August 25, 2011
Title: Forging great supplier relationships
Sub-title: While convenience store owners and operators focus considerable efforts on boosting sales, they can also substantially improve productivity by effectively managing procurement.
One of the biggest challenges of managing a convenience store is making sure that the right products get on the right shelves at the right times. As a result, the procurement function has taken on considerable importance in recent years. “Customers are extremely sensitive to price,” says Ken Chung, who operates Mary’s Convenience store in Calgary. “So any savings that you make on purchases make it easier to pass value onto them.”
Toufic Kafouni, operator of the Beau-Soir Dépanneur agrees. “Buying properly is a crucial task any way you look at it, which often doesn’t get enough respect,” says Kafouni. “You can easily get so tied up with operational details like satisfying customers as they come in, keeping the place clean and stocking shelves, that it is hard to find time to implement an effective procurement strategy.”
Kafouni should know. He runs several small businesses in addition to his convenience store operations, has a Masters of Business Administration degree from the University de Québec à Montreal and has been in the industry for years. During that time has watched many changes taking place in an ever-tougher business environment. “The procurement function is becoming increasingly important as industry competition increases and outlets need every little edge they can get to stay ahead.” says Kafouni. “One of the best places to do that is by improving your relations with suppliers.”
A win-win situation
According to Robert Greene, a business professor at Niagara College, the “old school” approach to procurement was that buyers would line up a slew of vendors and play them off against each other to squeeze out the best pricing, delivery, shipping terms and conditions. However that kind of short-term thinking is dead.
“Many major industry suppliers are the same ones today as they were years ago,” notes Greene, who also does consulting work in the retail sector. “That means any relationship that you build with them needs to be a “win-win” one. If one of the parties is not getting what they want out of it, this will come back to bite them at some point.”
Another major challenge facing independent convenience store operators is that their small size makes it hard for them to deal with the large monopolies or oligopolies that dominate many of their supplier channels. These range from government lottery companies, cigarette and soft drink manufacturers and alcohol marketers (in those provinces where their sales are allowed at the convenience store level).
In fact many convenience stores, particularly independents, simply don’t have the buying power to dictate, or negotiate terms even with smaller suppliers, because in the current tight margin environment, it often simply isn’t profitable for suppliers to sell product unless conditions are right.
“We ship local all the time,” explains a spokesperson for Altra Foods, a distributor of ethnic, specialty, health and kosher foods. “However we do have a minimum order requirement of $500. That said, we believe that with our wide product range, that level should be pretty easy to meet.”
Yet while meeting minimum order quantities may be easy for larger chains, for smaller independents that is not always the case. As a result, many C-Store owners end up bypassing traditional wholesale and distributions chains, sometimes by means as drastic as getting out their minivans, driving up to the local Wal-Mart and Costco, and supplying themselves by buying in bulk there.
Another solution that smaller C-Store retailers should use more often, to gain clout with large suppliers, is to partner up says Greene. But he admits that that is not always easy.
“Many Canadian convenience store operators are recent immigrants who feel like they are fighting alone in a “dog-eat-dog” world,” explains Greene. “They thus are quite reluctant to cooperate with other retailers in an around the area by bundling purchases. What they don’t realize is that just because they compete in some ways, does not mean that they cannot cooperate in others.”
Greene cites one of his retailer clients who had what he regarded as a fierce competitor just across the lake from his locale. Eventually the two operations combined in some procurement efforts and, as a result, began cooperating in other areas as well. It was only then, that both realized that in fact that the two stores’ clienteles were vastly different and did not really overlap at all.
“Convenience store operators that want to boost their purchasing strategies need to start by networking, not only to form buying partnership opportunities, by also to exchange ideas, best practices and information about suppliers,” says Greene. “The difference between “networking” and “not working,” is just one letter. So they may as well get out and do it.”
