Vendor Negotiations

Strategic Implications

Retail Buyer: Autonomy & Compensation

• Critical entrepreneurial component—key to the retailer establishing autonomy, or self-control, in relationships with vendors.

• This course is important only as long a buyer is employed by a retailer. The buyer must be a negotiator.

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Copyright © 2012 The Nielsen Company. Confidential and proprietary.

52-Weeks Ending 11/26/11 % 52-Weeks Ending 11/24/12 %

Coffee 20.0 Coolers 23.0

Fresh Meat 16.1 Canning/Freezing Supplies 17.1

Eggs-Fresh 13.9 Jams/Jellies/Spreads 15.9

Butter & Margarine 13.9 Coffee 15.0

Snacks/Spreads/Dip-Dairy 12.5 Combo Pack 13.1

Seasonal Gen Merchandise 11.6 Nuts 10.9

Breakfast Foods-Frozen 10.1 Light Bulbs/Telephone 10.9

Yogurt 9.8 Liquor 9.5

Milk 9.5 Dessert/Fruit/Tops-Froz 9.5

Nuts 8.7 Pet Care 9.4

Discretionary categories more important to high growth categories Top 10 Fastest Growing Categories (Dollar Sales % Change vs. Year Ago)

food & beverage categories(bolded categories on both lists)

Source: Nielsen Scantrack, Total U.S. – All Outlets Combined; 52 week increments (vs. prior year); UPC-coded

117 major category groupingsU.S. Buying Trends

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Copyright © 2012 The Nielsen Company. Confidential and proprietary.

52-Weeks Ending 11/26/11 % 52-Weeks Ending 11/24/12 %

Liquor 18.6 Coolers 47.0

Vitamins 9.2 Canning/Freezing Supplies 12.1

Snacks/Spreads/Dip-Dairy 7.4 Liquor 10.2

Combo Pack 7.3 Combo Pack 9.4

Wine 7.3 Fragrances - Women 9.2

Coolers 7.2 Vitamins 8.5

Fresh Meat 6.7 Cosmetics 8.0

Cosmetics 6.3 Coffee 7.9

Breakfast Foods-Frozen 6.3 Feminine Hygiene 7.8

Bottled Water 4.3 Tea 5.6

Discretionary categories dominate list of fastest unit growth categoriesTop 10 Fastest Growing Categories (Unit Volume % Change vs Year Ago)

food & beverage categories(bolded categories on both lists)

U.S. Buying TrendsSource: Nielsen Scantrack, Total U.S. – All Outlets Combined;

52 week increments (vs. prior year); UPC-coded117 major category groupings

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Consumer Shopping Behaviour Q2 2011

Product Variety and Solution Motivators

26%

31%

48%

48%

53%

56%

41%

51%

40%

39%

39%

39%

32%

18%

13%

13%

8%

5%

Variety of freshly preparedfoods

Only store carrying theproduct

High quality meatdepartment

Carries the food and non-food items wanted

High quality fresh produce

Products wanted & instock

Highly Influential Somewhat Influencial Not at all Influencial

Source: Nielsen, Global Online Survey, Q1 2011 

To what extent do each of the following influence your decision to shop at a particular retailer?

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Copyright © 2012 The Nielsen Company. Confidential and proprietary.

Private Brands

U.S. Buying Trends

15.3% growth rate!

2009$94 billion

2012$108.6 billion

Source: Nielsen Scantrack, Total U.S. – All Outlets Combined;52 weeks ending 12/26/2009 & 11/24/2012; UPC-coded

Importance of the Retail Buyer

• When the category is relatively small…• When consumers do not respond or are not

interested in variety…• When consumers do not respond to price

promotions…• When brand loyalty (can’t be switched) is

above average for a FMCG category…• When the “supplier knows best” what SKUs to

stock in the assortment…

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Copyright © 2011 Nielsen - Confidential and Proprietary

