.uazrgh'r ' THE OPERATIONS OF THE NON-FOODS RACK JOBBER (N THE RETAIL GROCERY TRADE Thais Far the Dogma 6% M. A. MICKEGAN STATE U NMRSITY James Arflwr Slater €955 6 9‘7)??? THE OPERATIONS OF THE EON-FOODS RACK JOBBER IN THE RETAIL GROCERY TRADE A Thesis Presented to the Faculty of the Department of General Business Michigan State University of Agriculture and Applied Science In Partial Fulfillment of the Requirements for the Degree Master of Arts by James Arthur Slater June 1956 ACKNOWLEDGEMENTS The author wishes to eXpress his sincere appreciation to Dr. D. J. Luck for his advice and guidance in the prepara- tion of this thesis. Grateful acknowledgment is due to Mr. L. B. DeForest of The American'Rack Merchandisers Institute and Mr. J. B. Brewer of The Toiletry Merchandisers Association for the help- ful source material which they provided. The writer wishes to thank the many rack jobbers and store managers who so graciously gave of their time to com- plete questionnaires which were submitted to them either in personal interviews or through the mail. These data aided greatly in analyzing some of the current practices among rack jobbers and their associations with the food industry. The author further wishes to acknowledge his indebt- edness to many others who in various ways have given their assistance. Special appreciation is extended to my wife, Joan, for her help in editing and typing this report. Her per- severance and encouragement made the completion of this study a reality. TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION . . . . . . . . . . . . . . . . . . 1 Definition of the Problem . . . . . . . . . . 1 Purpose of the Study . . . . . . . . .'. . . . 1 Importance of the Study . . . . . . . . . . . 2 Limitations of the Study . . . . . . . . . . . 3 Methodology . . . . . . . . . . . . . . . . . 5 Sources of Information . . . . . . . . . . . . 7 II. WHY RACK JOBBING? . . . . . . . . . . . . . . . 8 Importance of Back Jobbing . . . . . . . . . . 8 Economic need for rack jobbers . . . . . . . 8 Arguments by rack jobber . . . . . . . . . . 11 Why manufacturers like rack jobbers . . . . lu Advantages of rack jobber . . . . . . . . . 15 Disadvantages of rack jobber . . . . . . . . 16 Reply by rack jobber to Big Bear . . . . . . 19 A retailer's reply to Mr. Marks . . . . . . 20 Functions Performed . . . . . . . . . . . . . 21 Alternatives to Rack Jobbing . . . . . . . . . 21 III. HISTORICAL ANALYSIS, PRESENT STATUS, AND FUTURE OUTLOOK . . . . . . . . . . . . . . . . 30 Growth of the Rack Jobber . . . . . . . . . . 30 History of Non-Foods in Supermarkets . . . . . 30 A trend appeared . . . . . . . . . . . . . . 31 CHAPTER PAGE Evidence of the validity of this prediction . . . . . . . . . . . . . . . . 31 Non-foods stage a comeback . . . . . . . . . 32 History of Rack Jobbing . . . . . . . . . . . 32 The store operators were receptive . . . . . 35 The rack jobber to the rescue . . . . . . . 36 Growth in the last year 1951+ to 1955 . . . . 36 Recent Growth of Personally Interviewed Rack Jobbers . . . . . . . . . . . . . . . . 38 Current Data on the Rack Jobber's Status . . . no The History and Present Status of the Two Rack Jobbing Trade Associations . . . . . . AA The Toiletry Rack Merchandisers Association . . . . . . . . . . . . . . . Ah The American Rack Merchandisers Institute . AS The "Rack Jobber" and His Name . . . . . . . . #9 Present Status and Future Outlook in Controversy . . . . . . . . . . .. . . . . 50 Opinion given by Mr. Weiss . . . . . . . . . SO ARMI answered Mr. Weiss . . . . . . . . . . 51 ARMI and Mr. Weiss debated the issue . . . . S2 What Weiss thinks of non-foods . . . . . . . 55 The Future Outlook . . . . . . . . . . .. . . 56 Some predictions for housewares . . . . . . 56 CHAPTER Some predictions for drugs . . . . . . . . What rack merchandisers see in the future What chains hold for rack jobbers . . . . A third party gazes into the crystal ball IV. A TYPICAL RACK JOBBER . . . . . . . . . . . . V. VI. Number of Accounts . . . . . . Size of Salesforce . . . . . . . Duties of Salesforce . . . . . . Steps Involved in Taking on a New Product . A Bird's-Eye View of Various Kinds of Rack Jobbing Operations . . . . . . MERCHANDISING CONSIDERATION , . . Product Considerations and Types Packaging Requirements . . . . . Pricing Considerations . . . . . Display Techniques . . . . . . . REQUIREMENTS FOR ENTRY AND SUCCESS . Experience Required . . . . . . Choosing a Location . . . . . . Personal Contacts . . . . . . . Sources of Supply . . . . . . . Equipment Necessary . . . . . Personnel Requirements . . . . . Advertising . . . . . . . . . . of Products PAGE 58 58 6O 61 63 63 61+ 66 68 7o 76 76 79 85 88 95 95 96 96 98 99 100 101 CHAPTER PAGE. Importance of the Entrepreneural Function . . 102 I Essentials for Attaining Success in Rack Jobbing . . . . . . . . . . . . . . . . 103 VII. PROBLviS INVOLVED . . . . . . . . . . . . . . . 105 ’ Selling Problems . . . . . . . . . . . . . . . 105 Purchasing Problems . . . . . . . . . . . . . lll Threat of Competition . . . . . . . . . . . . 115 VIII. RELATIONSHIPS WITH RETAILERS AND MANUFACTURER . 119 The Supermarket's Potential . . . . . . . . . 119 Why Supermarkets Carry Non-Foods . . . . . . . 120 What Is Required of the Store . . . . . . . . 12h Retailers' Compensation . . . . . . . . . . . 126 Where—to-Buy Considerations for Supermarkets . 128 The Battle Between Supermarkets and Other Outlets . . . . . . . . . . . . . . . 129 What Store Operators Say About Non-Foods and Rack Jobbers . . . . . . . . . . . . . . 13h Results of Personal Interviews with Eight Retailers . . . . . . . . . . . . . . 135 IX. CURRENT DATA COLLECTED FROM SEVENTY-SIX RACK JOBBERS--A SURVEY . . . . . . . . . . . . 138 General Information . . . . . . . . . . . . . 138 Relationships with Grocery Stores . . . . . . 1&2 Relationships with Suppliers . . . . . . . . . 151 CHAPTER PAGE Growth in the Last Two Years and Why . . . . I 151 Various Cross-Tabulation Analyses . . . . . . 152 x. SUMMARY AND CONCLUSION . . . . . . . . .. . . . 1% Analytical Approach . . . . . . . . . . . . . 156 Supermarket Operations . . . . . . . . . . . . 156 A sweet blessing for many--non-foods . . . . 157 The true solution-~the rack jobber . . . . . 158 What Did the Rack Jobber Offer? . . . . . . . 158 Ennctions and services performed . . . . . . 158 Types of merchandise handled . . . . . . . . 161 Problems encountered . . . . . . . . . . . . 161 Effect upon other outlets . . . . . . . . . 162 Does the rack jobber offer enough? . . . . . 163 Future Prediction . . . . . . . . . . . . . . 16h BIBLIOGRAPHY.....................167 APPWDIX.......................173 TABLE I. II. III. IV. VI. VII. VIII. XI. XII. XIII. XIV. LIST OF TABLES Percentage of Companies and Stores Buying from Various Sources . . . . . . . . . . . . . Percentage of Super Markets Buying Direct from Manufactures in Health and Beauty Aids (1951). ARNI Membership Growth . . . . . . . . . . . . . Percentage of Volume Done by Twelve Rack Jobbers with Various Types of Stores . . . . . . . . . Non-Food Lines in Super Markets . . . . . . . . Percentage of New Supers Stocking Various Non-Foods . . . . . . . . . . . . . . . . . . Average Number of Commodities and Items Handled by Food Stores . . . . . . . . . . . . Per Cent Margin (Gross Profit) Contributed by Drugs and Toiletries . . . . . . . . . . . Number of All Types of Stores Serviced by Seventy Rack Jobbers . . . . . . . . . . . . . NUmber of Grocery Stores Serviced by Seventy Rack Jobbers . . . . . . . . . . .'. . Type of Salesman Payment Plan Used . . . . . . . Per Cent of Jobbers Carrying One or More Groups of Products . . . . . . . . . . . . . . Amount of Business Done with Chains . . . . . . Amount of Business Done with Supermarkets . . . PAGE 27 29 AB 65 80 81 123 125 lkO 1&1 1&3 1&5 1h? 1k8 TABLE XV. XVII. XVIII. XIX. Number of Years in Business As a Wholesaler . Number of Years in Business As a Rack Jobber Type and Amount of Personnel Employed . . Type of Product Lines Carried and Number of Stores Stocked . . . . . . Frequency with Which Rack Jobbers Replenished Merchandise in the Majority of Their Stores Number of Years in Service Merchandising Compared to the Number of Supermarkets Stocked . . . . . . . . . . . Number of Employed Salesmen Compared to the Number of Supermarkets Stocked PAGE 17A 175 176 177 178 179 180 CHAPTER I INTRODUCTION Definition 2: the Problem Much confusion has been associated with the rack job- bers and the type of middlemen they represent. The average "man-onpthe-street" has little or no conception of the term "rack jobbing." Even.many supermarket operators need a short explanation of the term before they can respond with any semblance of intelligence. Hence, the problem of this study is to obtain informative data telling what rack jobbers are, why and where they exist, and how they operate so that this apparent lack of knowledge can be reduced. A In this study a rack jobber is considered to be a type of wholesaler who warehouses and delivers goods, sets up the display or displays within the area provided him.by the retailer, and takes full responsibility and has com- plete authority for reordering the stock, usually with little or no help frmm store personnel. Although rack job- bers exist outside the grocery field, this presentation will be directed primarily at their relationships with the food industry, unless otherwise noted. Purpose 9; the Study The purpose involved in this study, "The Operations of the Non-Foods Rack Jobber in the Retail Grocery Trade," is to compile all available data on this type of middleman and submit the results in a final form which will prove enlightening to marketing students as well as to all interested rack jobbers and grocery merchandisers. Factual information has been collected from numerous rack jobbers in an attempt to clearly state what type of firms rack jobbers represent, what they do, the functions they perform, and the extensiveness of their operations. Empirical data also have been gathered frmm various grocers so that their interpretations on the need for, usefulness of, and overall opinions of rack jobbing might further our under- standing of the subject. Moreover, the purpose of this study is to analyze the history, current practices, problems, and requirements for entry and longevity of the rack jobber. It is not the intent of this study to evolve a rule-of-thumb or a complete notion as to whether or not a rack jobber should be used by any particular retailer. This perplexing problem still remains to be solved through the sole discretion of each individual store's managerial per- sonnel. Importance g; the Study An objective of this study which already has been mentioned is to alleviate some of the confused thinking about a comparatively new type of middleman whom.marketing 3 students have labeled "rack jobbers." Some of this confusion undoubtedly has stemmed from the "racking," "racket," or "racketeering" connotation which some people derive from the term "rack jobbing." Other individuals, including supermar- ket entrepreneurs, have been adverse to rack jobbers simply because they do not understand their type of operations. A further need for this study is evidenced by the rising importance of rack jobbing in our business society. Rack jobbers were practically unheard of until after World War II. Today they are helping the supermarkets raise their non-foods sales to record heights. They have been praised by many manufacturers and store operators and denounced by others, but their importance is not to be denied. Supermarket Operators can read this presentation and gain a better idea of the rack jobber's usefulness and purpose. Rack jobbers, or rack merchandisers as they are sometimes called, can gain a better understanding of how their fellow business colleagues conduct their Operations, and possibly some helpful methods for bettering their own businesses will be evolved. Students of marketing may be able to obtain a better comprehension of what rack jobbing entails. Limitation; 91: the Study Many of the thoughts expressed within these pages are only opinions. When any rack jobber who was interviewed by the writer was asked a question, his reply seldom was based upon anything more than his best judgment. What was thought to exist may have been non-existent. Secondly, this study necessarily has been limited by the amount of secondary data which was available. In many cases the sources have been knowingly, or unknowingly, biased. Some of the informational data contained within this written matter has been restricted to a particular type of rack merchandiser dealing with a Specific group of com- modities. The author has tried to clarify all such places where limitations should be imposed. Thirdly, the original research behind this study has been limited to a geographical portion of this country. All primary sources of data contacted by the writer, either personally or through written correspondence, have been located in the Northeastern-northcentral section of the United States. The specific area (and number of question- naires sent) would include the following states: Michigan 12, Indiana 10, Illinois 26, Ohio 29, Wisconsin 10, New Ybrk 28, Pennsylvania 21, Minnesota 10, Maine 5, Vermont 0, New Hamp- shire 2, Connecticut 8, Rhode Island 3, Massachusetts 16, New Jersey 12, Maryland 6, Delaware 0, Iowa 5, Nebraska 7, Mis- souri 23, and District of Columbia h. A fourth limitation is inherent in the nature of data which have been used. Statistics have the peculiar faculty of becoming outdated while one is writing about them. Finally, the rack jobbers being considered are only ones dealing in ggpgfggdzmerchandise. Furthermore, their associations with the food industry will receive the major emphasis, even though the rack jobbers referred to are those who carry primarily non-food products. Methodology The first step in approaching this project was to put the purpose and problem of this study into writing. After this had been done, it was necessary to compose a tentative outline which would adequately cover the subject matter to be discussed. Although seemingly a bit unorthodox, the third step in the initial phase of this study was to derive an appropriate title that would sufficiently describe the subject matter. Letters were written to the two rack jobbing trade associations requesting publicity for this study in the associations' trade releases. This was believed desirable in light of the fact that many of the associations' members were to receive mail questionnaires in connection with this study. Enclosed with the letters were written statements of the purpose of this study and tentative outlines. It was hoped that the letter with these two enclosures would familiarize the readers with the study. Mr. L. Bowden DeForest of the American Rack Merchan- 6 disers Institute sent a very favorable reply to the author, stating his association's intentions in cooperating with the author's pending research. He further sent a dozen or so reprints of current literature on rack jobbing, current trade releases, and several unpublished manuals produced by his association. These sources of information have been used extensively throughout this study with recognition being given wherever needed. The next step was the reading of all available liter- ature on rack jobbers to gain a better understanding of their type of operations. Twelve rack jobbers were inter- viewed in Lansing and Detroit, Michigan and Columbus, Ohio areas for the same purpose. Nine of these operators were independent establishments, while three were part of rack jobbing chains (more than one unit). In order to obtain the greatest amount of information from these rack jobbers, it was promised that all statements given the author would remain anonymous. Although.much credit is due these individuals, no names have been mentioned in connection with the material obtained. In the twenty-one states previously mentioned 225 mail questionnaires were mailed to rack jobbers. Siny-five questionnaires were returned. One rack jobber who replied had given up his "rack business," leaving a total of sixty-four questionnaires available for data compilation. Information gained from.the twelve personal interviews also has been used in compiling much of this data. Eight food store operators were contacted in the Lansing, East Lansing, and Holt, Michigan shopping areas. The final step in preparing this presentation is that of recording the findings. Sources 9; Information The material contained herein has been gathered from the following sources: 1. Mail questionnaires to rack jobbers. 2. Personal interviews with: a. Rack jobbers. b. Store managers (grocery). 3. Personal letters to trade associations. Trade manuals and releases. 5. Periodical literature. CHAPTER II WHY RACK JOBBING? Importance 93 Rack Jobbing A more thorough investigation into the present status of the rack jobber will be conducted in the following chap- ter. It is sufficient here to say that today there are about as many supermarkets supplied by rack jobbers as there are those which are supplied through the direct buying offices of chains. Considering the overlapping in sources of supply, Iabout two-thirds of all supermarkets buy through rack jobbeng and a like percentage use direct buying as one of their sources of supply.1 Eponomic Need for Rack JObbers. The supermarket managerial personnel are essentially food specialists. The large expenditure needed to hire and train new people to care for their drugs and housewares was prohibitive for many stores. One supermarket manager uses a rack jobber simply because management is so preoccupied with other matters that he is willing to have the rack jobber take over the non-foods departments in order to alleviate one problem of the multiplicity facing the firm.2 1"Contribution of the Rack Merchandiser," Super Mar- ket Merchandising, (August, 1955), p. 2, a reprint. 2Statement by David J, Luck, Professor of Marketing, - 9 After World War II food store Operators accepted the rack jobber like a long-lost brother. Here was a way to get extra revenue without extra effort: no inventory problems...no boning up on techni- ques Of selling unfamiliar lines...no mistakes...no re-training Of store personnel...no deliveries...no battling with drug wholesalers to get necessary brands.. .nothing but gravy-at least 20% of sales which amounted practically to a net profit.3 .Merchants Service Company Of Denver, Colorado says that buying direct just doesn't work for supermarkets because: 1. Variety of selection is all important. We carry Approximately h50 items in stock. We feel that our succeSs is greatly due to the rotation Of items. 2. Individual store managers or owners cannot "reorder." 3. Even reordering, conscientiously done, is death to housewares section...a reorder is apt to sit on a gro- cer's shelves for many, many months. 'A. Grocers cannot keep reserve stocks. Were we to do this, we could show perhaps only one tenth of the items we do at present, with probably a prOportionate loss in business. 5. Grocers, generally speaking, don't know the mean- ing Of "mark-downs." If they want turnover, they must conservatively Eigure on 5 per cent...and probably con- siderably more. Michigan State University, personal interview. 3H. M. Zimmerman, "Why Super Markets Use Rack Job- bers," Sales Management, (October 15, 1952), pp. 108,110. ' u"How Can Housewares Best Be Served?," Super Market Merchandising, (April, 1952), pp. 9A, 95. 10 The article "How Can Housewares Best Be Served?" further states how some Operators still maintain that if the rack jobber can service housewares, so can their supermar- ket organization. This is essentially correct if the chain wants to establish an organization similar to that of the rack jobber. The chain must have a separate warehouse setup and a separate buyer. It must store merchandise and send it out in Odd-lots. The chain must have trained men to write orders, rotate products, and premark the goods. In short, the chain must have its own service organization. Furthermore, the chain must have enough stores in a particu- lar area to make it profitable to supply them with.merchan- dise delivered by non-foods delivery men and delivery trucks.S Even if the chain had a complete service organiza- tion, the service wholesaler could do a greater volume Of business with the same setup. The supermarket Operator may be pleased with the results Of his own setup, but his volume and profits would be only a fraction of what they could be if a service merehandiser were given a chance.6 , Although these points may have been made by a biased individual, it is believed that much of the economic need 5Ibid., p. 95. 6fold. 11 for the rack jobber lies therein. Arguments 21 Rack Jobber. Some large national chains have tried to increase their percentage on drugs from 25 per cent to 30 or 33 1/3 per cent by eliminating the rack jobber. The rack jobber contends that, even though the chain may be able to make a larger gross margin, any type of supermarket can make a larger profit by using the rack job- ber's facilities. One rack jobbing entrepreneur was asked by one of his salesmen to visit a grocery store manager who was giving this particular salesman a difficult time. It seems that the store manager was new at his job and was making every attempt to prove himself to his superiors. In trying to prove his capability, he was "picking at" the rack jobber's salesman to get him to "improve" the rack-~lower prices, carry more Of certain merchandise and less of other items, etc. The jobber went to talk with this grocery store manager and in the course of their conversation determined that the payment the rack jobber received for his services was the real factor upsetting the store manager. The grocery store manager proceeded to tell the rack jobber that he was able to buy a case of toothpaste for ten cents less from.a drug wholesaler whom.he knew, whereupon the rack jobber promptly quipped, "If I had known this, you would 12 have been able to purchase the case for fifpy cents less than.my price!"7 From.this humorous example we can gather that the rack jobber firmly believes that the services he performs are worth.more than.many grocery store managers realize. Another health and beauty aids rack jobber during a personal interview gave five reasons why he was in business. These were as follows: 1. His company handles all the excise tax work for the stores (the rack jobber believed this the most important factor of all). 2. He guarantees sale of his merchandise; the store suffers no loss. 3. The rack jobber's warehouse personnel pro-price the goods; this price includes excise tax calculations. A. His company will ship broken quantities of mer- chandise, whatever the store needs. 5. The store is supplied with well-lighted displays as part of the rack jobber's service. Still another rack jobber, although Specializing in housewares, related in a personal interview that at first only about 5 per cent of the supermarket Operators liked houseware departments in their stores. Now these men are becoming more receptive to housewares, with about 55 per cent favoring these non-foods. 7Statement by an anonymous rack jobber, personal interview. 13 If the store decided to put in its own housewares department, it would be required to: 1. Hire personnel-«buyer, merchandiser, warehousemen, salesmen, etc. 2. Provide a warehouse. 3. Purchase a special type of equipment--trucks, dol- lies, conveyors, skids, etc. A. Price all merchandise. 5. Return and rotate merchandise. 6. Salvage much.merchandise. The rack jobber bases his argument upon the following three assumptions: 1. A stops will sell more goods if its non-foods are serviced by an outside expert," who knows thoroughly his line of merchandise. 2. It is necessary for the store always to refrain from tying up too mueh.meney in inventories; this capital should be free to be used elsewhere. 3. The rack jobber can buy, warehouse, deliver, and .mark the goodé more economically than even a regional chain organization. One rack jobber pointed out emphatically that his Ccnapany sells only one thing to the stores--service. Other I"Eilck:jobbers claimed that there are three main reasons why they"have-“prospered so well. The three benefits which these JPack jobbers see in their operations are: (1) service sell- iJBEE, (2) guaranteed sales, and (3) extra profit for the subs market . \ S: 8John D. Horn, "Merchandising Non-Food Items through (“Per Markets," Journal 2}; Marketing, XVIII, Ne. 1+ Arril, 1951+). p. 382. 11L These rack jobbers also have a host of other reasons for their success. These include: 1. 2. 3. 1L. 6. 7. 8 9: 10. 11. Aggressive merchandising. More cooperation Obtained from manufacturers. Educating the housewife to look for well-stocked racks. Increased display space. Continuous cultivation of new accounts. Merchandise rotation. Improved services. - Eflimination of supers' inventory problem. Lower prices gained through out-of-season purchases. Better store locations. , Improved training of salesmen.9 Why Manufacturers Like Rack Jobbers. The manufac- turer has his own list of reasons why rack jobbers have gained success. Manufacturers like them because they: OrQChUI Iruuvta O 9. 10. 11. 12. 13. Secure broader distribution rapidly. Remove slowemoving items to another location. Return less merchandise. Provide a single selling office for hundreds of supermarkets- Require less need for an extensive selling force. Keep merchandise clean and attractive. Depict a form Of specialized selling. Represent a single point of destination for ship- ments. Reduce manufacturers' book work and record-keeping. Are aggressive promoters. Reduce selling costs. Provide the stores with impulse sales. Are a good source for repeat business. 