Tuesday, July 31, 2007

Loosing a Customer

In case you don’t know, or in case you work for the Argentine Federal government, Argentina is experiencing inflation. How much is hard to tell since the numbers are being fudged all the time and the government’s official stand on this topic is that there really is no inflation or at least not enough to be a problem.

However, I am not going to talk about inflation and the Argentine economy. There are other sites and resources to go to for that sort of thing. I want to talk about a victim of this inflation.

When we started selling to The Coffee Store I quoted a very economical product for them with the agreement that they had to eventually have other higher margin products of ours as well as allowing us to use their retail shelf space to sell our brand name products. I did this to get our foot in the door. I mean once they start offering our cookies they are going to sell so many of them that I can afford to not make so much on the economically priced and low margin cantucci that they give away with their coffee.

They wanted and insisted that the brand name products I leave on consignment. I really disliked the whole consignment scenario thinking it more appropriate if you are selling bubblegum or chocolates at kiosks not for high end gourmet cookies. However, they did argue that they had great exposure so I went ahead and agreed reluctantly and hoped that they would prove me wrong.

So far there are three components to this approach and I will expand on each one:

1. Economically priced cantucci that they give away with their coffee

2. They would add higher margin products to their product mix.

3. I would leave, on consignment, our branded products.

1 & 2. We made countless samples of different cookie flavors and different sizes. We also rushed to modify one of our brownie pictures so that they could use the picture (and eventually our brownie) in a promotion they were thinking about having. None of those things panned out. Instead, we started to see sharp increases in just about everything related to our factory and the cookie making business. Obviously we had to pass those increases on to our clients.

What kind of increases did we see? Well from the period between January of 2007 and May 2007 we saw our chocolate chips go up 48%, margarine 70%, butter 39%, eggs 27%, etc. In addition, in July there was a wage increase handed down by the government that was retroactive to April. These price hikes are felt immediately when you have low margin products so our economically priced cantucci needed to have price modifications consistently, on a monthly basis. Since May we have seen more price increases, but that’s not a problem right.

All of these price variations have forced me to have monthly meetings with my largest clients and for the smaller ones they just have to take it but I at least let them know beforehand what’s coming. This is really not all that much fun. There is a lot to prepare for these meetings. Basically I have to prove to them, every month, how the price increases I am suffering every month are impacting the price of the cookies they are buying. All my clients have reached the same conclusions as I with the exception of The Coffee Store.

3. There were some stores that really did not like working with consignment either. As a result I changed things around so that for those stores that would pay on delivery I would give them a discount. This was a cost cutting measure for everyone. There were plenty of stores that took me up on the offer, but there were holdouts. And as I would have guessed, the locations that sold very little really had no intention of ever going off the consignment trap. I mean, I give them cookies to decorate their shelves with and they don’t pay anything until they sell something. It was completely painless to them. It is also the very last time I ever give anything out on consignment.

So in the end, the Coffee Store managed to prove to some of their franchisees that consignment does not really work and to the others that it is a great way to decorate your store; not only did they not add any more products but decided to throw in the towel.

Yep, The Coffee Store is no longer a client of ours. There was a mutual realization that this was not going to work. However, it is still sad when this sort of thing happens. So what did I learn from this failure?

I will never leverage entering into a business by giving stuff away (low margin items and consignment).

I am the one at fault here because they just asked, I was the dope that went “yeah, okay”.

I will never sell anything on consignment again, ever. If a client does not believe in your product enough to buy it then they will never be any good at selling it themselves.

I will never give credit to franchisees again ever.

So who is the victim here? I honestly believe it is The Coffee Store.

What do you think?


yanqui mike said...


That's what I think. Screw their WiFi and their delicious coffee... I don't want to think about the "bum steer" they gave to a stand-up bidness man.

As Slats G. Johnson always told me, "Kid, never give away what you sell... it cheapens da product." But I've never been able to be true to that.

Anyway, I think about inflation a lot these days. 4 years ago, Buenos Aires was "almost free!" Nowadays, an $8 coffee or an $8 beer is standard even out in the neighborhoods instead of just Recoleta.

