Years ago, I was working with a distributor who, after years of hard work, had finally aligned their business with a big box store. This move was supposed to represent the next evolution of their business, bringing with it enormous gains and profits, but three years later they were on the verge of losing their business.
Though their agreement was supposed to yield an annual revenue upwards of $30 + million, the distributor was being bled dry from the agreed upon terms of the deal. It was up to the distributor to not only supply inventory for the shelves, but also provide the labor to stock it, and have a guaranteed, no questions asked, and unlimited return policy for the big box store’s customers.
The deal was so awful in fact, that if a customer were to bring in a watermelon they had purchased a year and a half ago, claiming it wasn’t fresh when they bought it, the distributor was obligated to honor their return!
The distributor was hemorrhaging money to honor a deal they thought was profitable, and as each year passed the big box store would nickel and dime them into lowering their prices.
Distributors who are looking to get in bed with a big box store, especially commodity-based distributors, need to understand the abusive relationship they may be entering when they do business with these folks. Though the first year, or two, might seem ideal, and even profitable, the honeymoon quickly ends.
By the time this distributor became our client, they were gearing up for yet another round of negotiations with their customer. Having gone through their books, and recognizing the massive amount of resources (namely cash), they were burning, just to keep the big box store as a customer, I gave them the best piece of advice I could think of. “Tell them to go f- themselves.”
Burning a bridge, and ending a volatile/unhealthy business relationship is sometimes the best decision for your business, especially when dealing with unrealistic customers.
Can a relationship with a big box store, or any demanding customer, be rewarding? Yes. Can you make money? Absolutely. What owners need to realize is that any relationship that is developed between their business and a big box store is going to eventually become one-sided. You have to secure a minimum three-year agreement that is profitable and plan to move on when it’s time to renegotiate, otherwise, you too will be bled dry.