CLUB LETTER TO MANUFACTURERS SEEKS 'APPRECIATION PAYMENT'

MARC MILLSTEIN

CHICAGO -- Elements of the warehouse club industry may be seeking from vendors a fee schedule reminiscent of the conventional industry's slotting fees.

In a letter sent out this fall, major suppliers of at least one membership-club operation were asked to cough up what was termed a "vendor appreciation payment" -- 5% of their October product sales -- to the chain.

The manufacturer fee was requested to help the large warehouse club chain make up for failing to meet its quarterly sales goals, according to a speaker at a conference here on Warehouse Club Evolution. The conference, held late October, was sponsored by The Marketing Institute, a division of the Institute for International Research, New York.

"One thing that was new this month, and that I heard about from both our shelf-stable buyers at one of the clubs and our frozens buyers, is that [the club] was pressuring us to provide a vendor appreciation payment in October. It was quite simply a 5% rebate to the club on all our October sales," said the manufacturing executive, who spoke at the conference only on the condition that he not be identified. He also declined to name the club in question.

"Asked why the club wanted that fee, we were told, 'Well, clubs last year were a big part of your business. Our bottom lines is hurting this quarter, and we would like your help in making this bottom line happen,' " he said.

When the speaker then asked the audience how many other manufacturers had received similar letters of request, about 10 attendees quickly raised their hands. The session was attended by more than 100 people, including suppliers, consultants, retailers and analysts.

In response to a question at the end of presentation about how the request ultimately was handled, the executive said the company "politely" pointed out to the warehouse club chain the considerable amount of money it already spent on promotional and other product support and declined to make the payment. To date, he said, the club had not taken any measures in response. "It would be very easy for us to make those payments, but I think we have to in a tactful way push back on that a bit and suggest that that isn't in the long-term best interests of the customer to be charging those kind of funds," he said.

"It certainly goes against our ability to give them the best net price that we have because we have to start creating funds and accruing dollars to pay these funds, and those come right out of the price. These policies are self-defeating and I think it is important for us as manufacturers to resist making those payments."

The manufacturer compared such requests specifically to the worst trade practices of the supermarket industry that have harmed that class of trade's competitive strength vs. low-cost operators such as clubs.

"They call them up-front funds: 'I'll put in this new item but I will need $200,000 in up-front funds. It sounds kind of like slotting, doesn't it? It goes right back to what we heard before on the grocery side," he added.

Such requests are exceedingly frustrating to manufacturers because they run contrary to what the club buyers have always said they want, which is to take all those extra dollars, put them into a better price from the supplier and pass it on to the consumer, he said.