Full disclosure: if you didn’t know it from other stories I’ve written about the centralized merchandising plans of some of the country’s largest supermarkets, I’m not a big fan of these initiatives.
Why? First, the “new” consolidated organizations never seem to operate as crisply and efficiently as the old networks and the execution between the category managers and the individual banners (and stores) when it comes to item mix, specific plan-o-gram implementation and overall communications is never as sharp as it was under the older, more regionalized systems.
But, alas, there are corporate initiatives to adhere to. And in this case with Delhaize, the Belgian retailer wants to cut about $450 million in costs by next year. And since the next coming of Steve Jobs has not yet emerged to invent a new, creative and separate pathway towards revenue growth and profitability, those savings will have to occur the old-fashioned way, by cutting jobs (or hours) and by streamlining current operations.
Creating a new merchandising network is always one sure-fire way to attempt to achieve that “efficiency” goal, but as has been the case with other recent merchandising consolidations at Supervalu and Ahold (and there’s a vast difference of efficiency levels between those two companies) the final totals have proven to be less than the sum of the parts.
The Delhaize America model seems particularly dysfunctional (at least to this point). Unlike other centralized plans, category managers will be based in two locations – Scarborough, ME (where the company’s Hannaford unit is based) and Salisbury, NC (where Food Lion is headquartered). While this strategy may minimize the kind of relocation issues that we’ve seen at Ahold, Supervalu and earlier at Safeway, you now have some vendors and brokers having to make two headquarter calls (depending on department or category) with the new model, where efficiency is supposed to be emphasized.
But let’s go back to last March when Delhaize America unveiled its merchandising and divisional leadership teams. While most of the names on that list were veterans of either Hannaford or Food Lion, many had significantly different jobs than under the previous more regionalized approach. About two months later, Delhaize announced an “on-site” broker plan for branded products. It was at that point that suppliers and brokers began complaining to us about the fairness of “on-site,” noting that Delhaize America sought to attain information that they believed was proprietary on a competitive and internal level.
Apparently, “on-site” has been scrapped, replaced by Delhaize America’s newest “go-to-market” plan for its brokers. On October 26, Delhaize unveiled its “Preferred Broker Network,” (PBN) consisting of 33 brokers who are authorized to call on the chain’s category managers. If you are not in the “Network” you can still perform retail merchandising services at the more than 1,600 Delhaize stores in the U.S. (yippee!), but are not allowed to meet with the chain’s category managers.
Along with the announcement about who made the “Preferred” list, came a three page “Question and Answer” sheet, which tried to anticipate the most frequently asked questions that brokers (and their clients) might have.
After reviewing the data, I called Delhaize America to ask some more detailed questions that about a dozen brokers and their clients asked us.
Here’s Delhaize’s written response to those inquiries:
How did you decide the brokers that the company will use?
“As previously outlined in the documents you have, participants were selected through an objective, deliberate and careful process that began in early 2011. From the beginning of this initiative, we wanted to be open with the broker community and strived to be transparent with brokers about the decisions we were making.
“Our decisions were based solely on the needs of Delhaize America and the brokers selected to participate in the preferred broker network are companies who can deliver value for our future growth plans, as well as meet the unique strategies and customer needs of our multiple banners. We strongly believe the new program will strengthen our relationships with brokers, vendors and manufacturers, while enabling us to streamline our process for buying products and creating a specific network of brokers that we believe best meets the goals of our company and needs of our customers.
“We are confident our experienced preferred broker network participants will serve our company well in the future, and will enable us to drive future growth and value for Delhaize America.”
Why change now?
“Delhaize America is focused on building our company for the future, and we needed to enhance our category management and banner merchandising functions. Given the multiple banners at Delhaize America, coupled with our unique customer needs, we are focused on serving our banners through a more streamlined and simplified purchasing process. For example, our organization would often have multiple brokers representing the same company calling upon our organization. We are committed to driving effective and efficient operations to support our customers, and we strongly believe our new preferred broker program will deliver tremendous value for our organization, and ultimately, our customers.”
Why is Advantage Sales & Marketing, among other prominent brokers, missing from the list?
“For confidentiality reasons and out of respect for each organization involved in this process, we are not going to elaborate on any specific broker decision. As mentioned before, we selected brokers through an objective, deliberate and careful process. Our decision was based on the brokers that could best meet our future growth plans, as well as the requirements of our multiple banners and the unique needs of our customers.”
I’ve reviewed the list in detail and was curious why some of the smaller companies, which may not have robust information technology or financial systems, are on the list?
“Delhaize America has more than 1,600 stores from Maine to Florida, and our banners operate in different geographies with distinct business strategies and consumer needs. During this process, we took great care to ensure that the Preferred Broker Network represents the expertise and specialization needed to serve these requirements. For example, local knowledge of our customers and business, as well as expertise in various business strategies, were important factors during our consideration process. We also focused on key performance areas such as responsiveness, innovation and the ability to deliver creative solutions to our business. Again, for confidentiality reasons and out of respect for each organization involved in this process, we are not going to elaborate on any specific broker decision.
“We appreciate the interest of all brokers who participated in this process, as we had many capable providers who were considered during this rigorous process. However, we ultimately selected brokers who we believed are most powerfully positioned to help us achieve goals of our company and needs of our customers going forward. Again, we are confident in the experienced brokers we will work with moving forward to help us achieve our business goals.”
Given the consolidations, what you say about local buying decisions and the effect on customer service?
