business news in context, analysis with attitude

On Friday, MNB took note of a Wall Street Journal report that Procter & Gamble has informed its suppliers that it "is planning to add weeks to the amount of time it takes to pay its suppliers, a shift that could free up as much as $2 billion in cash for the consumer products giant." The story noted that P&G is hardly alone in doing this, and that it wants to change payment terms from 45 days to 75 days. "To help suppliers deal with the changes, P&G is working with banks that will offer to advance cash to suppliers after 15 days for a fee, some of the people said. The changes are expected to be phased in over three years and ultimately could affect hundreds of companies, the people said."

I commented:

I have to be honest here. This is an area about which I know very little, though the explanation for why it makes sense for P&G to do so certainly rings true. I'm not sure that suppliers who now will have to borrow money for a fee will agree with the logic, however. And I wonder how P&G would react if its major retail customers decided to delay paying invoices issued by the CPG giant because they wanted to be smarter about managing their money, and told P&G that it's okay, they can just get a low-interest loan to cover the longer payment period.

One MNB user responded:

P&G is flexing its buying muscle….just like the retailers have been doing. We have been hit with payment term extensions by many retailers and early payment discounts that have moved. For example we used to be 1% 30, net 31…..with most retailers paying in 45 days and still deducting the 1%. That has moved to 2% 30 Net 60 days.

From another reader:

As a former retailer who ran merchandising efforts for some very large companies, I can tell  you unequivocally how P & G reacts to customers who pay late – C.O.D!!!  No ifs ands or buts.

And another:


That is the word that popped into my mind first when I read about P&G stretching out payments to suppliers.   That thinking seems so outdated.  As an integral part of the ECR effort in the 90's, we all were exploring ways to shorten the cash cycle, not lengthen it, thinking we all should get paid when we provided goods or a service to each other.  Technology was going to be the tool by which that could occur.  So to lengthen the time paid seems so much like a last century idea.  Not something one might expect from P&G.   Without a doubt, their customers will be reading about this and demanding extended terms on their side as well.

While we are at it, I want those terms too.  I want to go to the store, buy my groceries and pay in 60 days.   I can only imagine the reaction if I tried.

And still another:

I would suggest to you, P&G learned this technique from being on the receiving end from retailers! Many retailers have been doing this for decades. In addition, as they increase the costs of their 3rd party manufacturers; Procter's costs will increase on their finished goods and guess who pays for that?

Another reader chimed in:

Two things about P & G and extended payments. Many grocery chains already do delay payments to suppliers (along with taking unreasonable deductions). In the N/W one exception is Winco and many in the industry say Winco gets better deals than others; suppliers know they won't have to wait beyond terms for payment. Secondly, those companies delaying payments to some extent limit the number of vendors willing to serve them, thus theoretically reducing competition and potentially increasing customer costs.

And another:

I know these practices of paying invoices somewhere beyond 60 days is common across all industries, but I guess my upbringing doesn’t allow me to accept that.  What if all consumers of P&G products, or anyone’s products and services for that matter, basically said, “check is in the 60 + days”.  Not sure that is good for anyone.  My parents taught me to pay my bills when due, whether immediately or monthly.  Seems like everyone is trying to squeeze something out of everyone else...a societal problem in the making?

And yet another:

What a terrible idea.  In times like these, of cheap money, the impact is less than in times like 1981, remember those interest rates? 

How long will it take suppliers to P&G to adjust prices for the delay in payment?

MNB had a piece about IRI's rebranding efforts, which led one MNB user to question whether its strategic efforts were good ones.

Another MNB user responded:

Regarding the comments one of your readers made about IRI, I find myself compelled to respond.  I think the term “former employee” says all we need to know about how much he/she knows about what’s going on at IRI.  The company has owners (New Mountain Capital) who have shown they know how to walk the walk, putting their money into the company, not squeezing it out.  They have made some very progressive investments in infrastructure and products/services.  About a year ago they hired a new CEO, Andrew Appel, who seems to never spend a day in his office.  He is constantly meeting with clients, spending time with employees at all levels, and calling on retailers, who, I assure you, know very well who IRI is.  He insists on employees calling him Andrew.  He maintains a true open door, granting access to any employee who has something to say.  And he has a great vision for the future of IRI.
Everything I have seen since New Mountain assumed ownership and Andrew Appel assumed the role of President/CEO has been positive and encouraging.  Notwithstanding the insights from someone who does not work for IRI, this is a company moving in the right direction.

Clearly your commenter has some sort of axe to grind.  That’s fine.  But I, for one, am proud to be an IRI employee and categorically dispute the ridiculous assertions made by a disgruntled former employee.

Disgruntled or not, that former employee was not alone, as another MNB user wrote:

IRI’s business model generally lets subscribers know what has happened. The better business models which are out there today use the internet/social mediums/blogging sites and crowdsourcing to let us know what is happening. Big difference to marketers of any product or service offerings, because it allows them to adjust or change their strategies faster than they could before.

For the record, I have no dog in this hunt. I have friends at IRI, and I suspect they know they have issues with which they have to deal. After all, companies don't rebrand when everything is going swimmingly. This exchange of ideas simply points to some of these issues, and I think that it is better to have an open discussion about them and embrace them. (What do you think Andrew Appel is doing out in the field?)

On another subject, one MNB user wrote:

Regarding the Fresh & Easy dialogue, which I am sure will go on for days, I would add that I was an believer in their demise simply because they got almost everything wrong from the start.

I won't go into details, but even in Tesco's attempt to reconfigure F & E several years ago, they suggested that one of the main reasons they were struggling with poor sales numbers is that during their initial visits with American consumers spent poking around in their refrigerators and freezers, they failed to take notice of larger refrigerators and freezers found in garages and basements. "We didn't visit their basements."  Their detachment from reality was--and remains--mind boggling.  To this day, this explanation remains one of my favorite corporate justifications for failure.

Oh, and don't worry about being a bit wrong in your initial enthusiasm. Like that scene in Defending Your Life, where Albert Brooks gets to revisit every one of his life's blunders in the form of a five minute video clip - which I'm sure you'll know as a movie buff -- my clip could go on for many hours.

From another reader:

A loud lesson to retailers from Tesco's demise is that USA customers love our brands.

Tesco's assortment weighed heavily on private label product. USA consumers shop multiple channels every week. Little incentive to buy private label as our favorite brand is available at a better price somewhere in the weekly shopping tour.

Note to Kroger, Safeway, Whole Foods, Wegman's etc. who aggressively try and convert shoppers to their private labels.

Consumers seek good value on the brands we love, not your private label. Trader Joe's accounts for less than 2% of the market and is the exception not the rule!

And another:

It might be interesting to look back at some of the articles that were written when Tesco announced plans to enter America.  I seem to recall a lot of articles suggesting that they were going to kick major butt and show U.S. grocers how it’s done.

As I've said here before, I plead guilty to having been enthusiastic about Tesco's chances in the US, confident that after the initial missteps it would figure things out, and finally, disappointed that it seemed to make such a total mess of things.

But trust me. When I have my Defending Your Life moment, there will be a lot of things that come up before they ever get to my feelings about Fresh & Easy.

(And you're right. For my money, it is the best Albert Brooks movie ever made, and one of my favorite comedies. if you haven't seen it, you should.)
KC's View: