managing vendor relations in the cold vault

While E-Z Mart has been wrestling with a wet, mildsummer, cooler sales have suffered. Where 100-degreedays are usually the norm, temperatures have barelygotten into the 90s, and every weekend has been saturated.Even though it has 309 stores stretched across five states,the conditions in east Texas have an impact on the overall business,and no category has been hit harder than packaged beverages.

Still, Ron Gillion, category manager for the Texarkana, Texaschain, keeps a close eye on his coolers, making adjustments tomaximize profitability. In recent months, E-Z Mart has shifted theamount of space devoted to products based on movement andhas narrowed its flavor and package varieties based on scan data.As a result, the company has increased bottled water space a halfdoor on average from 2006 to 2007, and it’s cautiously expandingenergy drink space to a full door for 2007, thanks to the segmentclimbing 4.5% from its last year’s sales data.

“We’ll get two to three new products [for the cooler] a week, soyou have to stay on top of category data,” said Gillion, who alsolooks at product market share to identify the best sellers.

As the popularity of packaged beverages continues growing,E-Z Mart has had to deal with yearly price increases from DSDvendors. Gillion said he took a “good hit” this year with warehouseand grocery supply companies. As he watches bottledwater margins drop 3 to 4%, down to 50%, sales have also beenrelatively flat. Gillion acknowledges it’s a tough bullet to bite, buthe also sees the effect it has on store profitability.

“Manufacturers have tried to offer better rebates, but in the endwe had to pass some of the cost onto the consumers, which is partof the reason water is flat this year,” said Gillion. “For the past fiveyears we’ve experienced double-digit growth, but as retail pricesgo up, we see that sales are stagnant.”

Space Constraints
Terri Murray, general manager for 11 Gulf Oil Exxon/Tigermarts peppered along the Massachusetts Turnpike, believesin giving her customers variety, but she also feels the pinch whenher costs go up. She negotiates her pricing with manufacturers orbrokers and assumes that the distributors work out pricing withthe manufacturer. When she sees her costs increase, she eitherabsorbs some of the cost or passes it on to her consumers.

Murray tries to keep costs down by maximizing consumer merchandisingagreements (CMAs) for each supplier. She said vendorsusually have a plan for setting schematics and SKUs to maximizegrowth in the upcoming year. Retailers that commit to the plan getbetter pricing.

The problem for Murray is when she has to make the toughchoices that come with finite space in her coolers. “No [manufacturer]ever has enough space to keep them happy. CMAs makeit difficult because Coke and Pepsi will both vie for the other’sspace,” she said. “I’m in a tough spot because I don’t want to loserebates with either company.”

Since Murray feels customers favor Coke over Pepsi in hermarkets, she opted for Coke’s program. Because she’s not withPepsi’s program, she’s paying $2.50 more per 20-oz. case than shedoes with Coke. It’s a tough pill to swallow, but Murray takes thehit herself rather than passing the buck to her customers.

“You can charge more for Pepsi than Coke to make up the cost,but it’s not fair to our customers,” Murray said. “We’ve left it thesame and really haven’t seen a negative impact. We could givespace from Coke to make up the Pepsi difference, but then ourcosts will go up with Coke. We sell more Coke so we’re still makingmore money sticking with the arrangement we’ve got.”

Even though the rebates she receives from the major soft drinksuppliers are her bread and butter, Murray likes to give new companies a shot on her shelves (see “Battleof the Bulge,” April ‘07, p. 26) and in thecooler. So even though it’s a struggle tokeep all manufacturers happy, it is a priorityto find space for products new tothe category.

“We’ve given a full shelf to Figi Water,”said Murray. “It’s a great product and Iwanted to help them grow, so I boughtin and it’s doing well. Will they get a fullshelf for another season? Probably not,but it gives the customer something excitingrather than the same old soda or waterthey can get anywhere. I could give thatspace to Pepsi, but Figi Water is paying forit and it’s doing well, so I’m going to letthem run with it.”

Running the Show
Even though Jack Trebilcock hasonly been the director of marketing atNorfolk, Va.-based Miller Oil for ninemonths, he’s been around the convenienceindustry and has tallied a greatdeal of experience. He got a taste ofworking with the beverage manufacturerswhile working at Charlotte,N.C.-based Petro Express, and has learnedthat things rarely change from chainto chain.

While negotiating a CMA with oneof the major soft drink suppliers, he realizedthat almost the entire meeting wentby without discussing carbonated softdrinks—all they wanted to talk aboutwas bottled and flavored water and theirenergy drinks. At the end, he asked, “Arewe going to talk about carbonated softdrinks at all?”

“These companies have been calling theshots for a while. They know how to backdoor this stuff and tie what they wantinto their CMAs,” said Trebilcock. “I’min a similar boat with Coke this year. Wenegotiated our CMA and I asked if theyhad anything new coming out I wouldneed space for. We never discussed thempurchasing Vitamin Water. I have customersthat want it, and I have to find away to work it into the set, even thoughit’s only a couple of SKUs.”

In Miller stores, carbonated/noncarbonatedbeverages represent 37% ofbeverage sales, energy drinks represent15%, water 12% and isotonics 13%. Whilesoda more than doubles the sales of anyother segments, Trebilcock is quick topoint out that 12-packs and 2-liters arefactored in. While the take-home categoryhas been a primary focus for thechain, it’s also been a big challenge forTrebilcock, and one he could get ahandle on as long as he was willing totake a stand.

Common Goals
Since coming onboard at Miller,Trebilcock realized that the soda companiesbasically had free reign in thestore—with four to five 2-liter displayspositioned throughout. He felt storeslooked more like obstacle courses thanpleasant places to shop, and the numbersdidn’t justify the space. So Trebilcock puthis foot down, and it’s paid off.

“We wanted to clean up our stores tobecome better merchants and retailers,not a warehouse for product. So we’vetaken out the displays and the soda companieswere not happy, but they can’targue that our numbers are better thanlast year’s,” he said. “Pepsi is giving usless funding than they were last year andour CMA isn’t nearly as aggressive. But bymaking our stores more appealing, we’remaintaining volume and giving the customera better experience. In the end, weall can agree that we simply want to sellmore product.”

In an effort to keep costs down, Gillionhas worked with his supply companyto make a smoother transition from thewarehouse to the stores. They’ve alteredthe planning of the loads a bit, which is astep in the right direction.

E-Z Mart is also trying manufacturers’promotions it might not have done inthe past, but Gillion feels it’s necessary tokeep volumes up while maintaining margins.Promotions that his customers haveresponded to well are two 1-liters for $2and a case of 24/16.9-ounce of Ozarkafor $4.99. Nestle Waters has also implementeda couponing program with staticdoor stickers that will help E-Z Mart crosspromotebottled water with candy sales.

Murray was approached by Gatoradewith an offer for two of her locations. Thecompany wanted to monitor the twostores to see if having too many flavorsactually decreases sales. There are normally2
0 different flavors in the Gatoradespace, so they wanted to see if by eliminatingthe non-best sellers and adding arow of best sellers, if it would promotesales. Moreso, Murray wanted to weedout unpopular flavors.

Gulf Oil Exxon has only been monitoringthe product movement for about twomonths, which Murray feels is too earlyfor hard results, but she appreciates thebeverage company’s attempt to develop awin-win strategy.

“It could be a better situation becausenow we’re not bringing in stock for all theother flavors and our turns are much better—we’re basically doubling up on ourbest sellers,” she said. “It’s already workingout better for me and we’ll see if itworks better for them.”

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