business news in context, analysis with attitude

We continue to get email about the Ahold situation…

One MNB user wrote:

“Buying extra weeks and possibly months of inventory is not a practice limited to Ahold. Despite all of the good intentions of ECR, retailers continue to accept end of quarter load ins because manufacturers continue to come back with more end of quarter load in buys. This is particularly true with Food and Drug wholesalers who make a significant profit on the shrink.

“This is all part of the ugly side of the business including price protection on their current inventory, diverting the product that they may never even touch, and if they actually take the product, either having to offer even more money to promote the product to help it move through the system or eventually having your account tell you that they now have too much inventory that either has to be returned or will be sent to salvage and the total inventory cost plus handling will be deducted.

“As for the sales person who, you say, is supposed to holler about these inefficient practices. You want the rep to hold back promotional dollars that a retailer is thirsting for and expecting; you want the rep to tell the VP of Sales that they are not going to offer the deal because it is the wrong way to go to business. A rep then looks bad to the retailer and his boss, and then you don't make your bonus. OR you offer the promotional monies, load in the retailer, look good to the retailer because you helped them book more profit, you look good to the VP of Sales because you made your quota, you look good to the spouse because you brought home the bonus check. You can't push a rope uphill.

“You change behavior by how you incent retailers with promotional monies and reps with bonus monies. You can change the model by paying on the sell through, not on the sell in. This has been the subject of some of your recent articles. It's getting back to giving the consumer a value at the register. This can be through Wal-Mart's model of driving down costs through eliminating inefficiencies, it could be count/ recount on what is sold through the registers, it could be Catalina coupons.

“The bottom line is that it is the consumer who should make the decision on what retailers carry, and how much to carry, based on their purchasing behavior. It seems like it is the other way around under current practices.”

You’ll get no argument from us.

Another member of the MNB community wrote:

“I personally called on or supervised those calling on the headquarters of most of the Ahold supermarket units and I agree that the individual operations were and are tremendous. It would be a crime if they have to go down the ‘KKR’ route.”

Also no argument here.

Of course, not everyone is as thrilled with Ahold. One MNB user who asked to remain anonymous (for obvious reasons) wrote:

“I can testify to the fact that Stop and Shop regularly took unauthorized deductions from our company in each of the four years we did business with them. When we parted company, the total of deductions they took were equal to roughly 10% of their total purchases, and even though we provided detailed information - they simply refused to pay. It's a shame that a company with this much potential and strength in their market was inclined and evidently encouraged to cheat their vendor partners. I hope they get what's coming to them.”

A little bitterness there, we think…

And, MNB user Jerry Tully admonished us:

“You should learn to distinguish between bonuses for salespeople and those for executives. Sales bonuses paid to salespeople are based upon sales and are not "artificially inflated". Putting together people like Tim Lee with salespeople dependant upon sales bonuses to pay their monthly bills is unfair at best!”

If we were imprecise, we apologize.

When we referred to bonuses being artificially inflated, we were referring to the fact that a bonus might be based on the extra inventory being brought in because of HQ directives, which we think is a fair statement.

That said, it seems appropriate to us that if sales people are dependent on bonuses to pay their bills and feed their families, there ought to be a good faith effort to help them out with no-interest loans paid against future bonuses. We’re not talking the sweetheart deals that were all the rage at Kmart, but enough so that salespeople are able to survive under tough circumstances.

Finally, we got a couple of emails about yesterday’s analysis of Publix.

MNB user Charles Young wrote:

“I don't want to challenge the expertise, but wonder what impact Publix trading area has to do with the decline? It seems to me whenever my family travels in the Southeast, Publix serves that resort area.

“Looking at things like airline bookings, declines in Disney attendance, Florida tourist revenue... fewer people mean fewer shoppers. while the tourist is not the mainstay of the business, they represent a lucrative sub-set of the volume.”

And another MNB user wrote:

“I think there is one important issue that your author failed to capture concerning Publix's same store sales. Understand that Publix operates the majority of it stores in Florida (578), which has been hard hit by 911. Tourism is down, and our South American and European visitors are not traveling for fear of war or more terrorist acts.

“The Florida economy depends on its number one business, tourism. When hotels and restaurants lay people off, the domino effect trickles all the way down.

“No doubt, if and when the war is over, and the threat of terrorism begins so
subside, the Florida economy will recover.”

We can only hope. Good points…and we appreciate the context.

That’s it for this week…which has been crammed with an amazing amount of news.

Have a great weekend!
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