9Nathan Kelne, "Rack Jobbers Prove Out As Merchandis- ?1"8....But Now They Want Bigger Discounts," Printers' Ink, Ausust 13. 195m. p. 23. __ '— 10_____Ib1d09 Pp. 23: 2(4- 15 Advantages 23 Rack Jobber. Mr. J. H. Jackson of Mulkey and Jackson Supermarkets, Chattanooga, told Retailing Daily in a recent interview, Our jobber changes the items once a week by refilling the fast-moving products which have diminished and at the same time will remove any such items that are not moving at a satisfactory pace. The department is in tip top shape. Mr. Jackson says that his housewares rack jobber has cut the cost of extra personnel which would significantly decrease the chain's profits from the sale of housewares. He also gave praise to the rack jobber for his maintenance of the stores' housewares departments. Mr. Jackson made Special mention Of the willingness of the rack Operator’s servicemen to exchange damaged goods, and he praised the rack organization for carefully selecting for display items that are correctly packaged, carded, and labeled.11 It would be out of the question for us to do the job on these items without the service distributor. When we decided to begin the sale of housewares, we knew nothing about handling these items,12 Says L. H. Hoying as he points out the importance of the expert handling of housewares in the forty Kroger super- \ 13 11Jackson, "ARMI Service Distributor Saves Profits 1T3. Cutting Costs, Chain Executive Says," ARMI News, IV, C). 2 (February, 1956), p. 2. ' 12L, H, Hoying, "Kroger Official In Virginia Credits fiml Distributor For Big Housewares Sales," fl}. N_9E.§.: IV: 0. 3 (March, 1956), p. 1. 16 markets in the Roanoke, Virginia area. With few exceptions supermarket chains and independent stores have been buying their soft goods and drug items through the rack distributor. The retailers have been receiving from.20 per cent to 28 per cent gross profit on health and beauty aids, while the rack jobber takes from 22 per cent to 30 per cent for his services. These services include: m-QO‘Ul-F'LUN H e 9. 10. 11. Equipping the stores with various types of dis- plays. . Arranging the merchandise on the displays. Dusting and tidying of shelves. Taking the stock order. Guaranteeing the sale of the goods. Price-marking all products. Handling of excise tax reports for most stores. Exercising methods Of stock control. Weekly delivery. Allowing merchandise returns. Assisting in merchandising the goods.13 Disadvantages 92 Rack Jobber. Store Operators are Inst thoroughly convinced that they should be satisfied with tflJeir positions. They are learning that: 1. By buying direct from.manufacturers they can.make gross profits of 33 1/3 per cent to 1+0 per cent. 2. They can get "hidden" cooperative allowances for advertising, promoting, etc . 3. A tOp check-out girl can service the non-foods 13Carl Sigler, "What's Ahead In Sales of Toiletries ?nd Soft Goods In the Grocery Field," Printers' Ink, October 23, 1953). pp. no, in. """ 17 rack quite adequately. A. They can buy from wholesale druggists who allow discountfl ranging from 33 1/3 per cent to ho per cent gross prOfit e 1 The foregoing four thoughts eXpressed by some store Operators cannot be thought Of as indicative of the think- ing Of all Operators. Admittedly many feel this way toward the rack wholesaler. In fact, one rack jobber stated that the "average" store manager does not like the drug department \in his store regardless Of the margin it yields. This rack jobber gave what he believed to be the reason for this atti- tude by claiming the store manager does not like this phase of his business simply because he (the store manager) does not understand his drug department's Operations.15 To the writer this seems like sound reasoning because Of the tend- ency of most human beings to be afraid or a bit cautious about those things which they know very little. One large chain refused to remain ignorant on the SIiject of non-foods in its markets. Big Bear Markets Of Detroit, Michigan (now taken over by the Wrigley Store's, Incorporated) looked into the Operations of the rack jobbers who initially supplied their‘ stores. They found that the \ lugging” p. ill. 1. 15Statement by an anonymous rack jobber, personal nterview. 18 jobber was limited in the amount of store space he could have. They further found that the jobber's salesmen, with routes that must be covered, must hurry with their work. Although the salesmen were not at fault, they just did not have sufficient time to devote to the individual store. This chain found that store managers had not become enough familiar with their health and beauty aids depart- ments to offer intelligent suggestions for improvements. As a result, the health and beauty aids departments were Slighted. To correct the situation Big Bear took over com- pletely all phases Of buying, warehousing, and merchandising these products. It was found to be a rather simple job to order and stock this merchandise. The most difficult problem.was the training Of store supervision and personnel in the proper Inaintenance of displays, proper merchandise and rack loca- 1zton, and space allocation. It was important to this chain t<> establish in the minds of its customers that its stores IVere the best source of supply for "leading" health and tuiauty aids. They began to select items more carefully, I"Either than depending entirely upon impulse buying to dis- FNDSe of a few goods on a hit-and-miss basis. As a result of this program the Big Bear Company dc>u‘bled its business in drugs in a relatively short period 19 Of time. The chain found that its health and beauty aids sales jumped from.a.maximum of l l/h per cent of total store sales under the rack jobber's operations to more than 5 per cent under the present marketing methods. These experimenters proved to their own satisfaction that the rack jobber "was only scratching the surface."16 {Egply by Rack Jobber pg Big ngp. Although the fol- lowing was printed before Mr. Marks told of the success Obtained by Big Bear in buying direct, the remarks to follow might well serve as a rack jobbers' rebuttal to Mr. Marks's statements. The Rodi-Pack Company of St. Louis, Missouri gave some "inside information" as to the amount of money required for a food chain to operate a wholesale housewares establish- Inent. The Rodi-Pack Company Operates a warehouse Of about 1four thousand square feet, containing more than five hundred Iitems. It services three hundred accounts, employs fifteen peOple, and maintains a fleet of four delivery trucks. The company points out that supermarkets in the 1hrnediate vicinity had previously purchased through estab- lished houseware wholesalers who were not service distribu- \ 16Hal Marks, Drugs and Sundries Director, Big Bear I"“Iamkets, Detroit, Michigan, "How We Spur Profits from Drugs 8L171d.Sundries," Super Market Merchandising. (October, 1952 , pp . 67-70 . 20 tors. When buying on this basis, the supermarket operator had the problem Of visiting one or more wholesalers and of selecting a limited number of items from.as many as five thousand items. The Operator did not have the choice of pro-testing the sale of any particular prOduct.l7 §_Retailer's Reply EQ'MQ, Marks. The following may well represent a retailer's answer to the previously cited charges made by Hal Marks. This time it is not the rack jobbers talking; rather it is a grocery chain executive, Fred C. Pockrandt, Sr., president of the Fred W. Albrecht Grocery Company. Mr. Pockrandt cited that his company employs rack jobbers in its stores because it is more desireable and more profitable to have a distribu- tor service our stores direct. The profit is good--the unseasonable items are replaced with seasonable--the inventory is ample with no over-stocks in the stores or warehouse...."1 I Mr. Pockrandt went on to say, We feel it takes an expert to handle this line of merchandise....slow selling items are either reduced in stock or returned, and there is less chance of shop worn items due to inefficient handlin in the warehouse or through the broken package room. 9 Furthermore, Mr. Pockrandt said that the rack jobber 17"How Can Housewares Best Be Served," 92..2l£o9 pp. 96, 97. (3 18Address before the National Association of Food 1lains, Fred C. Pockrandt, Sr., ARMI News, III, NO. 12 December, 1955), pp. 1, 2. 19Ibid. 21 supplies proper merchandising; he keeps the non-foods depart- ment clean; he frequently displays new items; and he pre-prices and pro-packages. The conclusion drawn by Mr. Pockrandt was that the non-foods, especially housewares and toiletries, are a "growing business" for supermarkets.20 Functions Performed The four most common functions which the rack jobber performs are: 1. Buying. The store operator gives the rack jobber permission to display on the rack those items which are thought to have rapid turnover. In exchange for this free- dom in choice of products the rack jobber usually guarantees sale of these products so that the supermarket does not suf- fer a loss if the merchandise does not sell. 2. Warehousing. The rack wholesaler maintains a warehouse or several warehouses for all Of his accounts. This frees the retailer from the need Of tying up his capi- tal in a large amount of warehoused stock. The retailer is required to pay for only those items actually displayed in the store. 3. Price Marking. The retailer does not incur the <30st of marking the merchandise because this task is per- formed by the rack jobber usually in his warehouse. A. Store Delivegy. The merchandise, case lots or b1"Oken cases, is delivered by the rack jobber to the super- market.21 égiernativeg _i_:_o_ Rack Jobbing The supermarket's means of supply other than through I'ackjobbers is a subject of widespread interest, not only \ 20Ibid. 21Horn,,9_p_. cit., pp. 381, 382. 22 to the food stores but also to the rack jobbers. One rack jobber who was interviewed expressed it rather aptly by saying, "Whenever.I'm,at a national convention and refuse to take on a manufacturer's line, his constant threat is 'I'll go direct to the supermarket myselfl' "22 Herein lies one alternative to the rack jobber, i.e., direct sale from the manufacturer to the store. Another snaurce which the supermarket Operator can use is an estab- lmished wholesaler who is not a rack jobber. In 1952 an per cent of all supermarkets surveyed Obtained some of their health and beauty aids from these wholesalers. In station- cage}; supplies the percentage was 58, while 61 per cent Of 'blfiease supermarkets purchased their paper specialties from "blamese sources. Even in men's and women's underwear more 'tIfiean 50 per cent of these supermarkets purchased from the Wholesaler.23 Another source Of non-foods supply for the supermar- 1Cetis manufacturers' rack service. Manufacturers' rack Service establishments are operated quite like regular rack Jobbing enterprises, but often they can Offer more services to the stores because of their wider margin of profit. 22Statement by an anonymous rack jobber, personal interview. 23Super Market News. (November 3, 1952), p. 6. 23 A good example of a manufacturing company's Operating its own rack service is furnished by the House of Huston, IDncorporated, of Miami, Florida. This company began running vsnrious tests in supermarkets to Obtain some idea of the lacrtential for pet supplies in these retail outlets. Previous 13c> these tests the company had sold its products through (flirty; stores, pet shops, and department stores. The average test supermarkets sold as much as fourteen times that Of ‘tlnsair average drug store. As a result of this test data, 't13e3 company organized its own rack service which now sup-_ Iilxies more than three hundred grocery chains and thousands (3:7 independent stores. In every major city the company now has warehouse facilities and delivery equipment. A closer look into the House of Huston will better p_. cit., p. M6. 19Ibid. _ 90 possible, i.e., coffee pots displayed with coffee. Secondly, it has seasonally promoted its products in the heavy traffic areas, i.e., during the summer displaying glass tumblers with beverages. The results have been encouraging with a twenty-four foot gondola doing $3,900 monthly in sales, a twenty-two foot gondola doing $h,600, a thirty-seven foot rack doing $5,700, and a sixteen foot display selling $2,500 worth of merchandise in a singlemonth.20 Meijers Super Markets, Grand Rapids, Michigan, found a very effective gimmick which increased its non-food sales 300 per cent. The strategy of the Meijer's Company was simply to intermingle high profit non-foods with high-traffic grocery stables. Hence, in one of the stores the customer would have to walk past a beautiful housewares rack to pick up the family's bread and bakery needs. This chain also found related displays highly beneficial in attaining increased sales, so a customer who buys baby foods also is "exposed" to such.baby needs as diapers, bottles, and baby lotions.21 20"How Can Housewares Best Be Served?," Super Market Merchandising, (April, 1952), pp. 95, 96. 21"}{61361'8 NOHBFOOd Sales Jmp 300%, 1' Super Market Merchandising. (March, 1956), pp. 53. 5h- 91 According to 70 per cent of the rack jobbers, the best location for a health and beauty aids rack has been near the end of the shopping tour and directly exposed to shoppers as they approach the checkouts.22 Another source has determined the best location as the gondola end and part of the side of the gondola nearest the checkouts.23 All of the interviewed rack jobbers supplied their grocery stores with special display fixtures. Only one jobber decided where these displays would be placed within the stores. In four replies the stores made the decisions on display locations. Six jobbers said that this was a joint decision between themselves and the stores, and one said it was decided by the grocery chains' headquarters. None of the Jobbers whom.the writer personally con- tacted decided the location of the regular non-foods depart- ments. This was a joint decision, according to five replies. The remaining seven jobbers said the departmental location was the problem of the store manager or his chain's head- quarters. Eleven jobbers said it was their prerogative to pick the particular merchandise placed on the store shelves. One 22Mueller, 92, cit., p. 5. 23Abramson, 92. cit., p. MS. 92 jobber decided this question in cooperation with the store management. Ten jobbers decided what location a product should command-on the racks, while two jobbers said their customers made this decision. This is evidence that the average rack jobber has a good deal of freedom in choosing the products to be displayed and the spots this merchandise is to occupy on the-non-food racks. The importance of a non-foods display parallels the importance of proper packaging. Impulse buying is here, and the shopping list is on the way out. Effective point-of—sale displays can convince the customer to purchase an item that he may never have thought of when he entered the store.2h Housewares...take some displaying if they are to catch the impulse buyer. "In most cases they haven't the advantage of a brand name. So the racks must be set up for eye appeal. The items must be packaged right, and priced right. Often it takes some point-of-sale display to put them.over. To traig the routine sales clerk to do this is a tedious job. ARMI has been foremost in pointing up the need for increased point-of-sale material for non-foods manufacturers who eXpect to sell in supermarkets. ARMI says that, next to prOper packaging, point-of-sale material is the most impor- 21+"Non-Food Volume Through Point-of—Sale Display," an ARMI booklet, p. 1. 25"New Breed of Wholesaler," Business Week, (January 23’ 1951”: PPO ’42: ill-In 93 26 tant merchandising consideration. A list of the various types of point-of—sale displays would include: 1. \0 00 NOW F‘wm O Dump bins, permanent (wire, metal or wood) and temporary (corrugated materials , tables, barrels, etc. Shopping carts. Specialty floor stands, permanent and temporary. Shelf merchandisers, wire baskets, hooks, or extenders. Hang-up racks. Shipping cartons. Signs, various colors, sizes, and shapes, both lighted and non-lighted. Related item displays, egg trays, butter dishes, etc. Mass displays, metal pitchers or waste baskets.27 The objectives of point-of-sale displays are: 1. 7. To bring products "out" so customers will see and/or feel them. To attract immediate attention by color, copy, and lighting. To demonstrate what the product does. To stimulate an impulse to buy. To have some human interest value. To fit into the supermarket environment. To plainly show the price of the product.28 The merchandise selected for displays in one-half of the cases was featuring special packs; 35 per cent featured seasonal items; 8 per cent featured related items with no 26"ARMI Distributors Point Up Need for Increased POS; Call It Second Oan to Good Packaging," ARMI News, IV, No. 3 (MarCh, 1956), P. 27"Non-Food Vo1ume Through Point-of-Sale Display," 2p. cit., PP. 2, 13. 28ARMI News, loc. cit. 9h price reduction; and 7 per cent was featuring regular stock. Better than 50 per cent of all drug rack jobbers built one or more special displays per store per week, according to Progressive Grocer.29 Displays should be allowed to stand for two weeks. The most preferred types of displays in descending order of preference are: manufacturer's dump bins, end gondolas, shopping carts, and shelf extenders. According to the rack Jobbers who were interviewed by Progressive Grocer, about one-half of the operators believed special displays increased sales by 50 per cent over shelf sales; one-third thought sales increased from.SO per cent to 100 per cent; and 17 per cent maintained displays would at least double sales.30' 29Mueller, loc. cit. 30Ibid., pp. 6, 7. CHAPTER VI REQUIREMENTS FOR ENTRY AND SUCCESS . There is a conspicuous lack of secondary data on what is required for successful entry and success as a rack job- ber. Therefore, much of the information in the present chapter was compiled from the twelve personal interviews which the writer had with rack jobbers in the Lansing and Detroit, Michigan and Columbus, Ohio areas. The reader should realize that even though these twelve jobbers attempted to give their true viewpoints on the various questions asked, their viewpoints are not necessarily repre- sentative of all rack jobbers. They are only indicative of what several rack jobbers believe to be true, and little statistical significance regarding the whole population should be attached or assumed. Egperience Required For successful entry a basic knowledge of this business is required. This can be obtained only after a minimum of five years experience as a salesman, supervisor, delivery man, or warehouseman. One tobacco rack jobber expressed a warning to those seeking to enter the rack jabbing business. He advised, This business is highly competitive. we get a very small markup, which ranges from 2 per cent to 5 per cent. My overall margin is 1/2 of l per cent. Now you can see 96 why volume is the mother of this business. As far as salesmen and warehousemen are concerned, they need no experience to get into this business. One rack jobber said, "I like to hire men with no experience because then I can teach them the correct way of doing things.” Choosing 3 Location The principal factor in choosing a site to hang out one's shingle as a rack jobber is determining which location is dfavorable to rack selling." This means that there should be enough nearby supermarkets seeking rack jabbing services for the new rack jobber to obtain a profitable ‘ volume of business from these stores. If a favorable sales volume is to be attained, these stores must not only be present within the area, but they also must be willing to turn their non-foods over to this rack jobber. One rack jobber, with a salesforce of four men servicing 3h0 grocery stores, gave his breakeven volume as two hundred thousand dollars annual sales. In other words, for this jobber a site must be able to return at least two hundred thousand dollars annually in sales volume. Apparently distance from sources of supply has little or no effect upon location selectivity. Personal Contacts A rack jobber must have some sort of contact with his suppliers. This contact usually takes the form of the manu- 97 .facturers' salesmen personally calling upon the rack jabber. Some rack jobbers have definite times, designated as "buying hours," at which they agree to see their suppliers' repre- sentatives. Other personal contacts which are considered requi- site to success are those with the retailers. For a single-unit independent store the owner or manager is the individual contacted in establishing a jabbing arrangement between the jabber and the store. In the larger chains the rack merchandiser frequently talks with one of the chain executives, such as president, merchandising vice-president, buyer, etc. A non-foods buyer of one of the Detroit supermarket chains listened to a drug rack jabber explain the savings, increased profits, and other advantages which the jobber claimed he could give this buyer. The rack jabber had even gcne to the trouble of showing objectively the estimated expenses and revenues which could be expected if the chain . were to buy from the jobber. He compared these figures with the chain's finances under its existing methods of procure- ment. After the rack jabber had obviously convinced the buyer that his chain.would be much better off letting the rack jabbing company supply his stores, the nan-foods buyer said, "If I let you fellows take over in our stores, I'll be out of a job; I'll have nothing to buy!" The rack jabber 98- still is trying to find a way to beat this buyer's argument! Several rack jobbers found their memberships in one of the trade associations to be favorable contacts. The benefits accruing from such associations have been previously discussed. Several rack jobbers said that they place great value on the contacts made at the national display conventions. In March, 1956 many housewares manufacturers and rack jab- bers met in New York to allow the jobbers to see the various lines of products and place orders for the merchandise. One rack jobber said that any contacts which he can establish are to his advantage. He stated that a rack jobber will assist himself and his company if he tries to be the "friendly, coffee-drinking, back-slapping" type of individual. Sources‘g§,3upplz The principal sources of supply for rack jobbers are the manufacturers of the goods purchased by the rack jobbers. All but one of the rack jobbers interviewed purchased 100 per cent from manufacturers. The one exception made only about 1 per cent of all purchases from a source other- than manufacturers, this source being another type of whole- saler. When this jobber purchased from a wholesaler, his action was usually necessitated by an unanticipated shortage of supply. 99 Equipment Necessary The equipment required by a rack jobber will depend a great deal upon his size of operations. Some may use electric lift-trucks in their warehouse operations, while others use manual dollies or none at all. Some lease fleets of trucks, while others buy them outright. One Detroit rack jabber who recently moved into a new building was having an IBM installation made in his offices. When the installation is completed, account data, i.e., invoices, debits, credits, etc. will be routed through IBM. The savings in office labor alone is expected to cover the cost of the IBM equip- ment in a short period of time. Another rack jobber is now using an IBM installation with rewarding success. Rack jobbers must have warehouses for storage, break- ing cases, shipping, pricing, etc. The amount of space in the warehouses may differ considerably. From the six rack jobbers questioned on this point the answers ranged from 3,000 to 120,000 square feet of space. The mean size was, 33,000 square feet. A list of other equipment used by rack jobbers might include: 1. Merchandising stands and racks. 2. Manual, gravity, or electric conveyors. 3. Loading skids. h. warehouse shelving. \ 5. Boxing, taping, and miscellaneous warehouse equip- ment. - h \ 100 6. Office equipment, desks, computers, adding machines, telephones, etc. ' The writer talked with a rack jobber's salesman who said his most important piece of equipment is his "feather- duster!" Personnel Requirements The help required for success in the rack jabbing trade may be broken down into five categories: (1) super- visory, (2) office, (3) sales, (A) warehouse, and (5) main- tenance. Supervision is needed over all the other four categories. In many instances a single person may perform several jobs. For example, a warehouseman may do some of the maintenance work. The rack jobber with the largest drug operations in Michigan divided his warehouse help into five different divisions when filling orders. The groupings were as follows: (1) pickers (merchandise selectors), (2) checkers, (3) packers, (h) tapers, and (5) addressers. One man from each of these groupings was used on each order-filling line. ‘Four lines ran simultaneously with a continuously operating electric conveyor carrying merchan- dise for each line. In an attempt to determine the desirable qualities for rack jobbers' salesmen, the following question was sub- mitted to about five rack jobbers: "What special require- ments must your sales personnel possess?" A list of the 101 replies received includes: 1. "A good knowledge of the merchandise they are selling." 2. "Sales training." 3. "The welfare of their accounts in mind at all times." A. "Ability to win the confidence of their accounts." 5. "Ability to write orders and give service." 6. "A little bit of promotion, which means two-thirds motion!" 7. "Ability to sell themselves, then the products." 8. "Training and experience in health and beauty aids." 9. "A special sense to know what to do next in the stores." 10. "Salesman must like the business and have good understanding of human nature." 11. "Salesman must give fair treatment and be honest with the store managers to protect our reputa- tion." 12. "Common sense, displaying knowledge, and courtesy and service to the customers." 13. "Don't be late; don't drink; and don't lie." Advert 13135 The majority of the advertising, especially in the drug field, has already been done by the manufacturer before the product reaches the rack jobber. The rack jobber is noted for handling nationally advertised brands. Some rack jobbers personally place advertisements which are financed either by the manufacturer through an advertising allowance or by the jobbers themselves. In other cases the stores advertise non-food products along with their food items, either with or without advertising agreements with their rack distributors. The advertising medium most papular with rack jobbers 102 is the newspaper. Magazines, radio, television, and hand-bills are also thought to be effective. Several job- bers brought up the fact that their products "live" on advertising. They must be pre-sold because personal selling in supermarkets is at a minimum. Importance 2; Egg Entrepreneurs; Function How does the rack jobber combine all of these require- ments of success into a going enterprise? ARMI says the average rack jobber has a warehouse equipped for storing and shipping as many as five thousand different items. These products are not delivered to the retailers in case lots. Cases are divided at the rack jobber's warehouse, and deliveries are made in amounts specifically required by a particular store. The jabbing entrepreneur keeps a complete set of records on the movement of all the items he inventories. He may coordinate the activities of as many as one hundred salesmen, drivers, and service men, in addition to a super- visor and a buyer. He may use a fleet of fifteen trucks to service three hundred stores on an average of three times a week.1 1Nathan Kelne, "Rack Jobbers Prove Out As Merchan- disers...But Now They want Bigger Discountsi," Printers' Ink, (August 13, l95h), p. 23. 103 Essentials £2; Attaining Success igflfiggk Jobbing One of the thoughts that supermarket operators have always born in mind is their desire to maintain strong con- trol over every one of their departments. This has been particularly true of the big chain organizations. If a rack jobber is to remain in business, it is necessary for hin.to make his services so valuable to the stores that the store operators can have no doubt as to the rack jobber's useful- ness. Zimmerman, in a recent speech at the ARMI's Fifth Annual Convention, gave several ways in which a rack jobber should strive to strengthen his position: 1. The rack jobber must seek and find the new items of a fast-selling, high-turnover quality. The non-foods department should never become simply an "order-taking" department. In housewares the rack jobber must seek to glamorize the merchandise through display ideas, store demonstration, special advertising appeals, or any other sales gimmicks. The growth in sale of these items should be never ceasing. 2. The rack jobber must obtain greater efficiency in his warehousing and distribution services. As many jobbers have expanded their operations so rapidly, they have out-grown their warehouse facilities, causing them to be inefficient. This condition should be alleviated before the rack jobber can prove to the store managers that his is a low cost Operation that cannot be duplicated. 3. The rack jobber and the store managers should plan fixture and rack layouts together. The rack merchandiser should try to educate store personnel in proper maintenance of the non-foods racks. Neat appearing racks are a respon- sibility of store help as well as the rack jabbing service man. A. The jobbers should offer suggestions to their supermarket operators on premium promotions and special deals. 10h 5. In many instances the rack jobber would profit by providing more frequent deliveries and closer supervision in maintaining fully-stacked shelves. 6. Rack jobbers must continue to educate the manu- facturers in the packaging and promotional requirements of supermarkets. Ease of display and provision for impulse buying are of prime importance in supermarket selling. 7. Rack jobbers should make every effort to get the consumer to associate the manufacturer's name with each product. If a consumer can recognize the brand name as that of a particular manufacturer, he senses a certain amount of security in making the purchase. Likewise, if an immediate relationship is drawn between the product and the manufac- turer, the manufacturer's advertising has an increased effectiveness.2 2M. M. Zimmerman, "The Rack Merchandiser's Future in the Super Market,” Su or market Merchandising, (January 17, 1956), pp. h-6, an adEress. CHAPTER VII PROBLEMS INVOLVED The business life of a rack jobber is not as smooth-operating and worry-free as many individuals, espe- cially the suppliers, like to believe. Even when looking ’through one's "rosiest colored glasses," one finds the rack jobber bombarded with many complex problems which not only cause the jobber a great deal of trouble, but ultimately drive the marginal operator out of business. Probably the first person to admit this truism.would be the rack jobber himself. In this chapter the problems confronting rack jobbers have been grouped into three broad categories: (1) selling, (2) purchasing, and (3) threat of'oompetition. Selling Problems During the course of a conversation with a particular rack merchandiser, a telephone call was received by the jobber. On the other end of the line was an irate supermar- ket manager who had not received a delivery of non-foods on the previous day. Knowing that the preceding day was the delivery day for that store, the jobber proceeded to apolo- gize for the failure of his firm and said he would take the necessary action to assure the manager that the error would not be repeated in the future. From the rest of the phone 106 conversation the writer gathered that apologies mean very little in the supermarket industry: After the jobber had finished talking with the store manager, he called the service man into his office. The service man explained why the delivery was not made, the reason being that his truck would not hold anymore merchan- dise for the day's delivery. The rack jobber answered his service man by saying, "Rent a larger truck; make two trips; or do anything; but don't skip a delivery and lose our customers!"1 . Another rack jobber reported a different type of problem with his customers. This was a credit problem, wherein the stores refused to pay promptly. If the store operator could extend the time of payment, it would permit him to have less money "tied-up" in non~foods inventory, freeing this capital for other uses. This rack jobber also had trouble with the retailers when they repeatedly insisted upon taking away space originally allotted to the non-foods rack before the merchandise had ample time to sell. Other selling problems experienced by those rack jobbers who were interviewed have been listed below: 1. They (the store operators) want us to handle com- plete lines and not just the fast-moving merchandise. lstatement by an anonymous rack jobber, personal interview. 107 2. The store managers want us to stock items which we have discontinued and items we believe will not sell. (This is a popular criticism among rack jobbers, with more than half of all jobbers giving this as a selling problem.) 3. They frequently try to get us to lower our prices to "meet" competition, and still they want their same discounts. h. we just get a rack in a store, and before the mer- chandise has had a chance to prove itself, they want us to take it out. ' 5. Many of our smaller customers try to get extended credit. 6. They lack knowledge of the merchandise. They want us to lower our prices so we can sell more, but they don't realize that a lower price will not necessarily mean more net profits. 7. They expect us to deliver at irregular times. 8. When their business drops, they automatically point a finger at us. 9. The average grocery store manager holds something against us; he simply doesn't like non-foods in his store, regardless of the yield. 10. Some want to limit our space, but they still want complete displays. These are two conflicting desires impossible to satisfy. 11. Several store managers have tried to take store space away from us without giving our merchandise a chance to prove itself. 12. Here's the key to your thesis; the supermarket managers are more interested in profit percentage than they are in dollar profits. This is the rack jobber's bible; forget percentages and look at dollars. The reader should be reminded that these are some opinions expressed by several rack jobbers. Therefore, it would be incorrect to say that the selling problems experi- 108 enced by only a small minority of the total rack jabbing population are prevalent wherever rack merchandising exists. Pilferage is a problem for many supermarkets. Of course if the store purchases goods when they are brought into the store, the store loses directly when the goods are stolen. Nevertheless, the rack jobbers cannot allow pilfer- age to be very high on the goods they stock or they soon find supermarket Operators refusing to handle these non-foods. Pilferage should not be taken lightly in any part of the supermarket, according to Supermarket Nggg. Glen W. Horsley, non-foods buyer for Lucky Stores, Inc. of San Leandro, California says that a good supermarket display is "one that customers can easily see, feel, and steal."2 Harry Loessberg, Standard-Humpty-Dumpty Super Markets, Okla- homa City, said that some anti-pilferage devices were actually hindering the operator more than they helped him. He cited thebig bubble lipstick packages as an example and said that the extra amount of space taken by the new pack- age was not warranted by the money saved through reduced pilferage.3 2"Role of Non-Foods in Supers Growing," Supermarket News, (September 19, 1955), p. 30. 3Ibid., p. 31. 109 Due to the high rate of theft at least four New York supermarket chains are putting their health and beauty aids behind service counters in their newly-built stores. The loss in sales has ranged from "negligible" to 50 per cent of the volume done by a similar control group of stores. The management of these chains believed the reduction in pilfer- age and the closer control possible under a service arrange- ment would compensate for any loss in sales volume. If the volume done by health and beauty aids does not pay for the service department, other products, such as cigarettes and coffee, and such services as bottle returns might be added to cover the cost of this department.h Robert W} Mueller, Editor of Progressive Grocer, refers to pilferage as an incidental problem. Mueller says, The old pilferage bugaboo that made many dealers hesitate to install drug departments a few years ago, has all but disappeared today. It is unlikely that theft exceeds 2% of sales-~negligible in view of the 25% to 30% margin on sales.5 Another problem which puzzles many rack jobbers is one of space allotment per item, or the number of facings a particular product should receive. Horsley believes the theaith Aids Go Service to Fail Pilferage in N. Y.," Supermarket News, (July 18, 1955), p.25. 5Robert W. Mueller, "Health and Beauty Aids Sales and Merchandising Through Rack Jobbers" New York: Merchandising~ Executives Club, August 10, 1955, p. 5. (Mimeographed). 110 solution here is simple. He says that the products will find their own level in the amount of space they deserve with the better sellers getting most space.6 Mr. Pezrow, a New York broker, says that the factor which is causing the non-foods people the most trouble is the misinformation which is being given out by the non-foods salesmen. In commenting on this problem, Pezrow noted that one or two unscrupulous deals is all it takes to sour the supermarkets on non-foods pramotions.7 In merchandising various types of non-foods products each product may have selling peculiarities which do not apply to any other types of non-foods items. For instance, when selling phonograph records in supermarkets, one rack jobber was confronted with the problem of some classical records selling "like hot-cakes" while others collected dust. In the final analysis the company determined that customers buy only the records to which they have been exposed.8 Likewise, in the sale of soft goods J. Weingarten, Inc. of Houston, Texas found it necessary to introduce some of the services available in department stores in order to 6"Role of Non-Foods in Supers Growing," loc. cit. 7Ibid. 8"Supermarket Trade Takes on Records," Business Week, (May 8, 195“), PP. 46, #70 lll raise volume to expectations. As a result, the company has now offered its customers a 30-day layaway p1an.9 Purchasing Problems One of the "sore-spots" with rack jobbers who were interviewed was the question of whether or not they were receiving fair or just compensation for their services. The majority of these rack jobbers seemed to think that they were not being adequately paid. The typical responses were, "Compare our industry with any other and you'll see our margin is small!," or "The percentage given to the stores is too high compared with what we get!" One toys rack jobber said his damaged or otherwise unsaleable goods run as high as 5 per cent of his sales. Another jobber said he was not being given just compensation for all the services he renders, the high inventories he must carry, and all the capital he has tied-up in his business. 1 A single rack merchandiser, who disagreed with the others regarding the compensation problem, made the obser- vation that profits must go along with the times. He said, "Now that we can gain high turnover and volume on our goods, we can't expect our gross margin per item to be high.” Com- menting further, he stated, "A good conscientious rack jobber 9Irving Freeman, "Soft Goods Lines for the Super Market," Super Market Merchandising, (September, 1952), p. 152. ‘ 112 is always appreciated; any rack jobber who is not appreciated is not conscientious."10 Some of the difficulties which these twelve rack job- bers experienced in dealings with their suppliers have been listed below: 1. Some of my suppliers want distribution on several of their products before these items warrant the space. 2. Certain large health and beauty aids manufacturers want us to handle their complete lines even though sev- eral items within each line may have very slow turnover. In a sense, they say, "either you carry p11 or none of our products." 3. We can't depend on their shipping schedules. I may order a shipment of Easter bunnies to be shipped on March lst., and I may receive them for distribution by Mother's Day! A. Some manufacturers complain about our firm not giving their products enough promotion. 5. They are constantly bounding me to get my bills paid. How can I pay them promptly if the stores pay me 20 to 30 days late? 6. we must sell so much or they'll take away our franchise. 7. Each manufacturer wants his merchandise given the best location. 8. They don't understand supermarket selling. The manufacturer's constant threat is, "we'll go direct." 9. Manufacturers do not quote us prices which are as low as those which they quote the drug wholesalers. 10Statement by an anonymous rack'jobber, personal interview; 113 Allen Levis, ARMI's first president, says the rack jobber has the problem of educating manufacturers in the proper packaging of his products. The rack jobber must pass on information so that manufacturers will know how to package their products in such a way that they will stack easily and make striking displays.11 Another problem, says Levis, has been to raise the status of the rack jobber out of the peddler class. Still another problem has been that of obtaining enough finances to carry preper inventories and to operate efficiently.12 Other sources say that one of the thorniest manufac- turer-jobber problems is the matter of compensation. Con- sidering many merchandising activities which the rack jobber performs for the manufacturer, the rack jobber feels that he should receive more compensation. Large manufacturers doing #0 per cent of their business in toiletry goods are giving discounts to rack jobbers which are identical to those given wholesalers, food brokers, and large chains which buy direct. These manufacturers say that they are merely trying to treat all distributors and customers fairly. They do not want to favor any single buyer. ~In addition, they ask them- selves, what are the rack jobbers complaining about? They 11"New Breed of Wholesaler," Business Week, (January 23, l95h), p. as. lzlbid. 114 are doing fine. The sales manager of one West Coast manufacturer has this to say about the compensation problem: "The rack jobber's life will be a short one if he continues with his policies of trying to get extra inside discounts from manu- facturers...."13 Music Merchants, Inc. of Philadelphia, a rack jobber, reports that two manufacturers refused to do business. These manufacturers claimed that to do so would hurt their "normal" outlets. Music Merchants had proof to the contrary. This rack jobber also reiterated on the problem of his firm's inability to obtain distributor discounts of from 50 to 55 Per cent. The manufacturers who refused this firm actual wholesale prices charged the jobber at retail or about 38 per cent off list price. When the jobber must give the retailer 25 to 28 per cent, the "shoe begins to pinch."1k Manufacturers have their share of problems growing out of supermarkets' sale of non-foods. Should their present sales staff sell to the supermarkets? Should they use food brokers, sales agents, their regular jobbers, or grocery jobbers? Should they hire an expert to sell direct to the 13Nathan Kelne, "Rack Jobbers Prove Out As Merchandi- sers...But Now They want Bigger Discountsi," Printers' Ink, (August 13, l95h), p. 2h. 14"Supermarket Trade Takes on Records," _p. cit., p. 50. 115 stores? These questions are facing many manufacturers today. (There is no one answer to the problem. Conditions may vary among products as well as among various sections of the country. One thing is certain; selling to supermarkets is not something that can be done in a sales manager's spare time. I A survey of the way supermarkets purchase their non-foods might prove worthwhile. An attempt should be made to make one's selling policies coincide with the markets' buying policies. A manufacturer's selling policies must be flexible enough to adapt readily to the needs of the super- markets. Much of the success achieved in selling to super- markets depends upon the type of distribution a manufacturer adopts. If a seller is considering using his own selling force for selling to supermarkets, he must first determine whether his salesmen have the ability and skill to service. these outlets. A wholesaler or rack jobber may be the wisest choice, regardless of the seller's previous means of distribution.15 . Tppggp‘pf Competition The rack jobber has found competition quite strong l5Joseph Lorin, "What Is Hap ening to Nan-Food Lines in Super Markets?," Printers' Ink, July A, 1952), p. 21. 116 recently due to manufacturers' doing their own direct selling to supermarkets. There has been an increased amount of com- petition from other operators, and new jobbers entering the field are offering excessive discounts to attract more bus- iness. A few fringe operators are making things difficult for the more legitimate merchandisers.16 "The main problem in our industry is the every-day food peddler who goes into the chains trying to sell non-foods," stated one rack jobber in an interview. Comment- ing further he said, They ruin my business. These food peddlers do not try to maintain decent non-foods racks; therefore, they naturally can undersell us on some items-~but what a terrible reputation they're establishing for non-foods! According to _pppp Market Merchandising, the rack jobber is receiving competition from three main sources: (1) voluntary co-ops, (2) food chain buyers, and (3) food wholesalers.17 The sales manager of one company says that the amount of competition which the rack merchandiser will receive depends entirely upon the rack jobber himself. "His method of operation will be the deciding factor. A good portion of them have to mature. They must realize their own responsi- 16Nathan Kelne, lac. cit. 17"Contribution of the Rack Merchandiser," Super_ Mar- kpp_Mbrchandising, (August, 1955), p. 3. 117 bilities to their sources."18 He continues, For instance, some run a promotion on an item, and when this promotion is concluded they want to return goods in exchange for other products or for credit. This encourages some manufacturers to think about selling direct to stores, because the stores never make such requests. Another thing: The super markets pay within 10 days and most rack jobbers want 2% end-of-month terms. Sigler says that the competition which the health and beauty aids or soft goods rack jobbers experience may come from several sources. He states that any one of the follow- ing types of distributors may sell drugs or housewares or both: 1. Rack a. health and beauty aids b. soft goods 2. Drug 3. Grocery a. service b. voluntary c. soaperative A. Miscellaneous a. wagon b. tobacco c. all others20 The drug wholesaler operates on a margin of 15 per cent to 17 per cent. The grocery distributors stay in 18Nathan Kelne, __l_gp. _;_. 19Ib1d. 20Carl Sigler, "What's Ahead in Sales of Toiletries and Soft Goods in the Grocery Field," Printers' Ink, (October 23. 1953). pp. #0. #1. 118 business with such margins as: (l) cooperative, A per cent, (2) voluntary, A 1/2 per cent to 7 per cent, depending on services rendered, and (3) service, 7 per cent to 10 per cent, according to service charges.21 Possibly the rack jobber can cope with the serious problem of competing with these wholesalers by eliminating some of the services he offers the retailer. Some rack distributors are doing this and, hence, are able to offer the retailer larger discounts.22 This chapter has no more than sketched some of the problems which the writer believes to be of major importance as far as the rack jobber is concerned. Other problems relevant to advertising arrangements, pricing considerations, special promotions, exclusive franchises, department and merchandise location, types and number of items to handle, hiring and training employees, etc. will be only mentioned here. They have received more adequate treatment at other points in this presentation. lebid. 22Ibid. CHAPTER VIII RELATIONSHIPS WITH RETAILERS AND MANUFACTURERS he Supermarket's Potential- The growth of non-foods in supermarkets presently has reached phenomenal proportions. In 1955 $39.A billion annual sales volume was done in food stores.1 To obtain a better concept of the type of retail organizations handling non-foods, §pppp’Mppkgp Merchandising conducted a survey among 613 of the 1,713 new supermarkets opened for business in 1955. The following facts are indicative of the performance of the average 1955 supermarket: l. The parking lot averages 2.A3 times store size. 2. The average 1955 Super Market turned in weekly sales of 82A,3OO or $1,263,600 a year. _ 3. Sales per square foot amounted to $2.67 per week. A. The 1955 Super Market required an average of 27.3 employees. 5. The average number of checkouts in operation was 5.3 for the same typical unit. 6. Customer transactions averaged 6,500 per week. 7. Average sale per customer was $3.7A. 8. The average checkstand rings up 8A,585 in sales per week. 9. The average store employee accounts for 8A6,280 in sales per year. lRobertW. Mueller, "Food Store Sales Up 6.9% in Year Marked by Sharp Competition, Mergers, Stamp Plans," Progres- sive Grocer, (March, 1956), p. A .7 2M. M. Zimmerman, "The Rack Merchandiser's Future in the Supermarket," Super Marketherchandising, (January 17, 120 Few people doubt that the supermarket industry is big business, considering the fact that in 1953 there were some 22,000 super markets and 360,000 independents for a total of 382,000 stores in the grocery field.3 Epy Supermarkets Carry Non-Foods Before suggesting a reason why supermarkets stock non-foods, a glance might be cast at why consumers buy non-foods at grocery stores. In a consumer opinion poll the following answers were obtained from supermarket shoppers: 1. "I can get those necessary items with my weekly grocery order." . "It's easy for me to remember to buy." 3. "There is less shopping necessary. It gives me more free time." A. "It is more convenient to get them at the grocery store." 5. "I buy facial tissues wherever I happen to see them." "I think grocery stores handling these items (household and garden supplies) have a larger variety and the latest.” 7. "It is easier to buy. I have no transportation to travel all over town.”# Obviously food retailers carry non-foods because of the two'billion dollar market which has been available in the sale of this merchandise. More specifically, John Horn 1956), p. 3, maddress. 3Carl Sigler, “What' 8 Ahead in Sales of Toiletries and Soft Goods in the Grocery Field, " Printers' Ink, (October 23, 1953), p. A0. 83A Study of Non-Food Items in Grocery Outlets," BBDO Presentation, No. 15, pp. 9-29. 