Consumer Shopping Behaviour Q2 2011

• 59% - Good value for the money

• 59% - Great sales and promotions

• 56% - Products in stock

• 55% - Lowest price

• 53% - Convenient location

• 53% - High quality fresh & produce

• 48% - Quality meat department

• 48% - Carries a variety of items

Value is a key driver of store choice but not the only lever to pull

Source: Nielsen, Global Online Survey, Q1 2011; Highly Influential answers 

Importance of the Retail Buyer

• When there are few geographic differences in demand…

• When the retailer decides to go with an exclusive arrangement with a supplier (won’t stock competitors’ lines)…

• When only two supplier firms are in competition…

• When state law restricts you to a limited set, or only one suppliers…

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Copyright © 2012 The Nielsen Company. Confidential and proprietary.

Strong perception of store brand quality & fewer think store brands for those on tight budgets

U.S. Buying Trends

71 74 74

63 65 65 67 70 69

3337 38

20 18 1711 11 11

Goodalternative toname brands

Quality asgood as

name brands

Usuallyextremely

good valuefor themoney

Some arehigher

quality thanname brand

For peopleon tight

budgets &can’t afford

the best

Don’t feelcomfortableserving to

guests

2008 2009 2011

% saying they Agree/

Strongly Agree:

Source: Nielsen Homescan, Panel Views surveys

When the buyer’s role is not significant…

• How important can retail differentiation be to the sector?

• How attractive can the gross margins be, relative to other retail types?

• When the functions of determining the assortment gets shifted to the supplier…

• When the buyer’s role in the channel is of little significance, what does that indicate about a retailer?

Buyer Challenges

• Who will be the suppliers?– Manufacturers– Wholesalers

• Can we encourage a new supplier? What do we have to offer?

• Can we create competition by making the category more important to consumers?

• Private label—will we bear the risks of a supplier?

Retailer’s demand curve

Vendor’s demand curve

Retailer’s demand curve

Vendor’s demand curve

Distribution Intensity

• Shopping goods

• Convenience goods

• The supplier ALWAYS wants distribution to be more intensive than the retailer/buyer.

Type of relationship

One-Time, “Transactional”

Functional relationships

Relational partnerships

Strategic alliances

Characteristics Don't expect further contact

Series of one- time

exchanges

Close, trusting, seek mutually

beneficial relationship

Mutual investment,

shared profits

Time horizon Short-term Recurrent Long-term Long-term

Concern for other party Low Low Medium High

Trust Low Low Low High

Investment in relationship Low Low Medium High

Nature of relationship

Conflict, bargaining

Negotiation CoordinationAccommodation

Transactional/Functional

• Short term or “on-off”• Many suppliers and buyers• Disloyalty and lack of commitment• Low switching costs, little or no investment made in

relationships, new suppliers encouraged• Changes in customer/supplier make little difference• Loose or no standard procedures• Exchange centered on single person in firm

Partnerships/Alliances

• Long-term • Few suppliers and buyers• Higher degree of loyalty and commitment• High switching costs, significant investments will

have been made in the partnership• Change in customer/supplier causes disruption• Strict procedural guidelines• Many people and departments involved in the

exchange

Strategic Alliances

• Alliance between a vendor and retailer with the highest levels of mutual trust and commitment.

• Trust—should not mean that monitoring is “non-existent”

• Commitment, vendor not seeking additional retailers, retailers satisfied with exclusive dealings (current dependence on vendor)

Markdown Money• Payment from vendor to retailer to compensate

retailer for “unanticipated” discounts (reductions) necessary to sell merchandise in season.

• Not a consistent expectation across retailers, but necessary for some suppliers to maintain the relationship.

• Come to characterize the relationship between a larger retailer and its branded apparel suppliers.

• Inefficient channels tend to have dysfunctional behavior. How long can markdown money remain a characteristic of apparel?

Retailer able to obtain a guaranteed 50% markup,vendor with unique product

Retailer can’t sell product, and must discount beyond anticipated levels, receives markdown moneyto cover portion of discounting.

Retailer able to obtain a guaranteed 50% markup,vendor with unit markup becomes more profitable lowering costs