How to supply the supermarkets without losing out on the deal
The scenes of supermarket suppliers rioting in Gulu Town a while back due to the closure of Uchumi Supermarket touched many. If you are privy to information on how supermarkets work, you know that most of them never pay upfront for the products they sell on their shelves preferring to pay suppliers after the sale has been done.
Small business owners, of whom most fall in the agriculture and food processing sector, tend to combat the cashflow inadequacies they face in a bid to satisfy the demands of their supermarket retail outlets.
However, when a supermarket decides to close overnight, it is disaster for these struggling small business owners, who tend to survive from hand to mouth.
Urban consumer shopping patterns are being redefined by the transition from the traditional open-air markets to supermarket settings.
Many of us are aware of the hassle of trying to shop for a multiplicity of products in the local/open-air markets.
You might buy beans from one end and have to stroll over 500 metres to the opposite end to find fish or beef. If you have a shopping list of ten items, it could take you more than 30 minutes to complete the shopping. The biggest inconvenience evolving around the lack of proper indexing of shops to know who has what and the human traffic that makes free movement a nightmare.
The advantage, though, of these tried and tested local markets comes in from the perspective of price haggling. Consumers feel free to bargain for commodities and leave feeling a high sense of accomplishment.
Then came the supermarket era, which seriously took effect in the 1990s and has grown so fast. Today, Uganda boasts of a number of large local and international supermarkets as well as the Mom-and-Pop small supermarkets (groceries) that form the bulk.
As a farmer or someone in the value addition business, you might be used to individually retailing your products in selected market places thereby limiting your market size. But it is a proven concept that supermarkets address the market access challenge for most businesses.
One can easily experience a three-fold growth in business within three months of retailing through supermarkets.
Unfortunately, lately, there has been bad press about the reliability of supermarkets following the nasty scenario around the closure of Uchumi Supermarket.
But, just like in academics, you do not quit studying simply because you failed an exam. Do not abandon your efforts to retail through supermarkets.
Having dealt with supermarkets as a supplier for six years now, here are some tips on how to determine which supermarkets to deal with.
Ease of Entry: Entry requirements into supermarkets varies. For some it’s as simple as appearing with a product and they avail you shelf space while for others, one has to follow an application process. The small, suburb neighbourhood supermarket tends to easily take in products usually on trial basis and once they appeal to customers, larger orders are placed.
Big Supermarkets (usually chains) have a more complex application procedure that involves a time consuming process of submitting product samples for review after which a decision is made on your application.
Target Market Segment: Loosely defined as an identifiable group of people sharing one or more needs in a market.
Are you interested in: the highly skilled working middle class or the semi-skilled wage based working class? Quality or quantity freaks? Middle-aged or youthful? Such considerations determine whether you will choose a supermarket based in an upscale elite suburb, in the environs of a Public Service Taxi park or in a slum.
This concept explains the reason why a particular product may sell highly in some supermarkets and not sell in others.
Payment Terms: Be very conscious of this aspect before supplying any supermarket. Cash flow is king, for any business. Even with minimal profits being registered, proper handling of cashflow will keep you in business much longer than a high-profit poor cashflow entity.
Supermarkets have different approaches towards paying suppliers. These essentially include the following:
• Consignment basis: This is where you make a supply and once it is sold out, you are paid prior to supplying the next order. This works well for beginners as it also helps them gauge the customer acceptability of their products at less risk. Small supermarkets are more likely to use this approach.
• Cash on Delivery: Upon delivery of the product, you are paid your cash. This is the case usually with high demand perishable products. Small supermarkets are more likely to use this approach than the bigger supermarkets.
• Credit sales: In this case, you supply the supermarket with products and invoices are cleared at supermarket pre-determined intervals, for example, every 14, 30, 45 or 60 days.
The big supermarkets tend to use this approach. It is one of the reasons why when they fail and close, many suppliers get affected.
Credibility: Just like you would take time to determine someone’s credibility before lending them money, do the same for supermarkets. Their impressive branding tends to make us overlook this.
By supplying them on credit, you are lending them money, moreover interest-free. You can learn more about its credibility by talking to other suppliers or even workers who are willing to share insider information.
Unless something seriously happens that changes the current trends, supermarkets are likely to rule retail sales in the near future. This is by judging by the convenience they offer most shoppers and suppliers.
How then, do you avoid being victim of bad business when dealing with supermarkets?
Never let unpaid invoices accumulate beyond the prescribed payment terms. Being a stickler to the agreement in place will save you even when it comes at the risk of them pushing you out of their store.
You would rather retail your products in outlets that respect the agreement in place than those that bully you into submission. Besides, as consumers gain taste for your products, they are likely to seek you out wherever you are.
Figuring it out
You just need to figure out how best to deal with them. If you:
• Have processed or unprocessed products that target individual consumers
• Want to access the higher paying elite market
• Need to have a higher turnover of inventory
• Have the ability to produce for a market wider than you can directly supply
• Want to grow your brand
• Can afford to offer credit sales
Then, you need to seriously consider taking on the supermarket sales channel.
The writer is an agribusiness and value addition consultant. Follow on Twitter: