Loss Leaders & Lessons from The Cheese Squeeze - Spartadia Recruit

cheese-post-draft4For 42 years, between 1957 and 1999, British Columbia-based Far-Met Importers was a leader in the sales of imported cheese. In 1999 Far-Met was purchased from founder Michel Farges by his son Yves.

However, the company’s cheese quota, that is, the right to import cheese, was not part of the sale.

Therefore, to maintain the required importation volume of cheese, we began to purchase from several importers and we also distributed to B.C. chain stores for a single importer based in Quebec.

At the time Far-Met joined the Qualifirst Group, Cheese represented over 50% of its sales.

To keep pace with the standard that Far-Met had set, we needed to maintain an extra 4 sales representatives, a sales manager and 3 extra warehouse/office team members.

There were some pretty severe constraints as well:

  • We had to make deals that had lower margin (less profit);
  • We had to take back product if it did not sell;
  • We had to deal with high spoilage because of the need to keep artificially high stock.
  • Because cheese needs to be refrigerated, delivery costs were very high.

The cheese business was costing us more money to maintain than the income it generated.

It represented a classic situation of being involved with partners who do not share your company’s vision and who squeeze you into a loss position.

The people who import and supply cheese actually expect distributors to keep high stocks and make very low margins. Meanwhile, cheese customers expect perfect service and low prices. In fact they expect prices so low it becomes impossible for the distributor to make money.

Qualifirst Lesson: If a product or customer is not profitable, eliminate it

This “cheese squeeze” and similar examples have added this key fact to our company knowledge base: if a customer or supplier is not profitable, then we need to eliminate them.

Many suppliers will want you to sell their products at cost or at a loss. Their justification is that this will attract customers who will buy other profitable products.

Here’s reality check: if you sell at cost or loss, you will soon have no profitable product and be out of business.

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Suppliers:

If a supplier wants us to make money on other products (not theirs), we tell them to find another partner. A supplier who does not want us to make money is only concerned about themselves and does not share our vision.

Customers:

Similarly, when a customer wants us to make money solely from other customers we tell that customer to go to other suppliers. This customer does not share our vision. Large customers with too much leverage will squeeze all the profit out of us. We will use up a lot of resources and make no profit.

We know that we are much better off building on one small customer at a time; that’s how small business works. That’s how the Qualifirst Group works.

We make no money on some of the larger customers that we foolishly chased in the past.

But we know also that the special big customer who shares our passion will come to us when the time is right and we will be able to deal with them on equitable and mutually beneficial terms.

Letting go of the burden = Less sales?

When we discontinued cheese sales in Western Canada our sales went down 50%. This allowed us to focus on both suppliers and customers who shared our passion.

Now our sales in Western Canada are much higher than in 1999 and we are working with partners who share our vision, and who will help build our reputation of being the first choice for professionals to make food taste better.

This is important company knowledge for all of our team members to know. It guarantees that their efforts are directed at working with partners who share our passion for food.

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