LAKE BUENA VISTA, Fla. -- The efficient promotion strategy of Efficient Consumer Response could usher in a more equitable distribution of promotional funds -- or "street money" -- to the wholesaler-supplied sector of the grocery industry.
The possibility of such an industry change was floated last week during an exchange between Robert Stauth of Fleming Cos. and J. Mark Harran of Kraft General Foods at the National-American Wholesale Grocers' Association annual convention here.
During a general session, Harran, senior vice president of sales, customer development and marketing services at Kraft, said manufacturers would consider passing more promotional allowances to independent retailers through their wholesalers under certain conditions. Among those conditions, manufacturers would require assurances that the moneys were actually passed to independents rather than held at the wholesaler level. Wholesalers have long contended that the majority of promotional funds are typically given to chains rather than to the independent sector -- a claim disputed by many vendors. Stauth, president and chief executive officer of Fleming, Oklahoma City, raised the promotional funds issue in a question to Harran during an industry panel's discussion of ECR.
"We've all been concerned -- and it's not a secret in our industry in any way -- that chains are
given street money for circumstances that they qualify for," Stauth said. Independent retailers can qualify for the same funds, but historically those funds have not been made available to the wholesaler to share with the independent, he said.
Stauth then asked Harran whether a manufacturing company would make more promotional funds available to wholesalers if the manufacturer believed the funds were being passed through to the independent and not being used as part of the profitability structure of the wholesaler.
"Under the case that you have outlined," Harran said, "I certainly think we would consider that very seriously as an option, definitely."
Stauth replied, "That's what we are really looking for. That's what has to happen."
Harran said, "As you pointed out, there are a number of conditions that have to happen."
"That's right," Stauth said. "We would have to qualify and the [funds] would have to be passed through."
Harran said efficient promotion, which includes a streamlining of industry promotions, is probably the most critical area of ECR. Any effort to make promotions more efficient, however, cannot restrain an individual company's decisions or behavior, he said.
Many executives in the independent sector are claiming that the efficient promotion strategy needs to focus on equitability in addition to efficiency.
At Kraft, Harran said, the operating premise is to attempt to make all customers successful.
"We are regularly looking at new ways to manage our promotion," he said. "Our objective is to maximize the efficiency of our promotion dollars as well as to maximize the effectiveness of them for us, for our brand and our customers."
The issue of trade promotions was a hot topic at several other sessions during the four-day convention. George Chirtea, vice president of merchandising at Supervalu, Minneapolis, cited the need to work out a better system.
"Trade promotional practices is the biggest issue we have to overcome today, and I don't think any wholesaler, manufacturer or retailer would disagree with that," Chirtea said at a workshop. Victor Orler, associate partner at Andersen Consulting, said during the same session that only limited progress will be made on ECR until trade promotion practices are addressed. "There's a lot of discussion about continuous replenishment and other programs like that, but trade promotion strategies need to be restructured in order to move forward."
In a general session, Jerry Metcalf, chairman and CEO of Scrivner, Oklahoma City, said he has concerns about whether independents will get their share of performance allowances as ECR moves forward. Metcalf is a co-chairman of the Executive Committee on ECR, the joint-industry group leading the ECR project.
"The biggest fear that I have with ECR, and I have had it for a long time, is that the independent retailer will be left out, so to speak," he said. "What we find is that it's too easy [for suppliers] to go to a chain that has 100 stores or to other classes of trade."