Paying to play


Supermarket
Expensive real estate (Photo credit: Sean MacEntee)

The reports of Walmart paying bribes in Mexico to get permits to build stores  have certainly stirred a lot of industry buzz.  Pundits pose on both sides of the issue, debating whether this is truly illegal or merely how global business is done today. (For a thoughtful discussion of this issue, see:  www.perishablepundit.com )

While the final verdict on the case may take years and we’re not expressing our opinion, nor are we legal experts (disclaimers!), we can safely say here that this type of thing is rampant in most parts of the world.  In fact, in most cases it is just life as usual.

In Brazil, for example, the country would not function were it not for what the Mexicans call “gestores” and in Portuguese are “procuradores” and their many minions.  In a country where bureaucracy is endemic,  it’s the only way to survive.

If you have to wait in line for a document to prove you are still alive, you may very well die before you get it.   That’s why you hire someone to stand in line for you:  so you can get on with your life.

We assume this also applies to commercial construction permits.   In retail, a month may be a lifetime, so it’s easy to see the type of pressure this exerts on a company trying to enter a new market.

But let’s digress a bit to something we do know a little about, and that’s the concept of “paying to play”.  When we talk about this we are of course referring to the cost of doing business at retail outlets, sometimes delicately termed “real estate fees”.

Clients are often shocked when we tell them what it takes to get their products up on supermarket shelves.  Shelf slotting fees are said to be a $9B+ industry alone, and can easily run over $30,000 per SKU. (AMA)

So, if you have a brand with three different flavors, that’s three separate SKUs (you do the math.)  Note that this is typically in addition to off-invoice, case allowances or any other relevant fees to get your products promoted properly.

When you look at the one to two percent annual margins of most supermarket chains today you can see  that slotting is an attractive profit center.   But it’s important to also remember that a simpatico retail partner can make or break you.  So,  if you’re lucky and end up with your products on their shelves, why, you may soon retire in grand style.

Yet many of the sweet-hearted folk who make the great-tasting  jams you see at your local farmer’s markets don’t know or understand this.  They remain at the farmer’s market for that key reason:  they can’t get their products into the great indoors because they have no money.

We often run into the great  jam-&-jelly-makers of this world who spend thousands of dollars to participate in trade shows where they hope to meet supermarket buyers, yet have no capital to go any further.  They believe that just having great-tasting stuff is enough.

It’s like a pretty, aspiring actress hoping to be discovered sitting at a Hollywood lunch counter.   Does it still happen?  Maybe, but the “price” can be high, as these gals will tell ‘ya…

“No such thing as a free lunch” is the adage marketers need to keep in mind here.   If not actual hard cash, then certainly you need the “capital” of a well-thought out strategic marketing plan and a product that is totally of  the moment:  ideally, an “Aha!” item a chain may wish to keep for itself.   Additionally, to deal with the pressure you need a large set of what from Spanish roughly translates to “spherical male organs”…

Still, even if you have THOSE, you may wish to pray for some venture capital angel or a M&A expert to show up and offer to sell your wonder product to a major company so you can go sip Margaritas pool-side and forget all this stuff.

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