Some of you will have received a letter from Coles in the last couple of weeks titled ‘Metal Ends’.
Coles are changing the way in which they are executing gondola ends. The gist is that they will remove the need for cardboard bins and replace them with a metal solution.
As a result of these changes they are intending to charge suppliers $90k for end 1-5 and $60k for end 6-10.
We have a couple of issues with this proposed mechanic:
Back in the early 2000’s suppliers aggregated terms. This included gondola end fees, new product listing fees etc. This was done in part due to the introduction of GST in July 2000. The aggregated funds were incorporated into terms as a Business Volume Rebate (BVR) – typically a percentage discount as part of terms. On the basis that the BVR has not been removed, altered or renegotiated, it would still encompass the costs of gondola ends. We believe that Coles in this instance could be deemed to be ‘double dipping’.
The Code indicates that the costs associated with funding a promotion need to be ‘reasonable in the circumstances’. Assuming that the Metal End fee is not for the use of the end, but a reflection of the cardboard costs saved by the supplier, then the definition of ‘reasonable’ would be the cost of cardboard bins. Regardless of the actual cost of the cardboard, the fact that the rate card cost of the metal end varies between ends 1 and 10, the cost of cardboard was not used to establish these figures. We believe that Coles could be in breach of section 18 of the Code (Funding Promotions) which states that the funding needs to be reasonable in the circumstances.
The current cardboard solution allows brand owners to communicate the brand colours – increasing brand presence. The new metal ends will not facilitate this. One could argue that the cost of the cardboard is a brand communication investment – not only will this be removed, the funds will also then be harvested by Coles.
So in summary, if they are just charging for the end then a potential double dip on BVR, if they are charging for the cardboard savings (and not the end) then they are potentially in breach of the ‘reasonableness’ clause of section 18.
Suggested action: we would recommend that you push back on these fees using the above arguments. We acknowledge that a sharing of the genuine cardboard savings could be deemed to be a reasonable compromise solution if a supplier wished to demonstrate flexibility.