The Supply Side: New suppliers get tips on doing business with Wal-Mart

Getting products on Wal-Mart shelves is still thought of as reaching the Holy Grail for many suppliers, but the journey can be long and challenging in what is a highly competitive retail landscape, according to veteran suppliers who spoke recently at the Fast Start supplier summit held in Bentonville.

Derek Ridenoure, a national account manager for CF Sauer, said when talking with buyers the focus is always on the customer. He said staying true to founder Sam Walton’s mantra — the customer is always first — buyer teams always have the customer in mind.

Ridenoure spent 12 years at Wal-Mart, working in operations and asset management for the retail giant until 2006. He said the days of merchants “stacking it deep and selling it cheap” are long gone for the retail giant as the power has shifted toward the customer.

“Customers spend 21 seconds in front of a category and in that time they make up their mind about what they are going to buy,” he said. “If you are not fast from a supplier perspective, if your packaging doesn’t stand out, or it doesn’t catch a consumer’s eye, how are you going to compete?”

He said consumers often don’t even read the packaging. They just rush in and get what they previously purchased. He said buyers know what customers are putting in their carts and that’s what they want on the shelves. He said that makes it hard for new products to get shelf space.

MARGIN SQUEEZE
“Amazon, like them or hate them, created complete price transparency for the consumer and that’s changing the game. I was doing some remodeling at my home recently and I needed an item so I called a couple of local shops and was told it would be $185, plus $30 to get it here in three days. Amazon had it for $85 and I could get it the next day,” Ridenoure said.

“You are seeing Wal-Mart getting very competitive with Amazon, and quite frankly one thing Amazon has going for it the ease of doing business there. The Wal-Mart supplier agreement is something like 12 to 15 pages long, Amazon will let anyone do business there. I am not saying this is bad for Wal-Mart, but it’s a challenge,” he added.

Ridenoure said price transparency is forcing brick-and-mortar retailers to monitor margins to be competitive online. He said online penetration in the grocery category is 12% and 2% in fresh foods, and there is still a long way to go in these categories. But in apparel and electronics, those categories have moved online to the point where sales are weaker at brick and mortar.

GROWTH CHALLENGES
Ridenoure told the new suppliers that Wal-Mart buyers have their annual evaluations every March and April and that is the time for suppliers to make sure their goals align with the buyers.

“Suppliers need to find out how much growth the buyer is planning for the whole category and then align their own growth plan accordingly,” he said.

Sales, inventory and profit margin should be aligned between buyer and supplier and together the parties should collaborate on a plan to reach those goals while also discussing market risks and influences, he advised. Ridenoure said one buyer he calls on has 400 suppliers and no time to waste. When a buyer makes a recommendation, it’s usually a good idea for suppliers to follow it.

“New suppliers should ask their buyer what they need to help grow the whole category. Too often new suppliers miss opportunities because they rush in with their own agenda,” he said.

Ridenoure admits it’s now more challenging for buyer teams, given Wal-Mart is not adding as many new stores. He said the days of Wal-Mart growing sales by adding 15% more new stores a year are gone, and much of the focus and investment has been to accelerate online sales.

“Be warned; inventory is getting tighter and tighter all the time,” he said. “It’s all about space in the store. As a furniture supplier, I might only have 4 feet of space in a store, maybe 8 or 10 feet depending on the store size, but I have to make sure I put the best selling merchandise in that small space I have. But I also have to be profitable and so does that buyer or I will lose the space I have,” he said.

SUPPLY CHAIN COSTS
Dan Sanker, CEO of CaseStack, told the new suppliers about costs and the overall importance of the supply chain in getting a product to the shelf.

“This is a bottle of water and it’s worth nothing if it’s in the wrong place. Supply chain makes sure products are where they need to be in order to be sold,” Sanker said.

Sanker said suppliers can better control their supply costs if they understand the cost structure on what it takes to ship one item. For instance, he said a beverage company was shipping one item to 800 stores and the product was moving quickly off the shelves. But by getting the product in 4,000 stores, the supplier was able to lower shipping costs enough to give Wal-Mart a better margin on the product. The supplier is selling in more stores at a lower cost to Wal-Mart because of the savings they found in supply chain efficiencies.

Sanker said the cost of doing business with Wal-Mart increased about two years ago with adjusted payment terms. He said suppliers often get into a cash crunch because they may have to pay their bills in 10 days, while Wal-Mart gets 105 days to pay a supplier even if the product is selling.

“About 25% of the new suppliers don’t make it because of the financial crunch and they may have great products. They get squeezed between inventory costs and extended payment terms,” he said.

Sanker said suppliers who have fast moving products can sometimes negotiate a shorter payment term with their buyer, especially if it’s going to help with cash flow and better future replenishment.
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Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.