Don't let anybody get me wrong... people in general and the boliches specifically need the increases to get by... just like the cost-of-living in the Fatherland has increased dramatically.

In general, things here in BsAs are still incredibly cheap... but since this is such a place where the simple pleasures of life (like a Frankie Sugar Cookie!) are so highly valued, it's painful to have the price increases come from the bottom up.

Bless you, Frank, and I hope you're around the shop when I stop by.

Anonymous said...

Hello Frank, long time reader, first time writer.

I don't know what a consignment is, but I agree with your point that if a company doesn't believe in your product enough to pay up front for it, how can you believe in them to sell it (I think I know what consignment is now). Sorry to hear about the lost customer, one day I'm sure I will try one of the cookies, and then i'm sure I will become a customer. (maybe not a retailer because I don't have a store, but a personal consumer)

Unknown said...

Yanqui Mike,

I hope I am around too when you stop by.

I hear ya on the inflation bit. People gotta live. I was just so gung ho about getting that account that I gave those cantucci away and hoped that they would buy into the other stuff. You know, now that I got their basic coffee freebie taken cared of they would look to improve their higher end offerings, but that is where I goofed up. They should of bought the other stuff first and then I should of introduced the lower end product. I guess I gave away the carrot and hoped the donkey would run.

Unknown said...

Hi Rob,

Nice to see you chime in. Just to make sure you and others who have not asked the same question yet understand, consignment is when you leave the product and you get paid later after they sell it. So if I would leave of box of 12 units and I go back a week later and see that they have 6 on their shelves I would charge them for 6 units.

It was hell to administer and I will never do it again. Even if Starbuck's asks me to, the answer will be no. Although I doubt Starbuck's would ask for such a thing.

And when you or Yanqui Mike come by the store you can have a cup of jo on me. It may not be as good as the coffee store's but it will be free.

Marc said...

I'm not familiar with their locations and layouts so I can't say much. The only one that I remember was in Abasto Shopping and that wasn't particularly designed to draw shoppers inside to shop.

How are their stores typically set up? Just a modern cafe with a small shelf/counter of goods to offer or similar to Havanna and Bonafide cafes where they are quite prominent.

>I give them cookies to decorate their shelves with and they don’t pay anything

I imagine they became quite comfortable with that. What a great way to enhance the coffee + gourmet boutique appearance that those other companies have except for free! That leads to a lack of motivation or ambition. Did they not think to analyze which stores performed better and expand upon that?

Unknown said...

Hi Marc,

They actually do not have a lot of products to sell. They mostly put packages of their own coffee up on their shelves.

I did try to give their central offices examples of their own stores that do great. The one in Alto Palermo could never have enough product for example. They would always run out of the Sugar & Spice brand for example. There was another store that would not sell the packaged cookies but they would open them and sell them with the coffee ala Aroma Cafe. Obviously, the central office did not like this very much.

I guess, they just want to keep tight control over the franchisees, tight control over what product goes into the stores and they are not really interested in pushing any brand out the door except for their own coffee. I got the impression it´s only about the coffee with them.

Next time you are in one take a look around and see if you have any options other than coffee to buy and take away with you.

Right now I am in the process of collecting on those stores that had product on consignment. So far I have not heard anything from my people as far as trouble so they finally got to pay or at least turning in their unsold cookies.

Happy Kitten said...


Just passing by..

I like the way u write..

The company I work for is into distribution of FMCG goods of MNC's..

will be passing by often

miss tango said...

Thanks for sharing the figures of inflation with us Frank. I notice increaseds 10 to 25% every month at the supermercados. It´s insane!

I had a very good laugh Monday when it was reported on the news of only 0.5% inflation increase. Where do they come up with this shit?

Unknown said...

Hi Happy Kitten,

Thank you! For the benefit of everyone out there that is not in the business FMCG´s are fast moving consumer goods or packaged goods and MNC´s are multinational corporations.

