Is the type of retail coverage food distributors have come to expect from sales agencies as good as ever, or is it slipping?
Traditionally, many retailers have looked to sales agencies -- formerly known as food brokers -- for store-level help with resets, remodels and new-store openings. But questions about whether such services are abundantly available to retailers have become more common lately as agencies have consolidated. Remaining now are three national agencies, which together have most of the business: Acosta-PMI, Jacksonville, Fla.; Advantage Sales & Marketing, Irvine, Calif.; and Crossmark, Dallas. A fourth national agency, Marketing Specialists, Dallas, went out of business in May after becoming overleveraged.
Each industry segment has a strong point of view about what retail coverage should encompass, so the answer to where service levels are appears to depend on who's speaking. Agency representatives maintain that coverage is the best it's ever been. Retailers express considerable disagreement.
In interviews with various industry segments, SN found a diversity of opinion on the current status and future direction of sales agent services:
Larger agencies said they believe a fair-share approach -- a system by which agencies and distributors decide in advance how to divide retail coverage between them -- may be the way for the industry to go.
Retailers said they regret the loss of help with resets and remodels they have come to expect from sales agents over the years and see sales suffering as a consequence.
Smaller agencies said they believe the conflicts between the large agencies and distributors provide them with a window of opportunity for long-term growth.
Mark Baum, president and chief executive officer of the Association of Sales & Marketing Cos., told SN the crux of the problem may lie in the definition of retail coverage. "Retail implementation -- the broad range of services sales agencies provide -- means different things to different segments of the industry.
"For the sales agencies, it has to do with the priorities set by the manufacturers who hire them, which usually includes continuity coverage and dissemination of new items as well as promotional and merchandising activity and routine product rotation.
"For distributors, implementation often means providing help with resets, remodels and new store openings."
The reasons for the disconnect, Baum said, stem from industry consolidation and the implementation of category management. "Category management led to a need for more resets, and the increase in merger activity required more store remodels and rebannerings and, in the course of business, more new store openings."
Historically, sales agents provided a lot of in-store labor to retailers, though there was no responsibility from the suppliers for them to provide that labor, Baum pointed out. But it was often done to make sure the retail customers were healthy, he said, "and that was fine while the economy was healthy and the labor market was robust.
"But in a flat or no-growth industry, sales agency manpower is more limited, and suppliers may lighten up as well, which has led to a deterioration of in-store conditions, including slower speed-to-shelf on new items and an increase in out-of-stocks, and that has resulted in a less than ideal shopping experience for the consumer.
"So this is not just an agency issue. It's an industry issue."
Solutions to Coverage
According to Baum, one solution to the coverage issue is for sales agents and distributors to work out fair-share allocation formulas, in which sales agents make it clear to retailers what work they will do on their manufacturer clients' behalf and what work the retailers will have to do.
"For this to work, the sales agents must have manufacturer support, and the retailers must set their priorities. We still have a long way to go to get real agreement on these issues," Baum said.
"Historically, retailers have tended to put a disproportionate burden on sales agents and relied on them to provide the lion's share of coverage and labor. The problem now is trying to define up front the resources that can be allocated, the activities to be performed, who does what and who should be responsible for coordinating the work to implement better business procedures.
"We've had varying degrees of success because it's tough for the agencies to provide retail services for clients that reconcile requests for routine coverage with the demand for retail priorities."
Baum said ASMC has also spent a lot of time in the last couple of years working with distributors to come up with solutions to provide retail services efficiently. For example, ASMC conducted a test with a major retailer during the spring and summer, Baum said, which indicated that planogram compliance improved routine coverage, cut down on the need for resets, reduced out-of-stock conditions, slowed the rate of unauthorized items and ensured greater speed-to-shelf for new items.
"That kind of information could provide temporary answers by documenting and quantifying information to provide some assistance to create programs and temporary relief from the adversarial position between trading partners," Baum said.
"But we need a broad industry approach. We can't do it alone, and the issue won't be resolved in a vacuum."
Crossmark adopted the fair-share approach more than a year ago, according to Butch Smith, chairman and CEO, by setting up meetings between manufacturers and distributors "to talk about their needs going forward and to agree on a certain set of expectations.
"We know our revenues by client, and we allocate that against the customers we serve. We tell customers this is what we have and ask them how we should utilize that money against their needs."
That approach has been successful, Smith said, citing a meeting several months ago with executives of a major wholesaler "who were frustrated because their retail members said they couldn't get sales agency support for resets and remodels. That's hard for us to manage for hundreds of retailers across a wide geography because, after all, we'd rather have our people with their hands on the goods than driving long distances from store to store.
"So we took the wholesaler through our assets and laid out what we could commit to those projects, and now all parties have a reasonable expectation of what's coming.
"We've gone through a similar process with the overwhelming majority of our customers, and as we move into our second year, we've been able to fine-tune and refine it and take the rough out."
But such meetings with agencies have not resulted in satisfactory results for some retailers contacted by SN.
Retailers Speak Out
K-VA-T Food Stores, Abindgon, Va., has had meetings with agencies and their manufacturer clients, according to Steve Smith (no relation to Butch Smith), president and CEO, but little has changed, he said. "We keep bringing the issue [of retail coverage] to the attention of all parties, but I don't think we've made the headway we would like."
