KeHE has introduced a new opt-in fee structuring program that allows emerging brands to trade associated, first-year onboarding fees for a consistent 2% flat rate, a move intended to make the distribution powerhouse “easier and more cost effective” to work with.
Speaking at BevNET Live on Monday, KeHE senior category manager Christina Schmidt said the distributor introduced the new optional fee structuring program this month to help emerging brands simplify their spend forecasts with a consistent flat rate.
“We know that forecasting can be a really big challenge, especially when you’re launching and you’re a new and emerging brand – it’s kind of a roller coaster as you kind of get started within that initial, first year launch…[This is a] control allowance that waives you from those initial fees associated with onboarding. That 2% is less than the actual experience of those wage fees, so it consolidates them all into one allowance to help you as a brand forecast better.”
Known as the administrative allowance program (AAP), the move is similar to the policy update implemented by competitor UNFI earlier this year. UNFI’s simplified supplier approach (SSA) policy, however, is not optional and consolidates a variety of fees into one 2.5% flat rate.
UNFI’s policy update received mixed reactions; though conceptualized as a lifeline for emerging brands, the policy was rolled out for brands doing more than $100,000 in sales through UNFI’s system; brands generating less than that were excluded from the program. Additionally, it remains unclear which fees are included in UNFI’s 2.5% lump charge.
Under KeHE’s program, brands that are doing less than $500,000 in costs received through the distributor can choose to consolidate fees spanning new item introductions, extra performance fees, manufacturer chargebacks (MCB) and new item set up, lumping all under a fixed 2% rate.
The distributor onboards nearly 800 new suppliers each year which it said will “support this commitment” because it understands forecasting spend remains “one of the biggest hurdles” to a brand’s success in its network. Schmidt, in addition to a letter from KeHE, emphasized that the actual value of typical first-year fees is much higher than the 2% charge.
“It’s new to us and it’s really exciting as we grow and figure it out,” Schmidt said. “We really want to make sure that we are that preferred partner and make it easier to forecast spend. Hopefully then you’ll have the capital to reinvest in your business with both programs.”
According to Melissa Dolan, director at Emil Capital Partners, the impact on the business will be largely determined by the in-house capabilities of each company’s team. She believes this move has the potential to simplify emerging brand’s cash conversion cycles, but it will also take an added layer of focus on key performance indicators such as order quantities, movement off of shelf and pipe fill for the full advantages to be realized.
“It depends on if you have the team and the partners in place to take advantage of what they’re offering,” said Dolan. “For some of our businesses that’s not the case, and others are more financially adept and are able to partner and use the data visibility to their advantage.”