Sales techniques in cooperation with retail chains

 

Looking around the world, you will notice how in many countries traditional retail operations give way to large, integrated, international retail chains. Rather than the well-known one-door retail shops these retail companies are huge, very powerful and very well organized entities. As soon as the level of living reaches a certain niveau in a country, retail chains appear there to take over the retail market.

 

There are several types of retail chains. The common point in retail chains is, that they are organized into a network with one or a few centres, and usually purchasing decisions have effect on all networks (ie. They buy centrally). There are specialized markets and general markets, as following:

-         Hypermarkets (Carrefour, Tesco, WalMart, etc.). These are huge stores with 40 cashiers at least. These shops sell a very large selection of goods, like food, household chemicals, textile, toys – these are called FMCG goods – but also tools, electronics, gardening equipment. Some of them even have own petrol stations. These markets are mostly located at places accessible by car, so they attract a lot of people and often whole families. The presence of cars means the people are able to buy large amounts at once. You will find hypermarkets at larger cities of 15-20.000 households.

-         Food discounters (Aldi, Lidl, PennyMarket, etc.). These are smaller units, holding usually a limited selection (700-1.500 items) of food products. Occasionally they sell non-food products in sales promotions to attract people, but non-food products are usually not included in the normal sortiment. For example, they will sell garden tools in March, or inflatable water toys in June, but once sold out, these items disappear from the stores. These chains have the highest number of stores. It is said, that 500 households maintain such a store profitably, so even in small towns or villages, you can find such stores. Some of these discounters keep mostly their household labels on the shelves, partly for cost reduction, and partly for corporate image purposes. These stores are among the largest food buyers on the world. They are located at easily accessible places, either by car or mass transit.

-         Drugstores (Schlecker, DM, Rossmann in Europe, etc.). These are specialized in retailing cosmetics, household chemicals and cleaning material, make-up, baby food, pet food, health products, occasionally even medicine. These shops are located in inner cities of larger settlements. Since most of their products are small but rather high-value, they are not always accessible by car. Occasionally these stores will sell non-food products for promotion purposes. The staff in these shops is usually quite knowledgeable so if you want to sell to such stores you will definitely need product knowledge.

-         Electronics/media retailers (MediaMarkt, Saturn, etc.). These retailers are specialized in selling household electronics such as fridges, TVs, coffee machines, but also game consoles, mobile phones, computers and their accessories like memory cards, computer games, laptop bags, music CDs, etc. Mostly they are attached to one of the larger hypermarkets (but not necessarily). These chains buy very large quantities of electronics at once. If you want to cooperate with an electronics chain, be prepared to take warranty responsibilities and to have a very thorough understanding of your products. Also, area-specific quality certificates of your products will be your responsibility.

-         Other specialized retail chains – DIY markets, pet-food markets, beverage markets, household-textile-markets etc. Apart from their products, they usually operate similarly to each other – central purchasing, low costs, large selection, good location.

Now, if you want to understand how to sell to such retail chains, understand first how they buy.

 

A common element at these companies is, that the Purchasing Department or the Purchasing Manager is a key player. You would think that at a trade company the sales would be the most important – in this case, no. Some so-called „hardcore” food discounters do not even have a sales department, while the CEO and the Purchasing Director is the same person. They attract the buyers with low prices and a large selection of goods, instead of professional sales methods.

 

The purchasing departments of these companies are not very active in sourcing. Their main responsibility is to track incoming invoices and outgoing orders, regularly check product packaging and quality, and to organize incoming shipments. Their main duty is logistics. They are accustomed to many suppliers contacting them so they will not do much to follow you even if your offer is very good. In fact one of their duties is to decrease the number of suppliers in order to simplify invoicing and warehousing. Additionally, professional buyers at retail chains are rather picky in terms of quality, warranty and product safety, including certificates and product packaging. It is understandable, since a retail unit is a very apparent trade element, they have millions of retail customers and they must take responsibility for the goods they sell. A missing sentence from the product packaging or a mistyped CE-certificate number will result in very hard fines for the retailer.  Therefore, if you do want to make business with the retail chain, 1). Be persistent in contacting the purchasing manager; 2). Be very detailed and professional about your offer, be able to answer all questions concerning your product. A retail chain buyer will have no time to ask you twice. Have copies of your product packaging at hand, as well as quality certificates and warranty conditions. For the above reasons, some retail chains do not readily make business directly with overseas suppliers – but if you take the effort you may be able to get in touch with them.

