Coles tightens the noose on field agents
A confidential Coles tender document obtained by BusinessDay sets out the company's blueprint to restructure the relationship between it, suppliers and field agents - also known as "reps" - and proposes the new arrangements could be implemented at its petrol station network as well as Coles liquor arms Liquorland, 1st Choice and Vintage Cellars.
BusinessDay has also learnt that Coles is drawing a short list of interested parties to fill the ranks of its maiden panel of "approved" field agents for its supermarkets after its first tender round under the new plan closed last Friday.
Originally it was planned for the new supermarket supply arrangements to be running from July 1, but that now looks to have been pushed back towards the end of this year. It is intended to be offered to all Coles grocery suppliers by late 2015.
As revealed last month, Coles is seeking to raise its own panel of approved field agents who, armed with a range of fees negotiated with Coles rather than suppliers, as is now the case, would go out to food suppliers to tender for their services. This would turn the relationship between these agents and suppliers on its head and carve out hundreds of millions of dollars in costs from Coles' supply chain.
Under the new system, these field agents on the Coles panel will also be required to invest in IT hardware and software as well as pay an as yet unspecified rebate back to Coles.
Coles says the arrangements will drive efficiency and deliver a better service to suppliers.
"Most of our large and medium suppliers maintain a significant field force to visit our stores on a weekly basis," the confidential Coles tender argues. "Up to 30 field reps visit our stores in a day. There is a significant difference in the ways of working of the field reps of each of our suppliers and this causes disruption to Coles store operations.
"To resolve all these issues, Coles is exploring options for creating a panel of third party field force companies that could be used by our suppliers."
Working away in supermarket aisles with the name of the grocery brand on their workwear, these field reps typically replace perishable food stock, such as bread, and negotiate deals with supermarket store managers over special promotions such as in-store demonstrations and displays. They typically charge a fee of about 5 per cent of sales back to suppliers.
However, under the restructure Coles would use its market power to negotiate those fees down substantially, reclaiming much of them for itself while tightening its grip over its own supply chain.
The shake-up has alarmed field agents, who number more than 20,000 people, and could result in slashed earnings. A representative of field agents met with Coles merchandise director John Durkin to plead their case, but Coles looks to be pushing ahead with the restructure.
Especially worrying to the field agents is the idea that only accredited agents who make up the Coles panel will get access to the supermarket, sidelining independent agents and rendering them of little use to manufacturers who must have agents in the stores watching over their stock.
Until now that fallout was limited to its supermarkets but the supplier overhaul could soon extend to 630 Coles Express service stations and roughly 800 branded liquor stores.
However, the tender documents state that there was no plan to expand the restructure to other businesses owned by Wesfarmers, which owns Coles, such as Bunnings, Officeworks and Kmart.
Coles has claimed that no field agents will be "pushed" into the new system. It says any agents who wish to remain outside the system will need to complete a training course and pay an "accreditation" fee to Coles.
A spokeswoman for Woolworths said it had no plans to implement a similar policy at its supermarkets.
Frequently Asked Questions about this Article…
Coles is planning a major restructure of its supermarket supply chain that would centralise and standardise how in-store field agents (or "reps") operate. The plan would create a Coles-approved panel of third-party field force companies and renegotiate fees and processes that suppliers currently manage. For everyday investors, this matters because Coles expects the changes to cut hundreds of millions of dollars in supply-chain costs, tighten control over merchandising and improve store efficiency — all of which could affect Coles' margins and profitability.
Under the proposal, Coles would build a maiden panel of accredited third-party field agents who are approved by Coles and paid under fees negotiated with Coles rather than directly by suppliers. Instead of many supplier-employed reps visiting stores with differing practices, suppliers would use agents from the Coles panel. Agents on the panel would also need to invest in IT hardware and software and pay an as-yet unspecified rebate back to Coles. This flips the current supplier-driven arrangement and centralises control with Coles.
The restructure is intended to cover Coles supermarkets and is being considered for extension to Coles Express convenience stores and branded liquor outlets (Liquorland, 1st Choice and Vintage Cellars). The tender documents mention roughly 630 Coles Express service stations and about 800 branded liquor stores — in total close to 1,500 additional sites could be included.
Originally Coles planned to have the new supermarket supply arrangements running from July 1, but that start date appears to have been pushed back toward the end of the year. Coles intends to offer the new arrangements to all grocery suppliers by late 2015, according to the tender documents reported.
Field agents — a workforce of more than 20,000 people — are concerned the changes could slash earnings. Currently reps typically charge about 5% of sales back to suppliers. Coles plans to use its market power to negotiate those fees down substantially, reclaiming much of the fee revenue for itself. Only accredited agents on Coles' panel would have guaranteed access to stores, which could sideline independent agents.
If Coles negotiates fees and centralises field agent services, suppliers could lose control over how reps are engaged and pay lower rep fees. Coles argues the system will drive efficiency and deliver better service to suppliers, but suppliers could face new accreditation requirements, different fee structures and potentially less flexibility in managing in-store merchandising and promotions.
According to the tender documents, there is no plan to expand the supplier overhaul to other Wesfarmers-owned businesses such as Bunnings, Officeworks or Kmart. The restructure is focused on Coles supermarkets and related convenience and liquor outlets.
A spokeswoman for Woolworths said the company had no plans to implement a similar policy at its supermarkets, indicating Woolworths was not immediately following Coles' approach to centralising field agents.
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