When I get to be a multinational corporation, and when I make FMCG´s I guess your company would be a great fit for mine.

For now though I have a high end product that is not low cost but it does turn fast because, bottom line is that, cookies sell quickly unless you make crappy cookies and then they sell even faster... jaja. That was my jab at the mass produced crap out in the supermarkets, but somehow, sadly its true. Just look at Oreo´s for heaven´s sake.

Anyway, if you know of anyone in your home country that would be interested in importing a very high end cookie then point them in this direction. Seriously though, this is not just marketing talk. These cookies I make are up there in quality and taste and should therefore be up there in price as well.

So once I start exporting to India, I could get rich and then move to Iceland. I heard they are very happy over there.

Unknown said...

Hi Holly,

You made a good point about inflation that I would like to clarify a little more if I may. Of course I may, it´s my blog isn´t it?

When you see figures from me it does not mean that I pass those percentages on to the final price of the cookie. Just for the sake of argument, let´s say Almonds went up 80%. After I have calmed down and stopped swearing at the Almond sales guy I would get out the calculator and find out that the impact on each cookie would be 10%. These are all just fake numbers for the purpose of making a point.

However, you saw increases in the supermarket that do not jive with any official numbers. Keep in mind too that those official numbers are most likely taken on the basic stuff, like bread, vegies and what not and not on stilleto heels ;-)

Just joking around.

But seriously you have seen in practice what many people are complaining about this current administration´s handling of the inflation crisis. In public they are just not recognizing it and, most likely in private, they are wondering what the hell to do about it.

SFO said...

That was my jab at the mass produced crap out in the supermarkets, but somehow, sadly its true. Just look at Oreos for heaven´s sake.

Ah, but Oreos came in special Spiderman packaging in the US to coincide with the film’s release. And how’s an American kid going to learn deconstruction without the help of a Oreo – isn’t that the one of the first skills that they learn?

Frank, maybe you’re just targeting the wrong customer demographic. Think children. My suggestion is to make dinosaur-shaped cookies – with ¿Vivo? on the packaging and get Susana Giménez to endorse them [you had to have seen that particular classic episode of her show to get the joke].

A few years ago when we were renting in BsAs, we had a neighbor whose kid had a piercing voice that was always entoning “quiero helado mami”. I must admit that I was tempted at times to go out and buy the kid ice cream myself just to shut him up! Never underestimate the power of children over their parents – but I guess you’ve succumbed to that already.

Perhaps you should be consulting with your girls about marketing opportunities?


Unknown said...

Hi John,

We are working on the kids stuff. It's top Secret though; would have to kill you if I told you about it.

Marc said...

>mass produced crap out in the supermarkets

I don't think there is any other aisle in the supermarket where I see people just stare for 10 minutes trying to figure out what cookies they want to buy or try. Seriously, I bounce around the super like a pinball when I shop and every time I pass that aisle I see the same people just crawling along.


I bought a head of iceberg lettuce yesterday and did a double-look on the price when the cashier ran it through. I can almost buy a liter of beer and a pizza for the price of making a mixed salad.

I know the current weather has seriously screwed things over so maybe that's the reason but still.

Unknown said...

Hi Marc,

Yeah, the weather does not help, but it´s not the reason for the prices going up in the veggie section. I believe that segment had price controls and normally price controls work for a little bit. It´s kind of like plugging a dam with your fingers . Eventually (actually pretty quickly) the water is going to go through.

You know that some industries that are controlled have come up with some round-about ways of passing on increases like adding an increase to the delivery charge or adding some sort of fee. That way the government still gets it´s price of whatever stable but... oh! I see another leak over there, and another just popped way over there were I wasn´t looking! See what I mean?

Diva said...

I feel sorry for them. See Frank, you cannot trust in these big chains. You know what youi could do? Hire a trrop of the vendors that sell any kind of stuff in the trains and send them to sell your cookies. is not as fancy as the coffee store, but they´ll sell every cookie in the basket.
Anyway, don´t worry. You´ll find more clients.