Kamikaze Retailers - Nov. 2000

As a supplier of plants to the major retailers for the past 25 years, I have been able to observe some pretty strange behavior. Much of this observation was done at a less than comfortable distance. Whenever a grower is very close to a mega-retailer, there is always the danger of being pulled into the black hole, to be utterly crushed and to disappear for all time.

The particular behavior that I now write about can only be described a kamikaze retailing. This happens when a retailer finds out about an ad that will run in their competitor's stores, and they plan a preemptive, predatory strike. Recently, a major buyer told me how she had humiliated her competitor, who, thinking they had an exclusive on an item, ran a large ad for the item at a normal profit margin. Seizing the opportunity to embarrass the competition, she advertised the very same item a little below cost. She went on with the thrill only victory in battle can produce.

"The other company was so angry; we really go them good." How did she know the other side was angry? I think it was probably because, having been on the other side of that battle, she knew just how they would feel. All of the really major buyers I know seem to live for the chance to take this kind of shot at the competition. It is clear that this behavior is encouraged and rewarded by the most senior management.

What really got accomplished in this game? These retailers are huge national organizations, selling lots of different products to consumers. Imagine an aircraft carrier 10 times the size of the biggest ships. Lots of momentum, very hard to turn. Every so often, a buyer gets to take our a piper cub and smack the guy's deck with a loud noise. The carrier may even have to hose the deck and lower the price of a plant for two weeks. In the end, a lot of noise was made but no real damage was done to the competitor.

If there is no damage done to the competitor, the benefit of this action must come from somewhere else. The customers must love it. Well, actually, no. Retailers all know exactly what customers want in the garden department. They have asked them many times and the answers are always the same. The No. 1 most important thing to consumers is the quality of the product. Number two is the information on the care and use of the product. Number three is the variety selection available to buy. Way down at No. 4 is price. I would think that the buyer would concentrate on the things that are most important to the customer, like quality, information and selection.

It must be that I just do not understand the subtleties of major retailer strategies. Selling stuff below cost to embarrass your competition, when the customers do not care and it hurts your profits, just does not seem all that smart. the ways of giant American retailers will never be understood by growers. We think we need to sell our products at a profit, the biggest retailers do not agree with our efforts to do so. Maybe they are trying to make some of us into kamikaze growers so they can have some company. Unfortunately, if growers engage in this sort of unstable behavior, we quickly go out of business. Then we have only our unhappy bankers to chat with, and only for a little while.

I saw a notice that three major retailers in Germany, one of them Wal-Mart, were ordered by the government to stop selling food below cost. Apparently, the German government thinks the behavior is so bizarre and destructive that there is actually a law against it. In America, there are far fewer rules to protect retailers from their own behavior. How disappointing it must be for the American retailers to find the games that they customarily enjoy so much here are against the law in Europe. The only possible explanation I can come up with for this pricing practice is that the competitor outweighs the financial pain that is self-inflicted. I have three quite young children and have seen similar kinds of self-destructive behavior, but they learn quite fast and do not continue year after year to make the same mistakes.