TOPS DEMANDS DEPOT ALLOWANCE

RICHARD TURCSIK

BUFFALO, N.Y. -- Tops Markets here has told vendors it intends to bill them an allowance of 10% on goods handled at the $65 million state-of-the-art distribution center it opened in September.

The unusual demand, which the chain said is intended to pay some of the costs of the new cross-docking facility in upstate Lancaster, N.Y., has been met with a cold reaction at best from the manufacturing community, local observers and others familiar with the facility said.

Others said Tops, a division of the Dutch retailing conglomerate Ahold, Zaandam, the Netherlands, may be trying to impose its European-style of doing business on U.S. shores.

"This is a European kind of thing to do," said Paul Kelly, a principal of Silvermine Consulting Group, Westport, Conn.

"A lot of European retailers pass along things like painting the store, cleaning the floors. For some reason they think they are in a partnership, and their suppliers are responsible for their overhead expenses," he said.

Top's investment in the new facility will make the logistics process for many suppliers "considerably less costly and much more efficient," said Hans Gobes, Ahold senior vice president of communications. He called the chain's action "realistic, and nothing special for Ahold in today's business environment."

In a letter to vendors obtained by SN, Tops said the 880,000- square-foot cross-docking facility will benefit manufacturers by making them more efficient and driving down overall costs.

It cited such advantages as improving cost efficiencies, improving the quality of goods by instituting automatic rotation, reducing damaged goods, creating a better environment for "buying to sell," improving sales through better service levels, and improving the reliability of store ad quantities.

"History tells us that over the years our competitors have received introductory allowances and marketing funds to support new warehouses or distribution centers, new stores and new marketing programs," the letter read.

"Having discussed this with a committee of vendors who confirmed these points, they have recommended that we establish the following policy regarding Tops' New Super Distribution Center," the letter continued. "As far as introductory allowances are concerned, we will bill you for a 10% allowance on all goods we stock from your company based on four weeks average purchases. This new warehouse allowance will be issued to all warehouse vendors on an equal and proportionate basis.

"In addition to the above, all vendors are required or requested to reflect cash discount terms of 60 days payment for the first 30 days shipments into the new warehouse. In no case will we accept less than 45 days for payment terms."

The letter, dated Aug. 1, 1996, was signed by 10 Tops vice presidents and directors of purchasing, including refrigerated and frozen foods and several perishables categories.

Industry officials familiar with the facility say most manufacturers have not agreed to the terms.

"Most of them have hedged on any warehouse allowance because they strictly have a policy that does not cover that," said one Buffalo-area observer.

"Most are pushing back from the standpoint that it is not a policy that they have, nor do they want to develop one. If they developed such a policy and OK'd this particular warehouse allowance they are locked in and it could set a precedent for the rest of the country," he added.

"But there have been some smaller manufacturers that have a relatively minor bill and will go along with it as part of their budget. But what Tops doesn't realize is that there is only one pot of money. Whatever they are asking for usually comes out of their own trade dollars. All they are doing is reducing their ability to be more competitive down the road," the observer noted.

Said Kelly of Silvermine, "I would hope that the manufacturers would not agree to this and would just say 'no.' This is a very, very dangerous precedent," he added. "However, this might be more difficult for the smaller and regional manufacturers who will be afraid to say no."

Another observer said Tops appeared to be just testing the waters and has not done anything drastic, like threaten to cease doing business with some manufacturers.

"I think they are asking for a lot more than they expect to get," he said. "I think they expect a negotiation or at least a meeting of the minds. Generally, Tops has listened. All they are looking for is a response. They will determine how they will proceed from there. But they have been pretty reasonable," the observer said.

Another industry insider agreed that Tops isn't expecting manufacturers to pay the full amount. Instead, he said, Tops is looking to "stir the pot" by making manufacturers fly up to Buffalo and explain to Tops why they don't think they should help pay for the cost of the new facility.

"It is arrogant in the extreme. It is a typical case of supermarkets trying to pass costs on back to the manufacturers," he said.

Jeffrey M. Hill, managing director of Meridian Consulting Group, Westport, Conn., said Tops may believe that since it set up its own cross-docking facility it will be saving manufacturers money because they can use that facility instead of sorting their goods at intermediate warehouses along the way.

"Some retailers that have already invested in a warehouse are looking at how they can best maximize the economics of the warehouse," he said.