An executive with one of the industry's major chains expressed similar sentiments. "Having the meetings is good for communication, but communication without a satisfactory resolution is of questionable value," he said.
"When we meet with brokers, we tell them we need them to continue doing what they've been doing in terms of helping with resets, but they tell us they don't have the budget. So it's good to talk, but so far it's led to nothing."
Retailers queried were in agreement that retail coverage has been slipping.
"We used to have a lot of local brokers calling on us, and we felt we had real partnerships with them," Joanne Gage, a spokeswoman for Price Chopper Supermarkets, Schenectady, N.Y., told SN. "Each broker had key accounts, and each one helped service those accounts by getting items on the shelf, stocking them and promoting them.
"But brokers today have more limited manpower, and they can't give that kind of service anymore.
"And with consolidation, we're down to a handful of significant brokers in our area, and each one's lines are so broad that they're not able to give full and necessary attention to all items, which results in less support on space management, more out-of-stock conditions and slower placement of new items -- just a total changing of the way it used to be."
As a result, Price Chopper must do more on its own or simply be satisfied with a lower level of service, Gage said. "We try not to let it affect our sales, but if out-of-stocks are growing or new items are coming in late, it certainly has that potential. And while we don't measure it, we can feel it every day in managing the business.
"But we have no choice."
Ron Pearson, chairman, president and CEO of Hy Vee Food Stores, Des Moines, Iowa, said he feels his stores are getting less coverage from agents, although he acknowledged that isn't a particular problem. "We're seeing fewer brokers and getting less coverage at store level when we need help with resets or new store openings.
"Instead of seeing brokers in our stores every two weeks, it's now every four weeks, though that's not a problem. And instead of brokers introducing new items to our store managers, we introduce them ourselves by internal e-mail, with information supplied by brokers, but that's what technology is all about."
The executive for a large retail chain said consolidation in the sales-agency industry has clearly resulted in less retail coverage, "and not only has that been negative to the retail community but it's also been negative to the manufacturers the brokers represent.
"What's happening is the large broker firms are trying to get more business so they're promising more and delivering less. And every time they cut their sales force, they cut services, and that creates a vicious cycle that creates a dangerous situation that acts to the detriment of the entire industry."
According to Smith of K-VA-T, "With each consolidation, we lose a little bit more retail coverage. Three or four years ago we had eight to 10 brokers representing manufacturers, and now we're down to three or four, yet we still need help with resets, remodels and new stores, as we always have."
Smith said he's not sure where the disconnect is occurring. "Maybe the manufacturer is paying the broker less commission, maybe the broker isn't managing the money he has very well or maybe the retailer is demanding too much. But the bottom line is that consumers are suffering because it's getting rough for us to execute a manufacturer's plan in our stores without brokers to help us implement that plan.
"We have to assign more of the work to our own people, and because we're probably a little slower in execution, it creates more frustration trying to get the plan done because our folks also have to take care of customers -- and when you can't get the help from brokers that we used to get, then sales have the potential to suffer, and softer sales are going to hurt the manufacturer, the broker and the retailer."
Sales agents told SN they haven't reduced their coverage.
According to Sonny King, chairman and CEO of Advantage, agents have not cut back on any services. "The retailer believes he's getting less services, with fewer bodies available for resets, less help on projects and a slower rate of moving new items onto the shelf. But the truth is, we provide better service today because we have more information and greater efficiencies.
"Any place that we sell groceries, we call on the distributors and go out to the stores to make sure they're being helped. The manufacturers demand that we implement their products throughout the U.S., so we have to be able to sell in at headquarters and execute at the stores."
Smith, of Crossmark, told SN he was surprised to hear of any retailer dissatisfaction "because we're spending a larger portion of revenue against retail services than at any point in our history, and we can quantify that in manhours spent on store resets and remodels and the number of calls we make.
"The needs, requirements, demands and desires of customers may be greater today, so while we provide a higher level of service, it's different, and the dissatisfaction may come because we're not doing as much as they would like.
"People are going to feel the way they feel, but we know that we work very hard to show genuine value to suit the needs of our clients and customers, and the relationships are very good."
According to Joe DeCredico, owner of DeCredico & Associates, a small independent sales agency based in Pleasant Hill, Calif., the problem results from the attitude of the national agencies. "All of the nationals came to me to buy me out, but what they were trying to do didn't fit in with where I wanted to be," he told SN.
"It seemed to me they had lost the focus on representing manufacturers and instead were focusing more on raising their income levels -- being bankers rather than brokers."
DeCredico said his company still does things "the old-fashioned way, with a retail staff of 17 that focuses in on representing our manufacturers in northern California."
He also said he believes other independent agents should be able to thrive despite the growing strength of the three national agencies. "When Marketing Specialists went out of business, several people called me and said they were interested in forming their own brokerages, and my advice to them was, there's no better time to do it because manufacturers -- maybe not Tier 1 companies but certainly the Tier 2 manufacturers -- are pleading for people like us and brokerages of our size with a local focus in a single marketing area."
DeCredico said his company has already won back clients it lost to national firms. "One manufacturer who went over came back a year and a half later and said he had made a mistake, acknowledging a national broker may be good in certain markets but not in others, and he wanted to hire me back."