FD Buyer: Dehaize America Plans ‘Preferred Broker Network’

Discussion
Dec 19, 2011

Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.

Does Delhaize America’s plan to establish a “preferred broker network” as of Jan. 1 break the law? Would it set a harmful precedent for the industry?

I’m no lawyer, but the concept seems flawed to me. If you missed the initial salvo, go to fdbuyer.com and key in “Delhaize” in the little search box in the upper right. In a nutshell, Delhaize wants to allow only “preferred” brokers (on a list it created) to meet directly with its category managers.

Advantage Sales & Marketing didn’t make the preferred list, which got the attention of many in the industry since it is such a large and established brokerage.

Nobody’s saying much for the record, but I’ve heard that Advantage may sue, or may even consider acquiring or making an arrangement with one of the preferred brokers.

Here’s part of Delhaize’s memo to brokers and vendors, sent out in late October:
“These preferred brokers will be available to all Delhaize America vendors, offering solutions and services across categories, including center store, fresh and specialty products. Brokers in the preferred network will have regular access to our Category Management teams, helping ensure timely responses and optimum solutions.

“Effective immediately, vendors may begin to move to brokers in the preferred network. We expect this process will be substantially completed by the end of the year, and ask our current brokers, vendors and manufacturers to help us ensure a smooth transition. With the start of 2012, Delhaize America category managers will be interacting only with brokers within the Preferred Broker Network.”

Both vendors and brokers have called me with their own stories and concerns. This situation seems to be changing daily, and I’ll try to keep you up to date on our news section at our website.

Mark Baum, president and CEO of the Association of Sales & Marketing Companies in Washington, says, “Delhaize appears to be attempting to reduce its cost of goods sold for its Food Lion and Hannaford stores and other banners by forcing their suppliers by January 1, 2012 to either deal directly with Delhaize and presumably pass on a discount in lieu of brokerage commission or requiring such manufacturers to use a list of preferred brokers, who in turn appear to have been requested to make or pass on an additional investment in Delhaize.”

Discussion questions: What do you think about the Delhaize “Preferred Brokers Network” proposal? What appear to be the pros and cons of such a move for Delhaize? What repercussions may such arrangements have on vendors and brokers?

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16 Comments on "FD Buyer: Dehaize America Plans ‘Preferred Broker Network’"


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Dr. Stephen Needel
Guest
9 years 4 months ago

Sounds like the category captain concept on steroids. Legality aside, it will limit Delhaize’s access to best practice thinking, as did category captaincy.

W. Frank Dell II, CMC
Guest
9 years 4 months ago

At least Delhaize is accepting brokers where Walmart years ago determined they would only buy direct from the manufacturer. Is it legal? That is a question for lawyers and the courts. Whether it’s a good idea or not is another question.

If memory serves me well, did not Food Lion build stores in Texas and only accept their North Carolina brokers? That did not work our well as all the stores were closed. This looks more like an effort to emulate Walmart, but without the buying power. You would think the industry has learned that too much centralization fails local market differences.

David Biernbaum
Guest
9 years 4 months ago

I’m not going to pretend to be a legal expert, so I don’t know if Delhaize America’s “preferred broker network” is breaking the law. However, I do know that I don’t like the policy, nor its assumptions, and I don’t think it will work or have staying power. What will happen instead is that Food Lion and other Delhaize entities will probably lose out on carrying many products that their customers want to buy, and ironically, lose profits because many of the most profitable brands that drive the most destination traffic with the most favored consumers will not be represented necessarily by a “preferred broker.” For one reason, many specialty and niche suppliers, particularly smaller brands, are represented by smaller, less nationally known, regional reps and brokers.

Gene Detroyer
Guest
9 years 4 months ago

This is shooting yourself in the foot. Brokers don’t carry competitive items. Limiting the number of brokers that you deal with limits the number of manufacturers that your deal with. It is a decision from someone who clearly is thinking that power and price replace competitive openness. If they are going to limited assortment, perhaps this works, but if they want to offer their customers variety, they won’t find it.

Matthew Keylock
Guest
Matthew Keylock
9 years 4 months ago

I agree with the comments. This doesn’t feel like a win for the customer.

Tony Orlando
Guest
9 years 4 months ago

Does this surprise anyone in this business? The big smug giant companies are using their clout to make demands on anyone they choose, because they can. You wonder why the playing field out there is littered with smaller food brokers, who have fewer places to sell their goods. I don’t like it as a small independent, and it makes us less competitive to our customers as well. Either way, Merry Christmas to all.

David Zahn
Guest
9 years 4 months ago

As a manufacturer it comes down to how badly do you want or need Delhaize’s business. Is it worth going direct there if brokered elsewhere? What is the “cost” to go with one of their broker network to the business (not just the dollars and cents of it).

As Delhaize – can “I” afford to draw a line in the sand at the risk of potentially losing certain products/manufacturers that choose not to participate in the program?

As a broker servicing Delhaize not on the list – you had better hope that the above gets resolved in your favor or you will lose a considerable amount of business you previously had and will have to “buy” your way back or look for other sources/streams of income.

As a consumer – shop where you find value. Whether that means assortment, pricing, product availability, or anything else.

Herb Sorensen, Ph.D.
Guest
9 years 4 months ago
The context of this move is well documented in Marc Levinson’s “The Great A&P.” (Highly recommended. 😉 The issue is basically one of whether seeking greater efficiency, which benefits consumers with lower prices, is PERMISSIBLE, when less efficient market structures preserve less competitive businesses. This issue was viciously fought from 1930-1950 as government massively moved into retailing and tried to preserve the jobs of the grossly inefficient distribution/retailer system. This was a frontal assault on chain stores – A&P in the van. Essentially, small businesses were being propped up to the detriment of the consumer. By the 1950s, the battle in favor of the consumer and efficiency was largely won, but too late for A&P, who’s braintrust died with totally inadequate preparation for succession. So 50 years later we have round two, with Walmart in the van. Same issues, same political alignments, same benefits for consumers being trashed by faux consumerists and government. I have no idea what the current laws may be, but my sentiment is, Go, Delhaize, GO!!! This is one more great… Read more »
Eliott Olson
Guest
Eliott Olson
9 years 4 months ago

Another nail in the coffin of the Robinson-Patman Act.

Where is Hans Brinker when you need him? Enough mixed metaphors because I am melting.

Ben Sprecher
Guest
Ben Sprecher
9 years 4 months ago

Legal issues aside, I like how Matt Keylock jumps right to the core question: how will this effect the consumer?

I’m not sure there’s a clear answer. Presumably, eliminating brokers will eliminate brands, as some brands may not be able to shift to new brokers due to competitive considerations raised by Gene Detroyer. On the other hand, I can’t imagine that Delhaize built the list in a vacuum — they must have sat down the brokers and squeezed them for various ‘accommodations’, which may actually translate into lower costs and lower prices for consumers.

Time will tell whether we see an impact on the shelf prices, the variety of items on the shelf, or both.

James Tenser
Guest
9 years 4 months ago
For me, Delhaize’s decision to define a group of “preferred” brokers raises numerous questions, beginning with the retailer’s true motivations, which remain less than fully clear to me after reading the available reports. The retailer states that its decision is part of “an effort to make its category management processes more efficient.” Well sure, doesn’t everybody want that? So Delhaize reduces the number of broker entities it will interact with from ~150 to 33. At least that cuts down on the number of meetings its people will have to take. This event reminds me in some ways of the great consolidation of magazine distributors that took place around 1996. That change was triggered by a unilateral decision by Safeway to reduce its 13 local distributors in the Bay Area to three. Days later, Walmart, which had dealings will well over 200 periodicals distributors nation-wide, began a process that soon cut its vendors in the category down to three. A massive restructuring of the sector ensued, with the largest chains winning un-economic concessions from the “surviving”… Read more »
Charlie Moro
Guest
Charlie Moro
9 years 4 months ago

I think when manufactures are introducing hundreds of items every year with more than most failing, it is no wonder that retailers are trying to streamline the process in which those companies present and interact with them. There seems to be a leveraging back towards the manufacture to be more responsive and now with a clear set of standards of what Delhaize in the situation is demanding, how can that be worse than a manufacturer dropping coupons in a market or airing TV ads on an item forcing the retailer to slot and carry an item.

This may be clumsy at first, but should the buyer really have to carve out time to see dozens and dozens of brokers when they need to be focused on building an offering for their guests?

Ed Dennis
Guest
Ed Dennis
9 years 4 months ago
I have been familiar with Food Lion ever since they were founded as Food Town by Ralph Ketner. They have always been a good retailer but they have always had Preferred Brokers. From day one they have always preferred to do business directly with manufacturers, as they don’t seem to mind working. Many of their competitors (Colonial Stores, A&P) never wanted to really do any work, and seemed to want brokers to do everything for them (wash their cars, provide tickets to everything, etc.) and you see where that got them. Food Lion has always been difficult to work with because they demand that you give them your best price, best service, and best effort. In 25+ years of my selling them millions of dollars worth of merchandise, NO ONE at Food Lion ever asked me for anything. I can’t say that about any other retailer to whom I sold product. If they want to formalize their preferred broker list then it is because they have found those brokers to be the ones that know… Read more »
Kai Clarke
Guest
9 years 4 months ago

Delhaize can do this without breaking any laws. No one says that you must work with any or all suppliers, brokers or distributors. Whether this is considered collusion, by restraining trade (which is illegal per the Robinson Patman act), still remains to be seen. However, on the surface, minimizing the suppliers that Delhaize prefers to work with, does not do this.

Carlos Arámbula
Guest
9 years 4 months ago

I think this is a public relations nightmare for Delhaize…and with good reason. It communicates the company’s disregard for small companies and entrepreneurs. I understand what Delhaize is trying to do, but there has to be a smarter solution to “streamline operations, enhance efficiency and increase sales.” This was not a “difficult” decision, rather a lazy and clumsy decision.

James Kenderdine
Guest
James Kenderdine
9 years 4 months ago

What do I think about the proposal? It stinks.

From the outside, it looks like a situation that is perfect to tie the preferred brokers to Delhaize, making them very, very vulnerable to Delhaize’s future whims. Will the preferred brokers next be asked to pay for their preferred access? Could be.

The fact that they expect “…vendors may begin to move to brokers in the preferred network” shows that they intend to punish brokers not on their list, and to reward (more compliant?) brokers with a place on their list. If business migrates to brokers on the list, it will make them less able to operate as independent firms, reducing their freedom of action and making them whatever Delhaize feels they ought to do for it.

Politics has shown us the truth in old adage “Power corrupts.” Well, channel power also corrupts.

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