REWE SETS SURCHARGE ON VENDORS TO AID ECR

JAMES FALLON

COLOGNE, Germany (FNS) -- Rewe Zentralorganisationen here has stirred a debate over who pays for Efficient Consumer Response programs by imposing a surcharge on vendors -- and some observers say other German retailers may soon follow suit.

Rewe has informed vendors that it intends to charge them 1% of their sales to the chain in order to fund ECR investments. The retailer gave suppliers one month to respond to the plan, but industry executives said that suppliers probably would have little choice but to go along with it.

A Rewe official said the 1% surcharge is necessary to cement good relationships between the chain and its suppliers by ensuring that both sides fund the necessary investments for achieving the 5.7% cost reductions envisioned by implementing core ECR initiatives.

Vendors maintain that the Rewe plan goes against the spirit of cooperation that is the basis of ECR; however, one analyst suggested that Rewe, a retailer-owned cooperative, would have difficulty implementing ECR without vendor support.

Rewe operates a central organization in Cologne that coordinates buying, logistics and marketing for its member retailers. The organization's challenge is to convince its member retailers -- many of which are small -- to invest in ECR, said Alex Lintner of the German consulting firm Roland Berger & Partners GmbH, Dusseldorf, Germany.

"Rewe must sell its services and its reason for existing to

the store owners," he said. "That means it cannot introduce ECR as easily as a chain store such as Tengelmann. Rewe absolutely believes in the concept of ECR but it cannot introduce the information technologies needed to implement it without the support of the local retailers."

There have been complaints about the surcharge from the Markenverband, the German Brands Association, and the German Chamber of Retailers and Manufacturers -- as well as from members of the German ECR Committee.

Thomas Blishock, chairman of retail and distribution at Coopers & Lybrand Consulting, Chicago, who was familiar with Rewe's plans to impose a surcharge, said it's important to view the move with an open mind and try to understand Rewe's intent. "We need to ask the question, 'What are we trying to do with a surcharge?' If it's designed to absorb the cost of ECR, that's one thing; if it's designed to penalize, or make another company conform to ECR, that's another."

He said it's unclear what the ultimate effect will be but noted that vaguely defined mandates can only aggravate the situation. "If you have that lack of understanding, then you are going to have mixed reactions, mostly negative," he said. Analysts say suppliers probably have little choice but to accept the proposal because Rewe is one of Germany's largest food retailers.

Observers expect Rewe's main competitor, Edeka, which also is a cooperative, to introduce a similar surcharge in the near future. While such chains as Tengelmann, Aldi and Metro cash-and-carry have invested heavily in scanning technology, for example, many others have not, analysts said. This means German retailers will have to invest substantial amounts over the next several years if they are going to be able to adopt the ECR platform and remain competitive.