Coming to the Table Prepared

A case study of vendor contract renegotiations

Vendor contract renegotiation is a customary practice for convenience-store retailers. Periodic meetings occur between the two parties for the purposes of discussing historical campaigns, new-product releases and promotions, and optimizing product mix—all with the goal of maximizing profits in the future.

Ultimately, the vendor and retailer engagement results in a contract or product agreement. As with any contract negotiation, both parties do their homework and analysis. Vendors often come to the meeting equipped with detailed purchase history data and competitive analysis to assist in forecasting futures. However, this is only a subset of the necessary data required to make an informed merchandising decision.

The responsibility for completing these analytics relies on the retailer to gather and consolidate item-level sales and margin information. Unfortunately, for many, that is easier said than done as incomplete or inaccurate data often leaves retailers frustrated and unsure of their results, causing them to default to the vendor’s recommendations.

So how can retailers have confidence signing contracts when they question their own analysis, and the vendor’s view and data is limited to half of the supply chain and merchandising equation? That is the question William Baine, CEO of Git’N Go Market found himself asking when it came time for contract renegotiations.

Git’N Go renegotiates their full line Pepsi contract annually. Over the years, Coca-Cola has maintained the greater market share at the Git’N Go Markets, located in and around Clinton, Tenn. Thus, the Pepsi contract has been somewhat passive. This year, William’s secret weapon was having more timely, accurate and relevant information than the supplier. Prior to the Pepsi meeting, William was able to do an analysis of the packaged beverage category with a concentration on Pepsi products. What he discovered was that Mountain Dew produced a whopping 76% of all sales of Pepsi products. With accurate sales and margin information in hand, William was prepared to ask for a specific Pepsi contract based on Git’N Go’s sales volume.

Armed with his newfound information, on meeting day he explained to the Pepsi representative that in Git’N Go Markets, Mountain Dew controlled the majority market share of Pepsi products. His store set should reflect his clients’ needs, not what the vendors want to sell.

Pepsi was impressed by the level of information that William presented in the meeting. While it was a surprise to learn that Pepsi products play a minor role in Git’N Go’s overall success in packaged beverage sales, it was extremely beneficial to understand exactly what products were moving and which ones needed reassessing.

Upon completion of the negotiation process, not only was William able to enter into a Mountain Dew specific contract that would optimize revenue and margin, but also he was able to eliminate some of the Pepsi products from the store set and costly slow-moving inventory.

What began with a contract renegotiation evolved into a lucrative partnership for both Pepsi and Git’N Go. Their success has allowed them to expand their discounts into other Pepsi segments, such as Gatorade. With detailed business intelligence data, William was able to understand true item velocity, sales and gross profit margin, thus allowing him to repeat the vendor renegotiation process with Coke and other vendors. The result equated to an astounding 18% increase in 2014 packaged beverage sales.

Git’N Go has been able to increase overall sales and margins, while reducing packaged beverage inventory. Most importantly, William accomplished this without relying on the vendor’s claims. With ready access to relevant data, the CEO was able to take back control of the stores and no longer rely solely on the vendor’s information. William holds the keys to a profitable outcome by using tools that allow him to make lucrative buying decisions. Reliable business intelligence is vital to ensure that negotiating demands are met, as well as the ability to leverage technology and produce maximum results in a highly competitive market. Signing contract

This post is sponsored by Pinnacle