“This cross-banner integration of our category management function is one of our company’s strategic priorities, and we remain focused on the successful implementation of our new model while ensuring that we do not negatively impact customer service. Under our new model, we have one consolidated buying organization and we also have merchandising teams within each banner who will continue to partner with the category managers to ensure we are meeting individual customer and banner needs. The preferred broker network is a further evolution of this integration and will enable our category managers to be more focused on customer needs and thereby to be more locally relevant, especially at the banner level, and to further strengthen our product offerings and local relevancy to our customers.”
What would you say about the brokers who have been very loyal to you over the years who are no longer part of the network?
“We strongly value our partnerships with the broker community, and these were difficult decisions that we did not take lightly. Ultimately, we had to make the best decisions based on the needs of Delhaize America’s future growth and unique customer needs. Throughout the process, we remained open and transparent with the broker community, and made decisions with the utmost integrity.
“Given the magnitude of the changes that we have made at Delhaize America, it was clear to us that the current network was going to be highly inefficient and not position us well for the future. Change was necessary for our unique business needs. While these decisions were difficult, our business is more competitive than ever, and we remain focused on our selected and experienced broker network that enables us to efficiently and effectively sustain the best possible prices while meeting the unique needs of our customers. Again, we appreciate and thank all brokers who have served our organization. We look forward to transitioning to our new model to provide even greater value to our customers.”
Do you anticipate adding any additional brokers to your preferred network, or said another way, when could brokers who didn’t make the cut have an opportunity to get into the new network?
“It’s too early to speculate about future revisions to our preferred broker network. We are focused on the successful implementation of our preferred brokers and do not expect any changes to our network at this time. Based on our rigorous selection process, we believe we have the right combination of experienced brokers to serve our organization going forward. We anticipate we will review the program in approximately two years. Again, we appreciate everyone who participated in the process.”
What can you share about the on-site broker program?
“In developing our preferred broker network program, we conducted a rigorous process to ensure we were building the right organization for Delhaize America’s future growth. After extensive evaluation of the business needs of Delhaize America, we determined that the program will consist of two groups: Preferred Broker Network; and Direct Vendor. We decided to implement the Preferred Broker Network program because the expertise for the broker organization existed in the marketplace, and was the best decision for our organization’s future growth. We do not have any additional plans to elaborate on the on-site broker discussion other than this is not the direction we are pursuing at this time.”
What is the timeframe for this change?
“The transition began with communication to brokers and vendors last week. The transition is expected to be substantially completed by the end of 2011. With the beginning of the year, Delhaize America category managers will be interacting only with brokers within the Preferred Broker Network.”
You have a lot of new players in category management, and now you have an entire new broker network. Are you concerned about this change and the effect it may have on your business?
“As mentioned before, this transition is a top priority for our company and we remain focused on the successful implementation of the Preferred Broker Network. The brokers we selected for this network have strong expertise in key areas of focus for our organization. Our strong category management organization, coupled with the expertise in our banner merchandising teams, will be further strengthened by our Preferred Broker Network. We are a much stronger organization as a result of this transition, and we look forward to continuing to leverage the outstanding talent of our internal teams and deeply experienced broker network. Although we remain in the early stages of this process, we are pleased with the progress and are confident in the future benefits this new structure will offer our organization.”
Even though I was hoping for more specific detail, those answers did not deviate much from those supplied on the “question and answer” sheet Delhaize America originally sent to the brokers.
Of the questions and answers above, two responses stand out. How can you not place Advantage Sales & Marketing in the preferred group when they are among the five top sales organizations in the entire food sector? Conversely, when you are claiming that staffing resources and analytics (words that Delhaize used in the original Q&A) were criteria for admission into the preferred club, how can you include small brokerage organizations that won’t be able to provide much merchandising help across the entire Delhaize America network and probably don’t have a high level of information technology to offer the retailer”
But, in the end that’s not even the point. Why be exclusionary at all? When systems are restructured as radically as they are in a merchandising reorganization of this magnitude, you’d think that more overall input and local expertise would be better.
Even those category managers that maintained their same lines as in the old lineup will be responsible for a much larger geographical footprint involving more complex regional nuances. And those category managers who have been assigned to oversee new product responsibilities face a large learning curve in managing their categories in a nearly $19 billion sales portfolio. And, of course, the hiring and/or shifting all the ancillary support personnel who are needed in such major category management realignment will involve training and patience to develop chemistry.
Since Delhaize announced the new PBN on October 26, we’ve heard brokers claiming that the company is treading on shaky legal waters. We’ve heard charges being leveled that range from tortuous interference to restraint of trade.
I can’t speak from a legal perspective, but I do believe that Delhaize’s actions are at least a restriction of trade. Not necessarily legally (although those brokers who are the most upset might disagree), but from Delhaize’s own purview. Again, why restrict the opportunities to gather the maximum amount of information from all your broker or vendor partners?
And if you think most of the disenchantment is coming from those brokers who weren’t included on the PFB list, you’d be wrong. Several firms who did make the “A” list also called or emailed us to voice their displeasure.
“Even though I made the cut and I’m included in their network, I now have to compete with other “preferred” brokers with common accounts as to who gets to call on and get credit for the Delhaize America business,” said one member of the PFB who has had experience in dealing with the recent Ahold USA and Supervalu integrations.
Since the new merchandising program is still officially transitioning and won’t be fully launched until early next year, I’ll wait until the new system has gotten under way before I provide another update.
However, we have not heard this much vitriol and pessimism from the broker community since Supervalu unveiled its SuperFusion plan in 2008.
And we all know how effective that program has been.
This is just part of Jeff Metzger’s Taking Stock column. To read more, subscribe by calling 800-860-1510.