 

Second, these retail chains seem to have large stocks on their shelves. That may be true, but the stores themselves have usually no large storage rooms, so they usually have some sort of just-in-time delivery systems. Food retailers will have some central cooling/storage facility, but even then, you must be ready to deliver your products to the retailer within strictly limited „time windows”. For example, if you sell a container of tablecloth to a retailer, they may want you to deliver the container to their central warehouse on a certain day, between, say 10.10 and 10.25. If you (or your forwarder) miss this period, you can only deliver next day (and you will be most probably fined). Sometimes, (especially in the case of cosmetics and brand sweets) the supplier is requested to fill up the shelves directly in the shops at a daily basis.

 

Third, and partly related to the second question, retail chains will request quite long payment terms. The reasons why they do this are following: 1). They have an immensely huge stock on the shelves, that would be almost impossible to finance upfront even if they wanted to; 2). Retail chains operate with low prices to attract buyers, so they have relatively small margins on products. They invest their incomes in short-term investments to increase their revenues; 3). Just like almost anybody in our days, retail chains use any cash they receive to expand their operations; they basically work on the credit of their suppliers. From this, you can conceive several things:

-         Have some arguments at hand if it comes to payment terms. Explain them how quickly your products will turn over (never forget, always be ready to proof what you say! For instance, you can use an earlier client of you as an example, what results they had with your products), so they will get their money earlier. Of course your interest is to get your payment earlier.

-         You must be ready to take longer payment terms as usual at your company. If you are at a smaller, not well-capitalized company, ask your bank if they can accept the contract with the retail chain as a security for a liquidity credit. While retail chains demand long payment terms, they are mostly very accurate in their payments.

-         Retail chain buyers will usually not bargain about the price you offered to them. If your price is good enough, they will talk to you. However, they are of course interested in cost cuts, so they will ask you to take over certain costs for them. They may ask for a „shelf fee”, a fee for the shelf space your products occupy – the higher the fee the better placement your product will get; „promotion fee” – a certain fee you pay so that your product is pictured in the retail chain’s promotion brochures and website; „listing fee” a fee for inaugurating your product in their stock management/invoicing software and assigning a product code; and a hill of other fees or costs. I have even heard about a „store reconstruction contribution” fee. However do not take these fees automatically seriously. If you accept all this you will find your margins disappearing; you must haggle out as many such fees as possible. The buyer will not take it wrong – it is his duty trying to take back as much cash as possible. Their point is, you pay these fees upfront so it is cash at hand for them! Normally the one-time listing fee, the one-time promotion fee, an obligatory discount at larger sales promotion is normal, as well as some turnover bonus if they sell more than expected. Do not forget that supply contracts are re-negotiated each year, so leave room for yourself to transform your pricing if the retailer demands a discount, a larger bonus, or some extra fees (they will). Also consider, if a similar product to yours is already sold by a supplier, you must take worse conditions than him to outperform them. In this case you can protect your product and price by emphasizing the differences and advantages of your product – before you begin negotiations with a retail chain, visit a few stores and see who your competitors are.

-         Retail chains are very big thus having a very strong position in negotiations. However if you manage to sell to them, they will take huge quantitites and they are normally very honest buyers.

 

Four, retail chains have great emphasis on customer protection. This includes everything from warranty to package labels, barcodes, etc. Retail chains are constantly under the auspicion and attacks of other retail chains, and competing elements. Often, local retailers or customer organizations try to discomfort foreign retail chains so they report them to the customer protection authorities as many times as possible. The result of such claims is often an outrageous fine which is – understandably – not willingly paid by the retail chain. Therefore, they will do everything in their power to avoid risk attributed to the product they sell. So, they will ask for detailed information on the packaging of the products, or even have certain guidelines concerning how a product must be packaged; the product must be correctly labeled in the local language, or, in case of an international retailer, sometimes even in 8-10 foreign languages, and all text must be correct; there must be an EAN-code at several spots on the packaging so that the cashier can read in the product; you must be able to provide all relevant certificates with the product; normally a CE declaration will not be enough, you must certify your product at an independent testing organization like SGS; retail chains take warranty very seriously, so you must be able to provide a warranty service under your contract in the countries they sell and be able to provide replacements and spare parts – you cannot just get over this with the usual „I give you 2% discount, OK? Shipping spare parts by courier is expensive you know”. You must build this cost into your price. They will not accept your product without these securities. Additionally, as you already know, retail chain buyers are always short on time, so if they request any change on the packaging or any document from you, you must be able to respond immediately.