Working in a buying group
Kafouni, agrees that partnering up to increase buying power is a good idea, but he prefers to do it by joining what he calls a “supplier group” operated by Jean-Paul Beaudry Ltée, which operates the Beau-soir and Dépanneur de Quartier banners and supplies a range of food products. Membership in the group provides Kafouni with a range of benefits including signage, help with store organization and so on.
But the biggest benefit that affiliation with the 200 small-and-medium sized convenience stores, grocers, movie theatres and pharmacies in the Jean-Paul Beaudry Ltée group provides … is buying power. According to Kafouni, members who join the group, commit to purchasing a minimum amount each year, say several hundred thousand dollars worth of product (Jean-Paul Beaudry Ltée could not provide a spokesperson to confirm details by publication time).
In exchange members get volume rebates that can range between 0.5% and 1.5% of annual purchases, as well as excellent purchasing conditions. “Under the terms we have in our deal, we remain independent and can buy wherever we like,” said Kafouni. “For example when we want to buy soft drink such as Coke and Pepsi, we can often get better deals on our own. However their prices are so advantageous that we easily exceed our purchase quotas.”
Getting back to fundamentals
Retail experts say that effective procurement strategies start with effective communications with customers. That’s because while most store operators know which of their products are moving, identifying those that they could be selling, if they were in fact stocking them, is not as easy.
The best way to do that is to ensure effective regular communications with clients as they come into the store either through the owner/manager himself, or through effective contacts with cashiers and salespeople. By finding out what your customers want, you avoid falling into the trap of just buying what various salespeople tell you are the “hot,” items.
That said, effective communications with supplier salespeople is also crucial. “It’s important to remember that while many reps don’t have much power when it comes to dealing with independents, they are generally fairly nice people with good knowledge of the industry,” says Kafouni. “So its very important to give them a hearing.”
The best way to establish a good long-term relationship with suppliers is to think first about what you can do for them. In the case of suppliers, the answer seems obvious: convenience stores can buy their products, if they are good and at a decent price they can stock them prominently, as well as display in-store advertising and promotions where they are sure to be seen.
That said, C-Store retailers need to enter supplier relationships realistically, particularly with regards to the larger monopoly and oligopoly distributors. That starts by admitting the power imbalance and learning to work within it.
In practice that means retailers make sure that they meet minimum order requirements, that they fill out the paperwork correctly and most importantly pay their bills on time. “Our lottery supplier has told us that if we are late with even one payment our entire services will be cut off,” said one C-Store operator who asked to remain anonymous, for fear of retribution.
Another way to get better service from oligopoly suppliers can be by thinking out of the box. For example many bar and tavern owners give all of their business to one beer distributor in order to get better deals on pricing and delivery. This sometimes leaves customers in a position of having to choose a second-favorite brand. However considering the amount of bars that resort to the practice, it clearly pays off.
For larger convenience store operators, Greene notes that the rise of the Canadian dollar over the past few years has substantially increased the attractiveness of buying imported products. Furthermore the export winds are changing radically, as many Asian companies, have vastly reduced minimum order quantities as competition tightens there too.
And finally, Greene advices retailers and procurement personnel in general to make an effort to keep up with industry trends by joining groups such as the Purchasing Management Association of Canada. “It’s a fast moving world out there,” says the retail industry veteran. “Professionals can’t keep up with everything on their own. That means getting out there to find out what’s going on can bring big returns.”
Sidebar: Purchasing management tips
· Talk regularly to customers to find out what new items they would like to see stocked in stores.
· Formally track inventory data to get a better handle which items are moving and which aren’t.
· Bundle purchases to reach minimum order quantity requirements.
· Partner up with other retailers or buying groups
· Pay suppliers promptly according to purchasing terms.
· Take advantage of seasonal discounts and bulk orders.
· Track quantity and volume discounts due at yearend to large purchasers.
· Constantly seek out new suppliers to compare terms.
· Consider going to Wal-Mart and Costco to buy bulk items if regular suppliers cannot supply small quantity specialty items.
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Peter Diekmeyer Communications Inc.