June 17, 2010

Talk with European retailer alliance AMS

Bert Swartsenburg, CEO of AMS Sourcing (photo: Frank Ootes)
Bert Swartsenburg: "We all have to earn money"
Bert Swartsenburg, MD of European retailer buying alliance AMS Sourcing, is a big man. He is not only tall, but has the shoulders of a heavy-weight boxer.

The demeanour of this Dutchman during interview was, however, that of a gentle giant.

Whether this gentleness extends to his bargaining style when purchasing own label for AMS members is a different matter.

That question can only be answered by the many hundred small- and medium-sized suppliers with whom he negotiates.

AMS currently has eleven shareholder members include: Ahold (NL), Dansk Supermarked (DK), Delhaize Group (B), Esselunga (I), ICA (S), Jerónimo Martins/Filhos/Uniarme (P), Kesko (SF), Migros (CH), Morrisons (GB), Superquinn (IRL), and Système U (F).

How does Bert Swartsenburg manage to cope with this Tower of Babel?

Based at Schiphol airport

Mercifully, there is the English language which Swartsenburg speaks well, along with a number of other major European languages, including German.

Like most European retailer alliances, AMS Sourcing, based in Amsterdam's Schiphol airport, is fond of touting total figures. In 2009, its members achieved aggregate revenues of more than €100bn through 10,000 outlets in 22 European countries.

Unlike some of its rivals, however, AMS Sourcing does effect a substantial amount of joint business. Last year, the pan-European buying group negotiated an estimated total volume of around €2.1bn on behalf of its members.

Euro Shopper

A "small part" of this was achieved via the European discount brand "Euro Shopper". The portfolio includes more than 1,000 SKUs, 450 of which are centrally purchased through AMS.

Euro Shopper is distributed by associate members Booker (GB), Elomas (GR) and Hagar (Iceland) in their respective countries. Various shareholder members, such as Migros and Ahold subsidiary Albert Heijn, also use the price-fighter range to compliment their own classic and/or premium own label programmes.

INTERVIEW


Mr Swartsenburg, sceptics have called international retailer alliances mere talking shops. Fair comment?


Of course, AMS Sourcing also provides its members with the opportunity to exchange ideas, information and know-how. However, the size and strength of our buying volume sends a clear message to the sceptics.

Can you really coordinate the interests of eleven completely different members?

Of course we can. When products are made in the same way or have similar contents, we try to standardise the packaging and ingredients etc. in order to reduce cost. That said, the wishes of the consumer are paramount; and we never ignore genuine local requirements regarding product specifications.

Where does it make most sense to standardise packaging etc.?

It is often relatively simple to standardise non-food products. Other examples would be food staples such as pasta, orange juice, or pet food, as well as fresh produce, including cheese and processed meat.

Your eleven members speak eleven different languages. Aren’t your meetings like a busy day in the Tower of Babylon?

Our business language is English. Members’ buyers meet four times a year, and members also visit each other regularly and conduct store checks.

About half of our 40-odd team here in Amsterdam are employed by the individual members. This is very useful because these employees know their own corporate cultures and whom to contact within their respective organisations. I'm on Ahold’s payroll, so I'm leased, as it were, too.

Ahold is a founder-member and the 800-pound gorilla within the alliance. Your own CV shows that you are an Ahold man through and through. Isn’t AMS dominated by Ahold?

Ahold has a big own label assortment and has brought its excellent buying terms & conditions into the AMS fold. The other members can profit from both factors. Rest assured, no one would stay at AMS if they didn’t feel they were gaining an advantage by being a member.

What possible advantage could big members, such as Ahold, Delhaize or Migros, have from letting smaller members profit from their buying terms & conditions?

Perhaps they feel that they stand to gain even better terms & conditions?!

Let me, however, point out here that under EU legislation no member is allowed to know the buying terms & conditions of any other member. Only AMS head office knows all members’ terms & conditions.

Do you really believe that AMS can challenge the big-league buying offices of Carrefour, Metro Group or Tesco?

If you add the total annual revenues of our members together, you will find that they are larger than the big boys. Admittedly, the coordination of these individual annual revenues requires a lot of hard work, but we have done well to date. After all, we have decades of experience when it comes to combining different individual interests.

Do you negotiate with suppliers in your own name or on behalf of your retailer members?

We are only authorised to negotiate prices; everything else, whether invoicing or logistics, is done by the members themselves. 

Who pays for the administrative team here at AMS head office in Schiphol airport?

We are not a profit-making entity; and no percentage of the terms & conditions negotiated with suppliers is used to finance AMS. Members pay an annual fee based on their annual revenues. Were we to make a profit, we would pay it back to members.

How do you manage to agree on products when local consumer requirements are so divergent from country to country?

If, for example, French consumers really want something completely different from consumers in Finland or the Netherlands, then, obviously, we would respect this.

Often, however, we find that our members are buying the same product from the same supplier. Why not lump the individual buying orders together in order to obtain the best-possible price? 

Presumably this hadn’t been done before because the products concerned had different specifications from country to country?

There are plenty of examples where our members have different product specifications for no plausible reason. Sometimes, these are simply the result of personal predilections nurtured by category managers.

Can you give an example of what you mean?

There are category managers who insist on a particular shape for a bottle of detergent because they find it slightly more attractive than other models. This is all very well, until one remembers that the contents are often the same throughout Europe!

