Slave to the supermarkets?

Nina Hendy
May 2, 2013
The Age

If big business can’t deal with the big guys, imagine how tough it is for small suppliers.

Getting your product stocked by Coles or Woolworths is the goal of many small businesses. But it isn’t always without drawbacks.

Sean Garlick’s gourmet pie empire has grown substantially since he forged a relationship with Coles three years ago.

The small business operator had 11 pie outlets in NSW, but when he was invited to stock his range of pies with Coles, he felt it was an opportunity too good to pass up.

Since then, he’s done it all he can to nurture the business relationship with the supermarket giant: he’s more than happy to hand out samples, stock shelves and conduct in-store demonstrations.

“We’re a family business and we’ve called on just about everyone in the family to be involved in store demonstrations, pie give-aways and merchandising. It’s been a massive commitment,” he says.

When a Coles representative approached him about stocking his range of pies he felt it was a huge coup.

Garlick says trade negotiations have been mutually beneficial. “Coles was able to stock a quality product and I was able to increase my brand awareness and footprint. There’s no way I could have done this without the support of Coles.”

But, he admits he was sceptical about whether the deal would benefit his business in those early days. He was also overwhelmed by the layers of Coles management he met in the first few months.

“I wasn’t confident we’d be able to compete on price with some of the supermarket pies, which were selling for half the price of ours,” he says.

“I’m also mindful about getting into a situation where we’re producing five times the volume and we’re making less profit. We steer away from price promotions on our lines in supermarkets, the same as in our bakery outlets. We don’t want to devalue our premium-brand image.”

But despite early concerns, the deal has been worth it, he thinks.

Garlo’s Pies are now available at more than 400 Coles and IGA stores across NSW, and there is potential to increase that number and supply nationwide.

The deal is profitable, with solid growth and a good working relationship, Garlick says.

But not all small business dealings with big supermarkets are as smooth.

Melissa Lowe forged a deal with Woolworths to stock her aluminium-free deodorant brand, Harmoni’s Kiss. But 19 months after her product was first stocked, the relationship was over.

“Contacting the buyer was just a matter of researching who was responsible for the category and making contact. You can do this by hopping on the retailer’s website or just phoning head office,” she says.
“That’s the easy part.”

While she wasn’t squeezed on price, she says the trading terms weren’t great.

“I needed to make sure I could afford to place a quality product at a price that was going to attract mainstream customers without making a loss. I elected the price and worked on making a profit from volume. I went with the trading terms to close the deal, prepared to take a calculated risk.”

She admits the deal was a loss-leader because of trading terms like 60-day accounts.

“When you get paid on month-end, it actually works out to be a 90-day settlement.”

While she could have elected a 30-day account, Woolworths would have increased the product discounts an extra 3.75 per cent on the already 20.35 per cent discount, she says.

“I knew that there were going to be these costs, but I just didn’t know how substantial they would be,” she says.

“The transportation and holding costs on deliveries were also causing a financial strain because I was paying for delivery, and if Woolworths were backed up on deliveries, I would get charged by my freight company for every hour they had to wait.”

Lowe says she learned a lot from the experience, including how to handle relationships and cut a mutually beneficial deal.

Harmoni Organics is now stocked at a number of independent outlets, which has worked out far better for Lowe.

But a new deal with a large supermarket could be on the cards, if demand for organic deodorant picks up. “Never say never, I say.”

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