SUPERVALU, PILLSBURY IN COST/PRICE PROJECT

JOHN KAROLEFSKI

WHITE SULPHUR SPRINGS, W.Va. -- Next month, Supervalu will begin working with Pillsbury Co. under a new program for vendors designed to enable both trade partners to lower prices for the retailer and ultimately the consumer. Called the Vendor Benefits Model, the program spells out how Supervalu's Advantage re-engineering plan helps slice the cost of goods and benefits the manufacturer. As part of the program, the Minneapolis-based wholesaler is asking vendors to offer menu pricing. "By working with our vendors, we want to jointly identify all cost and opportunities to the Vendor Benefits Modeling process. By doing so, we can work with our supplier partners to identify costs, work together to reduce those costs and then pass those reduced-cost savings along in the price of the goods to the retailer and then to the customer," said Mike Wright, Supervalu chairman, president and chief executive officer.

"We are asking our suppliers to offer menu pricing. That is a pricing philosophy that reflects efficiencies that we bring to suppliers' cost of service," he said. Wright explained the program in a presentation at the Grocery Manufacturers of America's annual Executive Conference here. He was joined at the podium by Paul Walsh, chief executive officer of Pillsbury, Minneapolis. A key part of the Advantage program is a pricing system that involves two components: a dead-net selling price that reflects the wholesaler's actual cost and a three-part fee structure that reflects the costs for storage and handling, freight and product service. Supervalu has tested the Vendor Benefits Model with two manufacturers, and the annual savings between them could reach $4.7 million, Wright said. The wholesaler also has just started this process with another manufacturer. Wright did not name the manufacturers but extended an invitation to all vendors to get in touch with Supervalu about the program. "Let me tell you what we hope to do working with companies and this model," he said. "As we worked with many of our vendors, we jointly saw the need to articulate the elements of Advantage as they specifically benefit that particular manufacturer. "There needed to be a way to determine mutual cost-reducing opportunities that would make the product-supply channel more efficient. This led us to create the Vendor Benefits Model." The model, he said, will help both trading partners understand their costs and how behavior can be changed to create savings, and then reflect those savings in lower costs of goods. "What we're seeing is a lot of positive things happening as a result of our response to ECR and the changing industry," he said. "From the vendor perspective, we see a recognition of the need for menu pricing. Many of them are asking for us to work with them as they develop their menu pricing lists." There is an increased willingness among trading partners to collaborate and cooperate, which is essential to achieving the desired savings for the consumer, Wright noted. "A new paradigm is starting to be implemented," he said. "Future profit will come from increasing our sales. For many years, we were able to do it by increasing our buying."