AG-Seattle Rolls Out New Credit-Allowance Program

ELLIOT ZWIEBACH

SEATTLE — Associated Grocers here said last week it is scheduled to implement new programs this Saturday that will pay retailers specified rates for credit allowances and reclamation fees for unsaleables rather than case-by-case returns and payouts.

Other wholesalers are testing similar programs for specific categories, but AG will be the first in the U.S. to implement the programs for all departments, said John Runyan, president and chief executive officer.

“We considered doing selected categories,” Runyan told SN last week, “but we decided, after extensive research, to go all the way in all departments.”

He said the programs are designed to reduce the cost of doing business for AG and for its retail members.

Effective this weekend, AG will implement a credit allowance on each invoice for each department — encompassing grocery, deli (grocery), frozen food, ice cream, general merchandise/health and beauty care, produce, meat, deli (meat), bakery and service deli, and repack — that will be applied to purchases, Runyan explained.

Those rates will be based on a percentage of total purchases for each commodity and will range from 0.15% to 0.30% for all categories except produce, which will carry a higher allowance rate, he said.

Exception credits will remain in effect for products delivered in error, billing errors, price adjustments and unique item selection vendors, Runyan said, though AG hopes ultimately to convert those vendors to the credit allowance program, he noted.

AG decided to make changes in its credit program after studying its costs for the past several years, noting that in 2006 the company issued more than $6.8 million worth of credits and spent more than $500,000 in administrative expenses to process those credits, Runyan said.

Under the new program, retailers will save money by eliminating wasted space for storage and by cutting out labor for recording, tracking and reconciling credits on statements, he explained.

“Retail cash flow will improve because credits will be given as products are invoiced, and sanitation risk will be reduced because stores will no longer have to keep pending unsaleables on hand waiting for pick-up,” he pointed out.

Retailers will keep all products that were formerly returned for credit and can opt either to dispose of them or donate them to charity, he said.

RECLAMATION FEES

Regarding reclamation fees, Runyan said AG's ultimate objective is to convert all reclamation suppliers to paying a swell allowance. The company has already converted approximately 70% of Center Store sales volume to the program, he noted.

Under that program, swell allowances from suppliers will be included in the retailers' cost of goods and paid on each order. Retailers who return any items from those vendors to AG will be charged 21 cents per unit to cover the reclaim processor's expense and AG's cost resulting from the return of non-eligible items, he explained.

Suppliers that do not currently provide AG with a swell allowance will continue to provide funding for retailers to return those items to reclaim through AG; however, Runyan said AG is attempting to convert those items and brands to a swell allowance program.

“As items and brands are converted to swell allowance, retailers will no longer be permitted to return them to reclaim but will receive an off-invoice allowance,” he said.

AG is also working with non-participating suppliers — those that do not provide a swell or reclaim allowance — to convert their items to a swell allowance, Runyan said.

The goal of the change, Runyan said, is to reduce labor, handling and processing costs, and reduce and eliminate sanitation issues at the retail and wholesale levels.

“AG recognizes these changes are significant and believes the savings retailers will realize at store level will be of great benefit,” Runyan said. “Additionally, the savings AG will realize will help us serve retailers better and enable us to keep our prices lower.”