December 2005

Lessons To Learn… By Stan Pohmer

Because many of the suppliers participating in pay by scan (PBS) programs contractually (at the insistence of the retailers they have partnered with) cannot speak publicly or openly about this program, it's difficult to draw any conclusions on whether or not the implementation in spring 2005 really worked. But privately I've been able to glean some insights that point out the positives and concerns. Hopefully, these insights can be used to improve and enhance PBS going into the spring 2006 season when the program will be further expanded in categories including geographic scope and number of participating retailers. And even if you aren't a grower participating in PBS, there are lessons from this experience you can use to improve your own business thinking and processes, whether you ship into the boxes or independent garden centers.

First Impressions

First, an editorial commentÉPBS is not a static program with all the rules cast in stone, but an evolving process with a vision for what is trying to be achieved; some of the rules are being made up as you go — based on experiences gained and problems and challenges encountered. Originally, the vision came just from the retailer, but over time, this has, or will, become a shared vision of both the grower and retailer.

Almost universally, there were strong, very positive reactions by the participating growers to the heightened ability to better control their own destinies. As a reward for taking on more responsibility and accountability for specific operations and financial expectations, the growers gained product or category exclusivity. Basically, they weren't making decisions based on displacing competing vendors and could now expend their energies on providing the products and services focused directly toward the consumer.

Shifting the mindset for measuring success from how much product was shipped to selling through, maximizing inventory flow, improving varietal and color mixes, examining demographics, perfecting timing, creating displays and measuring execution was a huge challenge to many of the participating growers. The learning curve of shifting from primarily a production mentality to a consumer focus in a retail environment, without the benefit of experience and structure, was steep. Despite the history of some pre-2005 pilot programs, there is no real resource book or road map that shows you how to do this; rather, it's been a trial-and-error proposition.

Positive Results

Because they were taking on increased ownership for store activities, many growers feared store management and staff would lose all incentive to actively participate and support the product and growers, but this wasn't the case. Most of the feedback I heard was that the executive store and district management became even more supportive of the growers and more open to trying new things, be they products or presentations.

Another fear was that growers, because they became responsible for markdowns and unsold inventory, would reduce their offerings to the tried and true — the plain vanilla — and become risk aversive and not try the new, unique and untested items that create excitement. To the contrary, I saw more selection, especially at the high end, the value-added end, than ever before. Some growers admitted the buyers were more open to trying new things because corporate had less financial responsibility for the outcomes.

Lesson Learned

One key lesson learned by the growers working through this process was they had to change their production mindsets. Instead of growing much of their product on speculation and trying to find a home for it, they were forced into more detailed production planning. They needed to know when, what and how much of each product would be available and where all of that product would be shipped. This resulted in a much smoother product flow. Knowing the display areas would need to be kept full through the seasonal transitions, and that each space would need to be maximized to achieve the highest sell through and inventory turn, benefited the grower, not just the retailer.

Another challenge experienced by the growers was they learned that managing greenhouse employees was much different than managing store-level staff. In fact, growers had to learn (and teach) a whole new vocabulary and additional skill sets to accomplish all the new activities they had to take on at store level. And new compensation programs based on results — be they sell-through percents, profit, shortage control, inventory maximization or presentation/display — had to be developed and managed. These store-based teams needed to receive incentives based on the expectations set for them and the sense of ownership created, an entirely new concept for most growers.

And learning how to manage your business based on data captured at POS was a new experience for many, especially when there were glitches with the retailers' systems. Getting timely and accurate sales information was sometimes problematic, as was the impact these glitches had on payables.

Fair Play

Pay by scan continues to be an area of consternation. Some growers feel they were not fairly compensated for the additional store-level activities they absorbed, in many cases responsibilities that cut money from the stores' payroll budgetsÉa significant operational savings for the retailer.

In addition, the retailer sets the retail price points and is generally guaranteed a profit percentage based on the established retail. The grower has to generate a profit from the rest of the retail transaction amount, in addition to paying for the cost of goods, logistics, shortages, staffing increases and merchandising. Many growers saw the opportunity to increase retail price points because the product quality and maintenance, presentation and display, and product availability were all more superior than what was offered in the retailer's competitors. However, buyers were more concerned with maintaining a price-leader market position.

Overall Rating

So, bottom line, how did the growers participating in PBS for the first time in 2005 rate the process and program? On average, it came out as a solid C+. But with what they learned and the changes they're planning for 2006, they have high hopes this grade can be improved. Now knowing what is required to manage a store-based business model will allow them to fine tune their production planning to better match consumers' needs and develop improved training programs required to better manage the data and in-store programs and activities.

Looking toward the future, there is strong concern about rumors that the in-store activities of each grower will be turned over to a centralized, third-party provider who would manage the activities for multiple vendors. While this direction could reduce the number of staff in the stores and may add some consistency to the procedures, presentations and displays, it eliminates one of the fundamental drivers of success for the PBS processÉthe financial ownership a given grower has for specific products and categories. Only the grower has financial incentive to be fully responsible for the outcomes; a third party resource just doesn't have the same level of commitment to success in this process.

So what's the key lesson that's been learned by growers participating in PBS and for those not yet involved? Everything starts and stops at the register, with the consumer being the only person we ultimately need to please and satisfy. And all the other things we do each day need to focus on delivering value and the optimum experience for the end consumer.

Is PBS for everyone, all growers and retailers…absolutely not. But the lessons learned from this process have applicability to all growers and can change the way we all approach and think about what we do and why we do it. Because, at the end of the day, it's all about the consumerÉ