Be careful in the land of the giants
Earning a fair crust from a deal with the big supermarket chains can be tough work, but perseverance can pay off, writes Nina Hendy.
Coles and Woolworths: nightmares or pots of gold?
Getting your product stocked in Coles or Woolworths is considered the ultimate for many in small business. But it isn't always the ideal scenario. Dealing with the big supermarket chains can end up being a horror story.
Unfortunately for Melissa Lowe her experience was not positive. She forged a deal with Woolworths to stock her aluminium-free deodorant brand, Harmoni's Kiss. But 19 months after her product was first stocked on the shelves, the relationship was over. "Contacting the buyer was just a matter of researching who was responsible for the category and making contact," she says. "You can do this by hopping on the retailer's website or just phoning head office; 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 users without making a loss," she says. "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."
Lowe admits the deal was a loss maker due to the high trading terms, such as 60-day accounts. "When you get paid on month end, it actually works out to be a 90-day settlement," she says.
While Lowe could have elected to have a 30-day account, Woolworths would have increased the discount on the product, she says.
"I knew that there were going to be these costs, but I just didn't know how substantial they would be. The transportation and holding costs on deliveries were also causing a financial strain because I was paying for delivery, and if Woolworths was backed up on deliveries, I would get charged by my freight company on an hourly rate on every hour they had to wait for Woolworths to get their deliveries in order."
Lowe says she learnt a lot from the experience, including how to handle relationships and cutting a mutually beneficial deal. Harmoni Organics is now stocked at a number of independent outlets, which has worked out far better for her.
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," Lowe says.
In contrast, Sean Garlick's gourmet pie empire has grown substantially since he forged a relationship with Coles three years ago. The small businessman already had 11 pie outlets operating throughout 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 everything to nurture his business relationship with the supermarket giant. He's more than happy to travel to any Coles store in NSW to hand out samples, stock shelves, conduct in-store demonstrations and even don the Garlo's pie man suit and parade around the supermarket aisles.
"We're a family business and we've called on just about everyone in the family to be involved in store demonstrations, pie giveaways and merchandising," Garlick says. "It's been a massive commitment."
The relationship came about after a Coles representative approached him about stocking his range of pies, a huge coup for the premium independent brand.
Garlick says trade negotiations are mutually beneficial. But the former professional rugby league player admits he was sceptical in the early days about whether the deal would benefit his business.
"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," Garlick 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 well worth it. Garlo's Pies are now available at more than 400 Coles and IGA stores throughout the state, with the potential to grow that number and supply stores throughout Australia.