PITTSBURGH -- Retailers may promote Heinz products less frequently in reaction to the manufacturer's elimination of end-of-the-quarter sales discounts on select products.
"If a quarter-ending deal is red hot, you might buy enough for two promotions," said Charlie Simpson, grocery buyer at John C. Groub, Seymour, Ind. "With this, you may only buy enough product for one promotion."
H.J. Heinz here has announced it is eliminating discounts on Ore-Ida potatoes, Weight Watchers products and Heinz 57 steak sauce, among others, according to Gail Stull, media specialist at Heinz. The company reportedly already has cut back on end-of-quarter discounts on Starkist tuna and its ketchup line.
Heinz said the move will reduce its working capital and production costs. As a result, the company expects its first-quarter earnings to increase over last year's, according to a press statement.
"What we normally do is we buy heavy on it, and then we promote it heavily," said Darrell Jensen, chief operating officer at Harmons, West Valley City, Utah. At the end of the promotion, retailers sometimes raise the product price a little to make some profit on it, he added.
Though retailers no longer will get discounts on select products, they won't be burdened with costs associated with stockpiling product in refrigerated warehouses either, Stull stressed.
"Retailers should buy on an efficient basis -- when they need it and when the consumer needs it," she said.
Jensen agreed that stockpiling often can be expensive for retailers due to warehouse costs.
"You get it at a good price, so you stockpile it. It costs you more money that way, but you do save a lot of money as far as per-case rate goes," he said.
Money saved through end-of-the-quarter deals outweighs savings achieved through not having to warehouse, according to an executive from a large Midwestern chain.
"It's a calculation that a buyer has to make prior to making an educated buy," said the executive, who did not want to be identified.
Jonathan Ziegler, a San Francisco-based analyst at Salomon Brothers, New York, said the new policy will probably be an adjustment for retailers accustomed to receiving end-of-the-quarter discounts.
"It's getting away from the inventory stockpiling business, which slows working capital turn and makes the whole system totally inefficient," Ziegler said.
For retailers, money saved on storage costs will probably be shifted to higher purchasing prices, said the source from the Midwestern chain.
He told SN that when manufacturers don't offer end-of-quarter discounts, the retailer's cost of product increases. To keep the same margin, retailers have to accept a lesser gross profit or raise the retail, he explained.
The new Heinz policy is similar to those that several other major companies have instituted in recent years. Quaker discontinued its end-of-the-quarter sales discounting practices in 1992, according to Ron Bottrell, director of public relations.
"It's not that we cut back on trade deals or promotions," said Bottrell. "It's just that we tried to time them more to consumer demand."
Manufacturers offer or discontinue end-of-the-quarter sales discounts depending on the strength of their businesses, the source from the Midwestern chain told SN.
