Coles plays it straight with payments to suppliers

ELI GREENBLAT
April 6, 2017
The Australian

Coles is making a pitch for the loyalty of suppliers by adopting a successful payment model used by German discounter Aldi since it entered the supermarket sector in 2001.

Under the scheme, suppliers receive a single and simplified invoice for their goods net of any promotional rebates and discounts.

Dubbed “Project Net”, the invoice system now being offered by Coles to its thousands of packaged grocery suppliers promises to eliminate double handling and drawn-out negotiations over the final price paid for products once rebates are included. 

Aldi has always offered its suppliers a “net price’’ on invoices once a deal is struck, which includes any rebates or promotional discounts, giving clarity and confidence to suppliers.

The use of net price contracts has helped foster loyalty, with suppliers often citing the Aldi payment system as a key to a successful relationship with the supermarket discounter.

Now Coles will follow suit after a successful pilot last year that saw net price contracts offered to 200 of the supermarket’s biggest suppliers, with many talking up the scheme.

A letter sent to non-food grocery suppliers, and obtained by The Australian, reveals Coles will use the new contracts to improve its relationship with food and grocery manufacturers.

“Project Net broadens the commitment by Coles to building stronger and simpler relationships by moving to net price — removing deductions and rebates from trading terms, and making an equivalent reduction to list price to ensure neither supplier nor Coles is negatively impacted,’’ the letter reads.

“We believe moving to net price will provide mutual benefit … including reducing unnecessary complexity in our discussions, and removing some of the administrative burden (e.g. reduced invoice matching) associated with having complex arrangements.”

It has been a major gripe of food and grocery manufacturers for many years that once a price is settled with a buyer from Woolworths or Coles it is often followed by protracted talks and deductions once rebates are included, which triggers repayments and new invoices that can be far from the price first struck.

Project Net pledges to include those deductions, which should cut down on double-handling and administration for both Coles and the supplier.

“Project Net is intended to be an administrative process to simplify terms, not a renegotiation of price or terms. There is no intention to change the net supplier cost you receive for your goods as part of this process,’’ the letter to suppliers from Coles reads.

The supplier contract will remove trading terms currently in place, but does not remove variable funding such as promotions, temporary price reductions or other arrangements agreed such as freight recovery charges or waste and markdown claims. Project Net is only intended for packaged grocery suppliers, and is being rolled out category by category, with no plans as yet to extend it to fresh food and meat. 

“All new suppliers to Coles now commence with net price, and many of our existing suppliers have already agreed to move to net price.” 

The contract builds on other initiatives from Coles to improve its relationship with suppliers after the supermarket giant in 2014 was forced to apologise following an unconscionable conduct case brought by the ACCC that saw it pay $10 million in fines.

Last month Coles announced that from July 1 it would introduce reduced payment times for more than 1000 smaller merchandise suppliers.

Coles managing director John Durkan said small suppliers providing Coles with up to $1m worth of merchandise annually would be paid on all electronically-submitted invoices within 14 days, with payment terms typically averaging 30 days for smaller suppliers.