Specialty Food Magazine is the leading publication for retailers, manufacturers and foodservice professionals in the specialty food trade. It provides news, trends and business-building insights that help readers keep their businesses competitive.
Issue link: https://specialtyfoodmagazine.epubxp.com/i/282647
FROM THE PUBLISHER Diverting: Let the Seller Beware HAVE A COMMENT? Visit specialtyfood.com/ ccrocker/diverting I magine you are a specialty food producer. You've got a handle on your cost of goods and your cost of sales. You've factored distributor margins into your pricing, as well as the mon- ies necessary to stimulate movement at retail. You've got a strong customer base, a clear chan- nel strategy, and a solvent business. Now imagine that you are approached by a new customer who wants to purchase in truckload quantities for export—or maybe for sales to a nontraditional domestic channel. Because the customer is buying in volume, picking up the product, and handling all logistics and marketing expenses, he wants to ne- gotiate a dead-net price from you. He's even willing to prepay. You waver, wondering if you are making a mistake low- ering your price. The customer is quick to note that he can always cut a deal with your direct competitor, instead. As you look at your revenues, you realize that this transaction will help you beat your best quarter ever—so you take the deal. You get paid and the new customer picks up the product. A few weeks later, your product pops up in store types that you have consistently avoided, and on sale at a price that's out of whack with the market. And then you start to see re- ports that some authorized customers are selling more of your product than you have shipped to them. Welcome to the shadowy world of product divert- ing, a practice that is increasingly affecting the specialty marketplace. While the original buyer may have misrepresented himself (never in writing), customers downstream main- tain that they have a right—if not a duty—to buy your product at the best price available. In general, buyers have little incentive to help you track down the diverter, and will be quick to indicate that they are bound by confiden- tiality agreements. The situation is problematic: The presence of your products in a channel you are careful to avoid puts exist- ing customer relationships at risk. Diversion gives neither the producer nor retailer control over product handling, and puts the consumer's experience with the product, the brand, and even the category at risk. Moreover, product diversion undermines the implicit trust between buyer and seller that sustains our industry. Because the origi- nal sale to the diverter excludes promotional monies you have built into your pricing, diversion erodes your ability to provide adequate support in the market. Specialty food businesses are far too lean to track every sale through to its final destination, or to prosecute fraudulent customers. With expenses hitting close to home, specialty food entrepreneurs are vulnerable to see- ing the world through sales goggles, taking a blind eye to due diligence when there's money on the table. Prevention is your best form of protection, and the burden is on the seller. Regardless of what a customer says: when you are asked to sell your retail product below your normal channel pricing, consider it a red f lag. If you can't check it out thoroughly, don't make the sale. For further information on avoiding the diverter trap, go to specialtyfood.com/productdiverting. Chris Crocker Senior Vice President, Content & Media ccrocker@specialtyfood.com facebook.com/craftcarejoy SPRING 2014 5 Columns_Contents_SPRING14.indd 5 3/18/14 8:17 AM