 

Five and last, how to put arguments behind your product if you sell to retail chain buyers? Well, consider following. A retail chain buyer meets a thousand suppliers with a million possible products every day. He has no personal interest in your products. Additionally, the sales methods of most retail chain types do not allow promoting the advantages of your products efficiently. For cost reasons, there is usually little staff in a store, who have different tasks than dealing with customers, so they have no time to explain products (of course there are exceptions, staff in electronics stores and drugstores are quite familiar with the products). Therefore, your main sales argument is supposed to be 1). The profits they can make with your products and 2). How short the turnover time of your product is. Do you think it is a good point that no other retail chain carries your product, so there is no competition for them? Well, what do you think? OK, I tell you: the answer is NO. Retail chains try to avoid risk and they are suspicious when you enter their meeting room with your superb product but they are the first to buy that – they think: „if it is so great, why aren’t others selling that?” In this situation you must be very convincing and this is where you really need sales skills. This is the point where the differences of a well-prepared assistant and a real salesperson come up. You must explain why you did not sell your product to other retail chains so far, and why did you choose exactly them to begin this. This is the point where you can tell good things about your product: „Our product development has reached a level where we can guarantee a product safety you care about – and your retail chain is the most innovative/biggest/most popular/most sympathetic... etc.” It is possible that you can only sell first to a regional centre of the retail chain instead of the whole network. If your product gets onto the shelves of a major retail chain, it will be much more easy to sell it to others.

 

So, these are the factors that come to my mind in a short time. Undoubtedly there are other factors I haven’t remembered now, but I hope you will ask or even explain. From above, it seems that making business with a major retail chain is a hassle, and probably it is. But, these are the elements of trade where most customers are reached, and a retail chain is the best platform to build your brand if you wish. Additionally, retail chains take up huge quantities of goods at once. Since there are many different retail chains, you can pick out the one which fits your production capacity the best, so you can build up a good cooperation without delayed shipments. I personally think, that cooperating with a retail chain, either directly or through a specialized trading agent or company, is a prime choice for factories who are willing to do some extra work and service, and, instead of struggling with distributors with varying capacities and reliability hire a talented salesperson and do business directly with a retail chain. If I had a factory of some FMCG products I would surely do this.

 

 

 

 

 

very practical article !

Thank you. I see many people read it, but there are no questions or remarks - maybe it is too long?


Just an additional remark, the retail chain TESCO of UK has exceeded 3 billion GBP in profits for the first time in 2008. This means their suppliers have also had increased turnover - and all that in the middle of a global crisis. So there is a point in cooperating with retail chains.


c[ ]

Good article, very useful to us at this point. To be able to negotiate, we have to understand the other party's position, completely. We can get lost in our own little world of product development and not be aware of the crude and stark reality of the trading environment where these big retailers operate. Interesting, the bit about if other buyers carry the product...not wanting to be first, etc. Being petrified about mistakes and consumer hassle comes from the unbalanced relationship between retailer and consumer. We had a survey questionaire, recently, about how our company is promoting 'sustainability'. The low pricing of consumer hardware goods, in particular, brings about the situation where 'throwaway goods' (at the lowest possible price) are the only ones that sell. Goods that are made to last a long time and are repairable ( often not much more costly on the day), are almost impossible to find. Thanks and have a good day.

very interesting article for sales people

I am situated in South Africa & have only one product. Would you recommend that I go through a distributor to distribute my stock? I have never been in this industry & find it extremely frustrating & difficult to get in to.


If my product wasn't so spectacularly good, I would have given up a very long time ago!


Regards,

Rosanne

Stuff Off! (Manufacturing)

If you feel strong and skilled enough you can leave out a distribution company of your supply chain and negotiate directly with the retail chain. It depends on what you can and prefer, and also if your product allows a margin that verifies the involvement of a distributor. Also you must consider if you are able to supply the retail chain with your product in sufficient quantities.


If I were you I would definitely try to sell directly to the retail chain and keep a larger proportion of the profits, generally speaking. But it depends on many factors, as above.


c[ ]

Thank you for your profound article, especially the good insight into the buying policy of retail chains!

Is it difficult to say, how much one should budget for all the fees that can be asked for? In a recent discussion I heard professional salespeople talking about 11%- 14%. Would that include once-off fees?

Gabor Bathori,


Thank you for your extensive explanation about the retail chain, and how good will it be if we can sell to them, and what techniques to use.


I notice you are one of those very few who use your real name as nickname, this shows your honesty and transparency. I also know a Mr. Botari, from South America, Argentina, a Latino State. He is a fervent  man of faith, doing spiritual counselling here in Singapore, sometime back in 1996. Now, back to my discussion, sorry to side track the subject a little to talk about yourself.


As we know, supermarkets and departmental stores have their own buying team, the purchaser or a very highly trained and specialised person called "merchandiser". They are the key personnel to the company, because of their important role to buy cheap, good, and fresh, with quality and authentication. So, in order to be a link to the supply chain, it has to be :


1. Timely delivery

2. Cheapest priced products, with significant discounts for large quantity orders.

3. Consistency in the supply, on the quality of goods and the pricing.

4. Certificates of origin must be produced, if the product is made in China, you must state this.

5. Slow payment, and good and extensive payment terms, some even on consignment stocks, and you must be willing to take back those unsold products at your own cost.

6. Highest quality products, with brand names or with certificates of acceptance on the safety and health standards.

7. Large quantity of stocks available over a short notice should be maintained by the supplier.

8. Good after sales service must be provided, and warranty of the product should be provided, or money-back schemes.

9. Supplier has to be available 24/7 every day, including holidays, weekends and at anytime.

10. Logistic support has to be tied to their database or Cash Register, point-of-sales and minimum level of stocks has to be maintained. In other words your company has to be in the SCM network.


There are several more points, but I hate to lose all these writings when I post too long scripts, and cannot retrieve them if I did not save them before posting. I wonder how you can put so much words in your opening thread.


Street Smart



 

Gabor Bathori,


Thank you for your extensive explanation about the retail chain, and how good will it be if we can sell to them, and what techniques to use.


I notice you are one of those very few who use your real name as nickname, this shows your honesty and transparency. I also know a Mr. Botari, from South America, Argentina, a Latino State. He is a fervent  man of faith, doing spiritual counselling here in Singapore, sometime back in 1996. Now, back to my discussion, sorry to side track the subject a little to talk about yourself.


As we know, supermarkets and departmental stores have their own buying team, the purchaser or a very highly trained and specialised person called "merchandiser". They are the key personnel to the company, because of their important role to buy cheap, good, and fresh, with quality and authentication. So, in order to be a link to the supply chain, it has to be :


1. Timely delivery

2. Cheapest priced products, with significant discounts for large quantity orders.

3. Consistency in the supply, on the quality of goods and the pricing.

4. Certificates of origin must be produced, if the product is made in China, you must state this.

5. Slow payment, and good and extensive payment terms, some even on consignment stocks, and you must be willing to take back those unsold products at your own cost.

6. Highest quality products, with brand names or with certificates of acceptance on the safety and health standards.

7. Large quantity of stocks available over a short notice should be maintained by the supplier.

8. Good after sales service must be provided, and warranty of the product should be provided, or money-back schemes.

9. Supplier has to be available 24/7 every day, including holidays, weekends and at anytime.

10. Logistic support has to be tied to their database or Cash Register, point-of-sales and minimum level of stocks has to be maintained. In other words your company has to be in the SCM network.


There are several more points, but I hate to lose all these writings when I post too long scripts, and cannot retrieve them if I did not save them before posting. I wonder how you can put so much words in your opening thread.


Street Smart