Negotiating supply contracts for your business
Tips on making sure your retail supplier contract protects your business
The negotiation of contracts with retailers always takes longer than expected and small suppliers need to be aware of the possible dangers along the way. Many businesses starting out will be keen to secure a deal with any stockist, but it is important that they take time to negotiate a deal that works well for them.
Like most things in life, people like to do business with those they know and trust, or those that have been recommended to them. Make sure you only sign deals with trusted and reliable outlets, or with people who you value and respect. Arranging to meet the buyer in person is a good idea, so you can show them your vision for your product and can hopefully agree on suitable terms for the contract. It’s crucial that you understand what you’re trying to achieve before you begin discussions, and establish your own framework on what is open for negotiation and what isn’t.
Pick stockists wisely
While it may seem unthinkable when you’re desperately trying to find a buyer, sometimes it is better not to accept every deal that comes your way. At the start, most businesses are desperate to secure any deal possible, however you need to think long and hard about each one individually and exactly how it will benefit your company.
Will Chase, the Herefordshire-based farmer behind Tyrrells Potato Chips, claimed victory over Tesco in 2006 after the supermarket giant was found to have been stocking his products, despite his refusal to supply the chain. He had specifically chosen to sell his produce on the independent market through delicatessens and Waitrose, who he said actively supported locally produced foods. He made a choice based on his underlying ideals, to support smaller producers and retailers and shun the larger supermarkets.
Consider your target audience and the types of stores they will shop at; there is no point getting your product into a store if it won’t sell to customers. Priya Lakhani, who founded Indian cooking sauces range, Masala Masala, aimed her products primarily for the Waitrose shopper, and says she designed the sauces with her buyers in mind.
It’s worth noting that some larger stores may offer an exclusive deal for a specified time period. This was the case for Mike Woods of the Just Love Food Company, who initially signed a 14-week exclusive agreement with Sainsbury’s. His products were not allowed to be stocked anywhere else during that time, however, getting stock into such a huge supermarket chain has opened up enormous opportunities for the company and has helped raise its public profile.
There is no set timescale for negotiating contracts. Every product and retailer is different, and each contract depends on a variety of factors. Grace Foder of Jemma Kidd Make Up School emphasises that contracts with retailers always take longer than you think. She syas there are always delays, whether it’s a merchandising issue, or waiting to get something signed off, so be prepared for contracts to take at least twice, if not three times longer than initially planned. She also strongly recommends hiring a lawyer to help with contracts: “We spend a lot of money on good lawyers. You’re so exposed as a small business and it’s worth the investment for having good legal representation.”
The retailer will usually draft the agreement. When you’re negotiating the terms, focus your attention on your security as a small supplier by asking questions such as: when will you get paid?, what happens if you don’t get paid on time?, and how much notice will you be given for reductions or increases in order quantity?
Concentrate on what could go wrong so you can try to safeguard against these things actually occurring. Before negotiations even begin, you must be clear about your aims for the contract. When seeking legal advice, you will have to communicate these aims to your lawyer, so they can act in your best interest. Choosing the right lawyer for your business is paramount, therefore dedicate time and effort to researching the best one for you. Try to find a lawyer who has experience in your sector, and definitely one who has dealt extensively with retail contracts. For companies concerned with costs, it’s a good idea to agree a fixed cost for a process with your lawyer. Using a small local law firm may also help to keep costs down but you need to make sure they have the experience and expertise required otherwise it may prove to be a false economy.