Why should the bottles differ from country to country? Why not standardise them? No one is ever going to achieve value-added by staying different. 

But will we ever see a pan-European consumer?

The very success of our European private label range, “Euro Shopper”, proves that it is possible to market a standard product assortment throughout Europe.

How can your members profit from Euro Shopper when there’s so little margin in a price-fighter range?

Our members are coming under increasing cost pressure in the current crisis. Around 70 per cent of a retailer’s costs arise from the cost of product, so it’s logical to scan the buying side for cost-efficiencies.

Also, Euro Shopper enables those members offering classic and premium own label to provide their customers with a real alternative to the hard discounters.

That said, we never compromise on quality just to get the lowest-possible price.

Aren't you really concentrating on price-fighter, entry-range own label simply because it is less differentiated and therefore where your members are more likely to agree?

No. In fact, Euro Shopper only represents a small part of our joint buying. The bulk of our business is at national brand equivalent or even premium level, if you take, for example the “Migros Sélection” gourmet range and Albert Heijn’s “AH Excellent” range.

Aren’t European private label and premium contradictions in terms?

You’re wrong there. Customers in all countries are interested in authentic premium products from Italy, for example.

Why should a supplier grant AMS members terms & conditions on top of what has already been negotiated with them on a national level?

We offer our medium-sized suppliers large volumes. By negotiating with just one partner they can obtain access to 14 retailers in 18 countries.

Are not AMS and the other European retailer buying alliances just another variation on the theme of increasing retail concentration?

Concentration is also growing on the supplier side. For example, P&G has bought Gillette etc. Of course, we should prefer to have a broad choice of suppliers, but, at the end of the day, there will only be a few big players with whom we shall be obliged to work.

So your members are going to continue to exert the very same pressure which will accelerate the concentration of your supplier base?

Yes, but suppliers also exert pressure on their sub-contractors and transport logistics companies etc. We all have to earn money, but, at the end of the day, we all depend on what the consumer is willing to pay.

True, but suppliers still feel blackmailed…

Yes, that's what suppliers always say. I know roughly what our members make in terms of profit, but I know many a supplier who makes a lot more …

But you can’t blame suppliers for working efficiently!

We offer large volumes. It’s not good business when both sides don’t make any money. Partnership is important.

Partnership is a word readily used by both suppliers and retailers. In practice, however, there wouldn’t seem to be a lot of it. How could cooperation improve between the two parties?

Both sides must focus more on the individual wishes of the consumer. Suppliers haven’t been very innovative over the last few years.

By contrast, people like Albert Heijn or Migros have been very creative with their private label ranges. When I look at their exciting and innovative products, I think suppliers could and should have thought of them as well.

Small and medium-sized suppliers would argue that retailers put them under such price pressure that they can’t invest as much as they would like in R&D! They say that the retailers have destroyed value-added...

If you have no other alternative than to lower your prices, then you might ask yourself the critical question whether you are differentiated enough. One always has to have a differentiated profile and offer added value; otherwise you are a lost cause.

How does AMS differentiate itself from rival European retailer alliances such as Alidis/Agenor, Coopernic or EMD?

We must do a better job and guarantee our members better terms & conditions.

What do you mean by „a better job“?

We are constantly striving to increase our product knowledge in order to obtain more insight into the suppliers' cost base and ultimately their selling prices. We call this "sourcing intelligence".

That said, you still want the lowest-possible price…

We buy on a fact-oriented and product-detail basis, which has very little to do with the old haggling over prices.

What type of facts and details do you mean?

For example, we regularly follow weekly raw materials, oil and milk prices in order to understand their cost percentage in the finished product. We also estimate suppliers’ transport and machine equipment costs.

This enables us to negotiate more efficiently because we can calculate the relevant costs with increasing exactitude.

Listening to this, one would have thought that no key account manager would touch you with a bargepole?

At the end of the day, both sides must profit from a deal. Getting the best price doesn’t make any sense if the supplier doesn’t make any money.

How important a role does Asia play as a buying source for AMS?

Business there is still fairly small and is usually conducted via agents. However, I see a lot of potential in the region. Migros and ICA already run buying offices in Shanghai, Hong Kong, Saigon and Ho Chi Minh City.

What type of products do you buy from Asia?

Fish products, for example, or non-food such as toys, and a lot of clothing. However, one must be very careful when purchasing in Asia. There are a lot of good suppliers in the region, but there are also ones who do not meet our high social compliance criteria on, for instance, child labour.

It’s not hard to get a low price from Asia, but if you don’t watch what you are about you can inherit a lot of unwanted problems.

Why doesn’t AMS have a member from Germany?

After Edeka and Caprabo were obliged to leave AMS, we have continued to regret not having a member from either Germany or Spain. But, first, we want to concentrate on increasing member participation in joint buying before we look for partners from new countries.

Obviously, however, we would seriously consider any interested parties should they approach us in the interim.

Coopernic has announced that it wants to extend its activities beyond the purchase of food and non-food. Do you intend to follow suit?

Yes, I see a lot of potential in store fittings, for example. Up till around 2012, however, we want to concentrate on the joint purchase of consumer products. That said, I doubt whether we would ever copy Coopernic by buying a retailer in Lithuania! 

 
Related article in German: Interview by Mike Dawson & Annette C. Müller in Lebensmittel Zeitung, no. 22, 04.06.2010


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