( The Packer staff )

Kroger’s recently announced 90-day payment terms for its suppliers is a traveshamockery.

That’s the ultra-condensed version of industry sentiment about the letter Kroger sent to suppliers, in which it said the new payment term would go into effect Aug. 1.

Kroger said it was making the change to:

  • Smooth the company’s cash conversion cycle;
  • More efficiently manage the chain’s working capital in order to reinvest in business; and
  • Harmonize terms with Kroger’s industry peers.

The reasons why 90-day payment terms are unacceptable begin with the Perishable Agricultural Commodities Act Trust.

As Matt McInerney of Western Growers has stated in earlier coverage in The Packer, the payment terms directly conflict with growers’ protection rights under the PACA Trust. Agreeing to any extension beyond 30 days permanently waives PACA trust protection.

Under PACA, to be eligible for trust benefits — which gives priority on claims from growers and sellers if a buyer goes bankrupt or simply refuses to pay — produce suppliers must use prompt payment, which means payment terms of “PACA Prompt” or “Net 10 days”.

Sellers can only extend those terms to a maximum of 30 days.

There are other reasons why 90-day terms are unacceptable for suppliers of fresh produce. Fresh produce moves from farm to retail in mere days and often is bought by consumers within a week. As preposterous as it sounds, Kroger would be using the cash generated by produce growers as its piggy bank for its corporate schemes.

There is no reason for Kroger to finance its e-commerce expansion, for example, on the back of a hard-working Midwest fresh blueberry grower.

Kroger commanded 7% of the U.S. retail grocery market in 2016, according to GlobalData Retail, second only to Walmart’s 14%.

Kroger has not responded to The Packer’s inquiries about the policy so far.

The chain’s push to lengthen payment terms is apparently part of a larger trend.

The New York Times reported in 2015 that an increasing number of the world’s largest food and packaged goods companies are asking their suppliers to give them as much as four months to pay their bills.

According to the coverage, the tactic has risen in popularity ever since an affiliate of 3G Capital put it to use after it bought Anheuser-Busch in 2008.

“In the past, extended payment terms often were a signal that a company was experiencing worrisome cash flow problems, but these days big, robust companies are imposing new schedules on suppliers as a business strategy, analysts say,” the story reported.

Kroger fits the bill as a “robust” company, reporting 3.4% revenue growth, 1.4% same-store sales growth, and 26% adjusted earnings-per-share growth in its first quarter this year.

Whether Kroger will soften its 90-day payment terms for produce suppliers remains to be seen, but one industry veteran said other chains may be sitting on the sidelines and watching to see what unfolds. Won’t they be compelled to copy Kroger if the policy sticks?

In response to the new terms, will suppliers refuse to supply Kroger? Will grower/shippers downgrade the quality of produce they send to Kroger to reflect the higher cost of doing business?

They just might.

With its bad math, Kroger will generate the wrong answers for growers, its employees and consumers.

Tom Karst is The Packer’s national editor. E-mail him at tkarst@farmjournal.com.

Submitted by 4855523 on Fri, 07/06/2018 - 15:49

Resistance is going to be key. Shifting the cash acquisition from the banks (master notes/revolving credit) and investors to suppliers is a great strategy for any business IF THE SUPPLIERS ARE STUPID ENOUGH to allow it. To even consider it is weak and irresponsible. If you as a supplier allow such terms, your own bank ought to look very seriously at pulling your line of credit.

Submitted by Alison DeMarree on Fri, 07/06/2018 - 16:21

It can take up to 11 months for growers to be paid on apples harvested last October - What other industry borrows money to operate and pays interest on that money while waiting up to 11 months to get paid? Shame on Krogers! And we wonder why the average age of a farmer is so high & farm kids leave the farm for other jobs?

Submitted by Pablo on Fri, 07/06/2018 - 16:39

No doubt the produce industry is severely affected... but let's also consider Dairy, Bakery, Deli and Meat Depts where products' shelf life is shorter than Kroger's payment terms!!!

Submitted by Curtis Vaughan on Fri, 07/06/2018 - 17:42

Avoid Krogers. Vote with your feet. Spreading the negative news of their muscling growers will go a long way to thinning their pocket books.

Submitted by Matt on Fri, 07/06/2018 - 18:10

Next thing they'll do is pay their employees at 90 days... no difference. Greed will take them out of business

Submitted by Timetraveler on Sat, 07/14/2018 - 14:04

I work a second job where they lay me once a month. It sucks but what can I do??

In reply to by Matt (not verified)

Submitted by Matt on Fri, 07/06/2018 - 18:10

Next thing they'll do is pay their employees at 90 days... no difference. Greed will take them out of business

Submitted by Matt on Fri, 07/06/2018 - 18:10

Next thing they'll do is pay their employees at 90 days... no difference. Greed will take them out of business

Submitted by Matt on Fri, 07/06/2018 - 18:10

Next thing they'll do is pay their employees at 90 days... no difference. Greed will take them out of business

Submitted by Greg Nilsen on Fri, 07/06/2018 - 21:52

I deliver every Tuesday and Friday to the four store Oliver's Market chain in Sonoma County, California. They print a check for each delivery day seven days later. No one should sell produce to Kroger. Period.

Submitted by mathias.fpfruit@gmail.com on Fri, 07/06/2018 - 22:15

Kroger will not succeed in putting in effect a 90 day payment term policy for fresh produce suppliers. The P.A.C.A. was created just for this purpose; to protect U.S. farmers and their trade representatives from predatory trade practices such as the one that Kroger is currently considering. Think about this. At 90 days the first payment is due on the first purchase. Purchases on the 90th day of this three month period would not be due until another 90 days. Could you even begin to imagine what would happen if after 90 days Kroger files chapter 11. It is a competitive world with the likes of Amazon and Walmart bitting at the heals of all the other retailers. One mis-step in over expansion, poor and overzealous acquisition, recession, inflation and bang, you now have a payable that sits among all unsecured debt with no definitive payment time frame. In most cases it takes a farmer the same amount of time to produce a crop as it does to build a retail store. Crops like Grapes, Tree Fruit and Asparagus, which are perennial, take huge sums of money to plant and maintain before a penny is earned. Now someone wants to hold a payable, a financial obligation and force the producer to borrow yet again as his notes and agreements must be met in a timely manner as per lending agreements. Kroger is a cash cow, meaning that they are collecting and banking sales from the customers every day with very little if any poor performing accounts and no receivables. What are they going to do with the millions upon millions of dollars that they will be collecting daily and banking. Maybe they may pay against long term debt to improve the stock value. Oh, and let us not forget the management bonuses that can be issued by the board of directors in consideration for the wonderful job of capital retention. Just the interest alone would provide for more then sufficient capital to complete that task and at no cost to the retailer. Who can not play with these kinds of numbers and make everything look as sound as a brick shit house. To call the decision makers corrupt would be harsh, but to call them unethical would fit appropriately. Only corporate farming operations could survive and then where would we be when all the Nations small independent, hard working, God fearing farmers go out of business. Try and get a farming loan from the major five U.S. banks with this wrapped around your neck. They do not loan farmers like the old days and have no interest in the land that is used as collateral: if you are fortunate to own the land free of any incumbents. Kroger, listen and listen well: Pigs get fat but hogs get slaughtered. If morality does not stop you then the P.A.C.A. will. There are laws enacted by Congress with the Statutory Trust Law being one of the greatest accomplishments. Stop before you get not only a black eye but you will have your legs broken in the fight.

Submitted by Brad Beckman on Tue, 07/10/2018 - 11:49

Awesome report & commentary!