BROOKINGS, Ore. -- C&K Market here has developed a program under which its brokers and vendors reimburse the chain for the cost of adding products to its health and beauty care/general merchandise mix.
As part of the program, C&K receives one selling unit of each new nonfood stockkeeping unit, be it a pack of three, six, nine or more, from its wholesaler to cut in on the store shelf. In return for adding the SKU to the HBC/GM mix, the product's vendor or broker reimburses C&K for the cost of the first selling unit. Any amount of the product purchased in addition to the first selling unit is not covered by the vendor or broker.
The manufacturer receives not only shelf space for the new product, but also gets the added bonus of a 30-day temporary price reduction on the product.
C&K, a 30-store chain that trades under the Ray's Food Place banner, began the program, called a "plus-out reimbursement," in September, according to Dan Van Zant, HBC/GM buyer. He called the system, which includes centralized buying of new nonfood products, a "win-win situation" for the retailer, its wholesaler, United Grocers, and its various vendors and brokers.
"In essence we will receive our new [HBC/GM] products at no charge. While we're charged on the invoice from the wholesaler, we receive a credit back or a check back from the broker or the vendor equal to the cost of the goods," he said.
Van Zant said the logic behind the plan is that it "offsets the loss we experience on markdown items for discontinued products." The plus-out reimbursement is
part of "a change in the way the whole industry is looking at business, tying very much into Efficient Consumer Response," he explained. "We've taken a page out of that and asked ourselves what is the most efficient, cost-effective way to get new items onto our shelves. And working closely with our brokers and our wholesalers, we came up with this program and it seems to be working well."
This method of adding new HBC/GM products is attractive to retailers, Van Zant explained, because they reduce their losses from eliminating current SKUs and reduce their risk in adding new ones. It is also attractive to manufacturers, he added, because most of them prefer retailers to run a 30-day TPR (which C&K is doing under the new program) as opposed to a one-week advertisement.
The retail price reduction reflects the percentage-off the vendor or broker is offering the retail industry on the initial shipments of the product. Instead of using that wholesale discount to boost profit, a percentage will be used by C&K to create the TPR, he said.
"The response I'm getting back from most brokers and vendors is they feel they'll get more play for their dollars with a TPR that runs for 30 days than they would with a one-week ad in the newspaper. They're getting more bang for their buck on this," said Van Zant. "Plus they're getting their new item out there in a timely manner and it's guaranteed placement. Everybody wins."
The new products with TPRs remain on-shelf, with a circular sign extending out from the gondola with the words "new item." A second sign hanging flat on the shelf shows the price has been reduced, Van Zant said.
He explained that because many of the brokers C&K works with didn't have money in their budgets to justify a plus-out reimbursement, the addition of the TPR allowed many of them to "get creative" and "use their regular ad budgets to accommodate our program."
Van Zant said he is "probably more encouraged [to add new items with the onset of the plus-out reimbursement] but the item still has to be viable for me. I have to feel the advertising support and promotional support will be there. Not every new item that comes through my office is going to be a winner. I don't care if they offer placement monies or whatever, I won't pick a product like that up."
Van Zant said the program, which is molded on principles of Efficient Consumer Response, also saves him time by allowing him to get new products cut into shelf sets more quickly, eliminate duplicated work by purchasing new products centrally and decide on new products' shelf placement at C&K headquarters.
"The way we bought new products before this program was very cumbersome. The new items didn't get cut in on the shelf until the broker or vendor that represented the product went to the store level and convinced each individual clerk they needed the item," he explained. "Then typically the broker or vendor would buy the old or discontinued item off the shelf.
"But now, with vendors cutting back on retail support, these folks don't have time to get into all the stores," Van Zant continued. "And even if they did, it's a costly and cumbersome process. At best we'd get new items cut in on our shelves four to six months after the item was introduced, which is totally unacceptable." He stated the new buying method is also easier for store-level personnel, as the centralized buying saves them time and creates more uniformity of products among the chain's various locations. Van Zant added that "about 42 or 43 new items, 29 in cough and cold alone," have been added to Ray's Food Place shelves since the start of the program.
Van Zant said he makes decisions about what new products to add at which stores based on a schematic he has developed for the three different store sizes in the C&K chain: 48,000 square feet, 30,000 square feet and 20,000 to 25,000 square feet.
Once Van Zant, his wholesaler and staff decide to add a new nonfood product, they "notify each store with a letter that tells them when they'll receive the new item and the product's shelf location."