ELIZABETH, N.J. -- Wakefern Food Corp. has hired Marketing Management Inc. as a private-label consulting firm to increase the sales and competitiveness of its extensive private-label lines.
MMI, based in Fort Worth, Texas, will set up shop in Wakefern's headquarters here to help Wakefern overhaul the private-label program and act, in essence, as a go-between for all private-label manufacturers who want to supply the cooperative wholesaler with products. Wakefern services about 170 supermarkets in the Northeast under the ShopRite banner.
However, local sources familiar with the situation are calling Wakefern's relationship with MMI an "in-house broker" arrangement, and say it will squeeze the market's existing broker network out of the picture.
Further, if the union between Wakefern and MMI is fruitful, retail and wholesale competitors in the huge New York/New Jersey marketplace might follow suit with similar deals of their own, said industry sources.
One source familiar with Wakefern said its buyers were told in a meeting that the wholesaler had $487 million worth of private-label business, and that it was calculated that "the [MMI] brokerage rate would generate approximately $10 million in commissions."
Wakefern declined to comment about the arrangement.
In a letter sent to suppliers and subsequently obtained by SN, Jerome D. Yaguda, Wakefern's president, said the decision to use MMI was determined after months of detailed study on the best way to market the cooperative's private-label program, which he said was its "most important competitive tool."
In the letter, mailed last month, Yaguda said, "Our No. 1 objective is to offer our customers a unique and exciting program for our ShopRite brands, which in turn will expand your distribution and increase sales on the products you supply to us."
He urged suppliers to work through MMI. "We are not requiring our private-label suppliers to retain MMI, which is not acting as our agent but rather is providing services on behalf of the suppliers it represents. However, if you are contractually free to do so, we encourage you to consider the MMI service package in marketing and merchandising of your products. We believe MMI's services complement our plans for ShopRite's private label," Yaguda said.
MMI officials also declined comment to SN, except to note that MMI has 19 customers across the country, including Nash Finch Co., Minneapolis; Shurfine International, Chicago; Hannaford Bros., Scarborough, Maine, and Harris Teeter, Charlotte, N.C.
In a letter that followed Yaguda's, MMI also asked suppliers to appoint it as their broker at Wakefern, and enclosed contracts in the same mailing.
"Our mutual objective is to offer the consumer a quality product at competitive prices. Along with a strong sales and marketing program, the results will be reflected in increased sales," MMI said.
"MMI will be providing a staff of people to assist Wakefern who will be officed at their headquarters," the letter continued.
The news is raising fears in the New York metro broker community that the Wakefern/MMI arrangement could drive some private-label food brokers out of business. Sources said several brokers have pooled their resources to place an attorney on retainer in the event they decide to file a lawsuit against the deal.
"Those of us that represent lines and do a lot of business with Wakefern fully expect to lose our representation in there," said one broker, speaking on the condition of anonymity, as did other broker and manufacturer sources. "The private-label business is becoming really more and more of a controlled situation," he added.
"The brokers stand to lose a lot of the other good customers in the market to the same demon, or cancer," said another New York-area observer.
"The minute Wakefern starts putting pressure on any of the manufacturers, they are opening themselves up to a big-time, major lawsuit," he said.
One observer noted that "when one customer the size of Wakefern does something like this, it tends to create the possibility of a domino effect [among the competition]. That being the case, it could put out of business a large private-label broker, as well as several medium-sized private-label brokers."
"Wakefern is only the start of it in the New York area," said another source. "Before long, I predict it will be at Pathmark, Twin County, White Rose and A&P." "This is the largest customer in the largest market in the country, so this situation is a very sensitive issue, and I think the competition is going to wait and see what happens at Wakefern," another source said. "If at some point down the line they are at a competitive disadvantage, then they would make that change, but I don't think that is going to happen."
Damon Associates, Stamford, Conn., another private-label brokerage firm, has been working in Pathmark for several months on the chain's Pathmark Preferred upscale label. The arrangement so far has not been expanded to encompass other private-label lines.
Some sources speculated that manufacturers are likely to resist pressure from Wakefern to use MMI as a broker. If resistance is widespread, it could backfire and weaken Wakefern's private-label program, rather than strengthen it, they said.
"With this new system, Wakefern will see out-of-stocks and they will not have the new presentations of private-label concepts. They will lose out in emergency troubleshooting support systems," said a local observer.
"All of the suppliers that I have spoken to have completely rejected the suggestion. I think Wakefern is in for a rude awakening," one source said.
Several of Wakefern's current private-label suppliers contacted by SN said they did not plan to drop their broker arrangements.
One manufacturer likened the proposed MMI arrangement to having an attorney represent both sides of a case. "We have been with our broker for many years, and if they think that we are going to switch on a whim -- it ain't going to happen," he said.
"It comes down to what is right and what is fair, and if Wakefern thinks that is right and fair, then we will build the business someplace else. You have to take a stand," the manufacturer added.
Said another supplier, "We select our own representation, and we will continue to use our local broker. Brokers like MMI, Damon and Federated perform a service, but we would just as soon have our own representation, because MMI really works for Wakefern."