121 stated that rising overhead costs have induced grocery store managers to stock non-food items from which they can realize a gross profit of from 25 to A0 per cent. A rather sharp contrast can be drawn between this gross profit and a profit ranging from 17 per cent to as low as 6 per cent on food items. Furthermore, the turnover an non-foods is up because customers welcome the opportunity to purchase such items as housewares, health and beauty aids, pet supplies, and soft goods in their favorite supermarkets.5 ARM; Nggg reports a Massachusetts supermarket was selling "15 to 20 per cent of total volume" in non-foods. The store owner, Nat Kornblatt, said that the success of the non-foods department was due to the fact that ”no matter what the customers are interested in, they will find a com- plete assortment” on his service distributor-handled racks.6 Proof of the importance of non-foods to operators was obtained through a questionnaire sent to sixteen companies. These replies also indicated why supermarkets are so easily persuaded to handle non-food items or to increase their pre- sent emphasis on non-foods. Fred C. Pockrandt, Sr., presi- 5John D. Horn, "Merchandising Non-Food Items through Super Markets," Journal 2; Marketin , XVIII, No. A (April, 195A), p. 385. 6"Non-Foods in Supermarket Hit 15-20% of Total Volume," ARMI News, III, No. 12 (December, 1955), p. 3. 122 dent of the Fred W. Albrecht Grocery Company, Akron, Ohio gave the following results from these questionnaires: 1. Ten out of sixteen companies reported they increased their linear footage given to non-foods within the last year. ‘ 2. Fourteen said they plan to increase the amount of Space given to non-foods within the coming year (1956 over 1957). 3. All sixteen companies said they had increased sales in non-foods over a year ago. A. All companies reported gross profits of 25 per cent or more on sales. 5. Eleven of sixteen stated they were pushing non-foods advertising. 6. Fourteen of the sixteen companies said that non-foods definitely aided them in their merchandising p1ans.7 Table VII gives the number of health and beauty aid commodities, toothpastes, toothbrushes, baby lotions, etc., handled by various size stores. It also indicates the number of items carried within each commodity grouping. Progpessive Q5222; defines a supermarket as any store doing over $375,000 sales volume annually, a superette as any store doing a yearly sales volume of from $75,000 to $375,000, and a small store as any doing less than $75,000.8 — 7Fred C. Pockrandt, Sr., "Where Are Non-Foods Going?," Chain Store Agg, (March, 1956), pp. 68, 69, 188. - 8Robert W} Mueller, "Super Markets Did A3.5% of Total Independent Sales in 1955," Progressive Grocer, (April, 1956), P. A . 123 TABLE VII AVERAGE NUMBER OF COMMODITIES AND ITEMS HANDLED BY FOOD STORES* Number of Number Stores Commodities of Items ALL STORES 38 19A Super Markets A3 369 Superettes 39 173 Small Stores 36 129 _—_Tffi>bert w. Muelleffieaitfi anfleauty Aid Sar_—98 in Food Stores Up 50% Since 1952 " Pro ressive Grocer (April. 1951.), p. 62. ’. —-5--—--—-' 12A Table VIII gives an indication of the principal reason why grocery store managers have been so prone to carry a sizeable number of health and beauty aid items. This table gives the profit percentage which various size food stores made on drugs. It also gives the percentage made by retailers buying from rack jobbers as opposed to those not buying from rack jobbers. lhpp I; Reguired 2;; php M Sometimes the rack jobber has a legal contract in which some mention is made of the store's obligation to the rack jobber. Sometimes all that is required of the store is the provision of a certain amount of store space for the rack jobber to display his merchandise. The amount of space will vary from one rack jobber to another. In healthpand beauty aids the minimum size of the department appears to be four linear feet of floor space, which may be used in a single checkout store. For each additional checkout rack operators try to install an addi- tional four to five feet of space. The maximum for health and beauty aids is about thirty feet. Under this system a twenty-foot department with five shelves offers 100 linear feet of shelving. Dividing this footage among three hundred add items, the average amount of space per item would be six 125 TABLE VIII PER CENT MARGIN (GROSS PROFIT) CONTRIBUTED BI DRUGS AND TOILETRIES* Per Cent Margin Stores on Retail Sales ALL STORES 29.8% Super Markets 30.2 Superettes 29.A Small Stores 30.0 Stores Buying 100% of Needs from Service Wholesalers 26.A Stores Not Buying from Service Wholesalers 31.0 Stores Not Subject to Fair Trade Laws 30.3% THO Bert W. MueIIer, Health and Beauty AidSales l-— in Food Stores Up 50% Since 1952, ' Progpessive Grocer, (April, 1951?), P. 63s 126 inches.9 The restocking of those shelves may be done by the jobber's service man, store personnel, or both the service man and store help. Of the twelve rack jobbers interviewed five had their own men restock the racks; an equal number had store personnel do the restocking; while only two used both the service man and store workers. In allotting space to the rack jobber the store allows the jobber to set up special promotional displays. The use of special displays was rather widespread among the interviewed jobbers, ten of the eleven using them. For the rack jobber and the store to function as a smooth-operating unit, space is not the only requirement for the store. The two parties, and/or their respective repre- sentatives, should try working together as a team and help- ing each other whenever possible. One rack merchandiser told the writer that there are three things required of the store: (1) space, (2) recognition as a department, and (3) cooperation from store personnel. Retailers' Compensapipp In return for the privilege of using the retailer's 9Robert w. Mueller, "Health and Beauty Aids Sales and Merchandising Through Rack Jobbers" (New York: Merchan- dising Executives Club, August 10, 1955), pp. A, 51. (Mimeo- graphed.) 127 space, the rack jobber compensates the store on the basis of sliding discounts, depending on its volume of sales. Naturally, the greater discounts go to the stores which sell most merchandise. Sliding discount arrangements are used so that the stores doing the best job will not be penalized, since many of the smaller rack jobbers' stores must be serviced at greater expense.10 8 As has been stated previously in this report, the retailer receives 25 per cent and up gross margin when he employs a rack jobber. Zimmerman says that these figures actually amount to 25 per cent and up net profit rather than gross margin. He further uses simple arithmetic in saying, For every 325 profit that a Supeerarket operator receives an the sale of $100 worth of housewares he has to sell $800 worth of groceries, assuming his not profit is as high as 3 per cent before taxes.11 Further data on what the retailer is paid has been collected by Progressive Grocer from Jules Abramson, a Portland, Maine rack merchandiser. Abramson said his stores receive an average of 3 1/2 per cent of total store volume from their health and beauty aids departments. In a study on how much volume drugs should attain per linear foot of floor 10"Contribution of the Rack Merchandiser," Super Mar- .ket Merchandising, (August, 1955). p. 3, a reprint. 11Zimmerman, pp. ppp., p. A. 128 space, Abramson reports a figure of $25 to 830 per foot of department per week. Hence, a ten foot department should show a minimum sales figure of $250 a week.12 Some retailers take a rather cynical view of the com- pensation they receive from their non-foods volume. A per- sonally interviewed rack jobber, who supplies only independ- ent (single unit) stores, reported that he has about one out of 50 store managers who appreciatmslarge non-food bills. Many do not realize that large rack-jabbing bills actually mean more money to the store. The store manager's usual greeting to the rack jobber's salesmen is, "How much is it this time!" . Eppppfippegpy Considerations £95 Supermarkets At the beginning of this report the statement was made that the writer would refrain from giving any advice as to where the retailer should buy his non-foods. It still is believed desirable to cling to this resolution; however, a discussion of a few considerations on the matter might prove beneficial. Progressive Grocer submitted the question to Abram- son, asking where a food store operator should buy his health and beauty aids. Abramson, being a rack jobber, might be 12Jules Abramson, "Make More Money in Health and Beauty Aids," Progressive Grocer, (February, 195A), p. 50. 129 expected to give a biased reply to this question. To the contrary, his answer seemingly is void of bias, and to the writer of this report it appears to represent a carefully prepared, broad-minded approach to the question. Abramson says, We should hesitate to make any flat recommendations on best source of supply. The answer...depends on whether a store can perform all the functions of department stock- ing, re-stocking, maintaining correct prices, price mark- ing, allocation of space to product and brand in accor- dance with sales, correct ordering, and assume the inev- itable financial losses due to incorrect buying. A typical retailer margin offered by service whole- salers such as ourselves is about 25% of retail. If the store buys from other sources, it can realize a "paper" margin of 30% to 35%. From the difference in these mar- gins, the store must pay all the costs for the functions mentioned above... There are successful departments run solely by store personnel. And, of course, there are successful depart- ments operated by wholesalers offering our services. we leave the verdict up to the store operator--but caution him to weigh his own abilities and costs against those of a specialist...13 The Battle Between Supermarkets and Other Outlets According to Herman C. Nolen, vice-president in charge of merchandising for a large drug manufacturer, even though some ground now is being lost to the booming supermarkets, the druggists are going to win the war eventually. Nolen said the grocery stores are not making progress in selling cosmetics, pharmaceuticals, and other items which 13Ibld. 130 require service. Supermarkets do their selling in such items as dentifrices, shampoos, and some staple items which do not require service. In selling health and beauty aids the food store has used five advantages: (1) open display, (2) plainly priced merchandise, (3) departmentalization, (A) one-stop shopping, and (5) making the customer feel he is getting a bargain. Nolen reports that the retail druggists have fared well against this large-scale competition because of "friendly service, convenience in location and hours, professional atmosphere and complete stocks.”1A In addition to these four advantages, druggists can meet the competition by borrowing from the food markets such sales aids as open display, plainly priced merchandise, and departmentalization. Nolen stated that drug stores have been faced with "awesome competition" from department stores, mail order syndicates, chains, and supermarkets, but he has "whipped" them all in the drug field.15 In 1953 druggists sought other means to win back their drug trade from the supermarkets. In Michigan and New Jersey the states' pharmacy boards placed restrictions on the sale 14Herman C. Nolen, "Drug Stores Are Winnin Against Supermarkets," Advertising Age, (January 12, 1953 , p. 3. 15Ibid, p. 68. 131 of certain drug items in food stores;the list included aspi- rin, rubbing or isOpropyl alcohol, iodine, peroxide, and many others. The supermarket industry won the battle temporarily when the courts in each state said the Board of Pharmacy had exceeded its powers when it tried to ban the sale of propri- etaries, of a non-prescription nature, in food stores. The Michigan State Supreme Court said it could not see that a pharmaceutical service was being rendered in the sale of such medicines.l6 However, the New Jersey druggists were not to be denied. The Pharmacy Board appealed to the Appellate Division of the New Jersey Superior Court, asking for a reversal of the previous ruling. At the time of writing the decision of the Superior Court was still pending. While the case is being decided in court, the New Jersey Pharmaceutical Association has launched an extensive campaign to build up popular sentiment for its position by distributing a million leaflets among New Jersey consumers. These leaflets contained thought-provoking pictures and slo- gans including: 1. "would you let your butcher operate on you?" 16"Court Decisions Uphold Super Drug Sales," Super Mg;- kg; Mgzphandising, (August, 1953). PP. 132, 133. 132 2. "Don't gamble with your child's life." 3. "He's not a pharmacist!" (referring to the food store operator). A. "Remember...Any medicine potent enough to help you-~is potent enough to harm you, if misused." 