Fixed-price agreements: Contracting for profit - The Packer

Fixed-price agreements: Contracting for profit

10/13/2003 12:00:00 AM
Tom Burfield

Wrapped iceberg lettuce, celery, cauliflower, broccoli and leaf items are among the most commonly contracted items at Tanimura & Antle.

The company, an exception to the 20% average, contracts up to 50% of its volume.


D&W Food Centers Inc., a 23-store chain based in Grand Rapids, Mich., has contracts for its packaged salads, bananas and other commodities like broccoli crowns and romaine hearts, says Norm Fitzpatrick, produce buyer. He says the chain turned to contracts, especially for bananas, to avoid volatile markets.

“It was actually a defensive measure,” he says. “I was getting beat to death on prices.”

Major chains that have either eliminated buying offices or consolidated buying into single facilities are more likely to seek contracts, Fitzpatrick says.

“There are more partnership arrangements … now, and there is more loyalty between retailers and shippers,” he adds.

So far, suppliers have not approached him with contracts, he says. But every time he’s asked a vendor to submit a bid, it has readily complied.

In the recent past, Steve Duello, director of produce operations for the 20-store Dierbergs Markets Inc., Chesterfield, Mo., says he typically got lower prices on bananas from the nearby St. Louis terminal market. Since then, improved inventory management has made contract buying from the big banana companies a better deal.

A contract “helps us manage overall profitability” by enabling Dierbergs to plan, maintain a growth margin and formulate a long-term advertising program, Duello says.

And there’s another advantage.

“A contract means suppliers will treat you as a preferred partner,” Duello says. “In periods of shortages, they will protect you and help you stay in business.”

Roche Bros. Supermarkets Inc., a chain of 15 stores based in Wellesley, Mass., has contracted for bananas for three years, says Paul Kneeland, director of produce and floral.

Knowing the price in advance helps project profits and expenditures and helps plan a balance of items that appear in the ads, Kneeland says.

He says he also would consider contracts for apples and citrus, especially Spanish clementines, which can undergo wild price fluctuations. However, Kneeland says he probably would not sign a fixed-price agreement for locally grown products because quality fluctuates from year to year or for strawberries, Vidalia onions and other sensitive commodities.

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