Bob Goldin and Barry Friends
For more information regarding how Pentallect may be able to assist with your “Go to Market” efforts, please: