Kroger’s 90-day terms have CPG suppliers seeing red
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Kroger’s announcement of a shift to 90-day payment terms, effective August 1, has many manufacturers up in arms. What particularly frosted them was one of the reasons given: to “harmonize our terms with industry peers.”
Net 30? Maybe. Net 40 or 50? Trending that way. But 90 days? That’s pretty far from the norm, manufacturers say.
Since announcing the new policy, Kroger has said the terms won’t apply to produce suppliers, which are protected by the USDA’s Perishable Agricultural Commodities Act. But will the policy apply to other vendors? Confusion is rampant, and Kroger isn’t talking. Some vendors and brokers think Kroger, seeing the negative reaction from the produce industry, has decided to quietly forget about the whole thing. Others aren’t so sure. So yes, it’s a real hornet’s nest.
In fairness, Kroger in its initial e-mail to suppliers softened the blow somewhat, with an “early payment option.” Via a partnership with Citibank, manufacturers can get full payment of invoices before the 90 days are up. Payment would come within one day of Kroger invoice approval, which it says averages 10 days. A “very competitive” discount will be taken off these early payments.
The chain gave two other reasons for its new net 90 policy: to “smooth out our cash conversion cycle, and more efficiently manage our working capital in order to re-invest in our business.”
“So, they want us to finance their business for them,” snorted one manufacturer. “I hope there’s a lot of resistance from vendors,” said another.
Well, that’s unlikely. The Golden Rule of business is “he who has the gold makes the rules.” If you were a seller, would you want to tell a huge customer like Kroger you’re not selling to them anymore?
It used to be that you could just bake some extra “cost” into your product to make up for retailer shenanigans. But now you’ve got Kroger and Walmart refusing price increases. Is there still room to play footsie with deal money and marketing allowances?
My guess is that “valued suppliers” are going to cut corners on quality to remain viable. That’s a shame, considering that we’re finally getting more high-quality products on the shelf. And Kroger is also likely to feel manufacturer wrath down the line.
Manufacturers, for their part, aren’t angels about rapid payments either. Just ask suppliers of packaging and ingredients.
Cost-shifting is accelerating everywhere. Kroger has led our industry in technology, digital, consumer insights, SKU curation, meal solutions — the list is long. But my fear is that this time, it may be leading others down an unfortunate path.
DISCUSSION QUESTIONS: Is there much vendors can do about restrictive payment policies from large chains? Do you see the benefits from such lengthy terms outweighing the risks for Kroger?