5. "The place to buy drugs is in the drug store!"l7 §ppgp Market Merchandising calls these leaflets "muddy methods," "inflammatory," and "unethical propaganda." 'They were quick to point out the dangers inherent in this campaign by the Pharmaceutical Association and to offer a defense for supermarket operators. In effect, Spppp Market Merchandising suggests that the food store operator can counter the druggists by adver- tising the following features: 1. The protection afforded the customer by the Federal Food and Drug Act. 2. The consumer's right to buy where he pleases. 3. The convenience of picking up drugs in supermarkets. A. That little "professional skill" is needed to take the customer's change for patent medicines. 5. That aspirins and headache powders are dangerous, just like salt, pepper, and vinegar if they are taken in excessive quantities. 6. The availability of supermarkets in case of emergency. . 7. That the customer would be put at great inconven- ience if he had to buy all proprietaries at drug stores. This magazine also suggested that managers put up store signs quaranteeing safety and purity of their medicines. The store Operators might also put out handbills of their own or exert 17"N. J. Supers Resist Druggists' Smears ” Super Mar- ket Merchandising, (May, 1951.), p. 191.. ’ 133 proper influence upon the prOper local, county and state officials.18 In New York 2,500 druggists got together and decided on a somewhat less radical approach to combat supermarket competition. Their solution was advertising and promotion. They planned to do this advertising and promotion through newspapers and radio spot commercials. Their four-point program included: 1. Displaying the druggists' trade association's advertising emblem prominently. - 2. Pushing merchandise of manufacturers who cooperate with the druggists. 3. Tying in drug stores' advertising (windoq,point- of-sale advertising) with newspaper advertising. A. Accepting initial orders of merchandise in quanti- ties that are deemed reasonable by the drug oper- ators.19 Of course drug stores have not been the only outlets that have felt the effects of the large non-foods volume which the supermarkets have done. The public probably has heard the druggists do more "grumbling" simply because these retailers believe they have more adequate grounds for griping, i.e., the "protection" of the human life. In addi- tion to drug stores, such outlets as department stores, tobacco stores, toy shops, hardwares, and variety and con- 13Ibid., pp. 194, 195. 19"New York's Independent Druggists Back New Promotion to Meet Chain Store Competition," Advertising Age, (March 23, 1953 , p. 2. 13h fectionery shops are definitely losing would-be volume to grocery stores. Downtown department stores, in particular, not only are confronted with the competition in housewares from food stores, but they further are faced with a substan- tial loss in trade due to the growth of shopping centers. Their troubles have been multiplying, and their position has become less enviable in recent years. The following comments have been considered typical of retailers' attitudes toward non-foods. Following each comment, the type of store, the state, and the population of the metropolitan area in which the store is located have been given. Customers like our rack very much since we have a small country store. They can pick up many items here and save a trip to the city. Well known brands always sell the best. we feel that the rack jobber is far the best in obtaining merchandise. The racks take up little space at no extra cost to us--and we do not have to buy large quantities or carry dead stock... (Small Store, Se D."’P0p. 1,000) When we remodeled our store, the'customers requested that a drug department he put in. I think that the rack Jobber is the way for a store to buy his drugs because that releases him of the tax burden. I hope to make a larger and better display and that alone will sell more, especially if you can keep it full. When the display runs down, so do sales. (Super market, Ill.--Pop. 73,000) Why do some manufacturers let drug stores have first choice on new items? They should be able to see the hand- writing on the wall. Mrs. Housewife is in the grocery three or four times to every once in a drug store, and if she hears about a product she will look for it in the grocery first... (Small Store, Ind.--Pop. h,800) 135 Drugs pay for rent, lights, telephone, and water. (Super Market, 0re.--Pop. 7,600) Most profitable space in store. (Superette, Texas-- Pop. 100,000) It's our pet department. (Super Market, N.C.--Pop. 6,000)20 Results of Personal Interviews with‘gight Retailers The writer conducted eight personal interviews with retailers in the Lansing, East Lansing, Frandor, and Holt shopping districts. Four independent or single-unit stores and four chain, ten or more unit, establishments were sur- veyed. A special questionnaire (see Appendix) was prepared and was used in each interview. The purpose of this phase of the project was to gain a better perspective of retailers' thinking on rack jobbers along with the use of rack Jobbers in their operations. Originally it was thought that some differentiation in data would be distinguishable between chain and independent stores. When all the interviews were completed, it was found that chain store managers and independent store owners did not differ significantly in their viewpoints. Each of the eight stores used rack jobbers somewhere in their operations. Aside from miscellaneous food items, health and beauty aids was the department most frequently 20Robert W. Mueller, "Health and Beauty Aid Sales in Food Stores Up 50% Since 1952," Egggzesgive Grocer, (April, 195A), pp. 60, 61. . ““" 136 stocked by rack jobbers. Five stores reported they employed the services of rack merchandisers in stocking their health and beauty aids shelves. Only one store carried no health and beauty aids. Four of the six stores handling housewares used rack Jobbers in servicing this department, as did three out of five stores handling school and paper supplies. Three stores carried records, all three of these retailers using rack Job- bers in this department. . A single store used rack Jobbers in supplying their greeting cards, magazines and books, hosiery, and pet depart- ments. However, six retailers said they carried magazines and books. All food stores displayed cigarettes, but not a single establishment used the rack Jobber for its means of supply. As an interesting sideline, all eight food stores used rack Jobbers in obtaining various food products. Bread, crackers, cookies, soft drinks, nuts, and cheese were the most popular items stocked by these rack distributors. Baby foods, spices, and macaroni were also mentioned, but only once or twice. The departments stocked by rack merchandisers were all self-service departments. The rack Jobbers' service men were the persons who most frequently did the actual replenishing of the stores' shelves. 137 Most of the shelves were stocked at regular weekly intervals. The most common day for restocking was Monday. All of the retailers interviewed had favorable atti- tudes toward rack jobbers. Likewise, the response was unan- imously favorable when the retailers were asked, "If you had your choice, would you use rack Jobbers?" The most common reasons for their friendly attitudes toward rack Jobbers included: 1. "They mean less bother to me; my help and I are free to do other things." 2. "They know the merchandise better." 3. "Rack Jobbers rotate my merchandise." A. "My operating costs are lower." 5. "They assume much of the risk of poor sales." All but one of the store operators believed rack Job- bers are here to stay as long as they continue their services. Two operators qualified their prediction of a bright future for rack jobbers by saying, much of their future depends on the attitude of the labor unions toward them...if the unions decide that rack jobbers are taking too much work away from my employees, they may clamp down on my use of rack jobbers. The one retailer who thought the rack Jobber was only a temporary means of distribution said he believed that his regular wholesaler soon would begin to supply his store with non-foods merchandise. All his supplier would have to do would be to include this non-foods merchandise along with his regular deliveries. Furthermore, this store operator said that his drugs rack jobber agreed with this outlook for Jobbers. CHAPTER IX CURRENT DATA COLLECTED FROM SEVENTY-SIX RACK JOBBERS-rA SURVEY General Information This chapter has been reserved for an interpretive resume of the results of a mail questionnaire which was come pleted and returned by 6A rack jobbers. Many questions which were asked these Jobbers by mail also were presented to the twelve Jobbers who were personally interviewed. Where this was the case, the total number of jobbers replying is 76. These seventy-six jobbers were drawn from a total population of 237 Jobbers in the Northeastern-northcantral part of the United States. The exact coverage of states is given in Chapter I. The addresses of the total jobber popu- lation in this area were obtained from the following three sources: 1. Natégggchirggggfig’ofd%%§%hgobbe : (1955), Gale 2. Membership Active and Associate (July 1, 1955), o etry Merchandisers IssocIation, New York, New York. 3. ARMI Directo and BuEers Guide (December 20 I955), American Rac ercfiandisers Institute, Chicago, Illinois. A further listing of the data discussed in this chap- ter has been given in the Appendix. The average number of years that a single rack Jobber 139 had been in the wholesaling business was 12.7 years. The average rack jobber had been operating as a service mer- chandiser for 7.0 years. Fifty-three per cent of all the contacted distributors were doing only service merchandising. Forty-seven percent were doing other types of wholesaling in addition to their rack operations (also see Tables IV and XVI in the Appendix). Table IX shows the distribution of rack jobbers by number of grocery stores serviced. In the questionnaires these rack jobbers were also asked to indicate the total number of outlets they serviced including their grocery stores. The results of this tabulation are given in Table X. Fifty-five per cent of all the rack Jobbers had from 100 to #99 accounts representing all types of retail accounts. Sixty-two per cent of the jobbers serviced a total of from 100 to A99 accounts representing only ggocery stores. The average for a single jobber of all types of stores was 1,089 stores serviced. This total is astonishingly high because two jobbers reported 30,000 and 12,000 stores serviced. The 1,00A average for food stores only likewise was high with the same two Jobbers reporting 28,500 and 12,000 food stores respectively. If these two abnormally high figures are excluded from the computations, the average figures for all types of stores and for food outlets only are lowered to 528 stores and 359 stores respectively. 140 TABLE II NUMBER OF ALL TYPES OF STORES SERVICED BY SEVENTY RACK JOBBERS* Number of Number Servicing Stores Serviced All Types of Stores Less than 50 3 50 to 99 3 100 to 199 15 200 to 3A9 13 350 to #99 10 500 to 7A9 8 750 to 999 5 1000 to lhh9 6 1500 to 1999 3 2000 or over % Total Respondents -.f §Source:Personal interviews and mail questionnaires 1L1 TABLE I NUMBER OF GROCERY STORES SERVICED BY SEVENTY RACK JOBBERS* Number of Number Servicing Stores Serviced Grocery Stores Less than 50 3 50 to 99 5 100 to 199 18 200 to 3A9 13 350 to A99 12 500 to 7A9 6 750 to 999 h 1000 to lhk9 3 1500 to 1999 2 2000 or over 5 Total Respondents ”‘ource: 'ersona :terv ews an- ma quest onna es 1&2 Two-thirds of all rack jobbers employed 9 salesmen or fewer. Sixty-four per cent had 9 workers or fewer in their ‘warehouses. Sixty-four per cent used 0 to h people in their offices, and two-thirds employed 0 to 3 supervisors. Some rack Jobbers used other miscellaneous help which included buyers, drivers, set-up men, advertisers, chauffeurs, part- ners, owners, garagemen, and administrative personnel (also see Table XVII in the Appendix). The method of salesmen's compensation was quite inter- esting. Table XI gives this tabulation. Table XI illus- trates quite well the decreasing importance of the commission payment plan for salesmen, a plan so often discussed in mar- keting literature. Relationships w Grocery £222.93 The majority of all rack jobbers who carried health and beauty aids, housewares, toys, school and paper supplies, phonograph records, and a miscellaneous group of items stocked them on a weekly basis. Greeting cards and soft goods usually were stocked at two-week intervals, while of the two rack Job- bers handling tobacco products, one stocked his shelves twice a week, and one stocked his on a weekly basis (also see Table XIX in the Appendix). Disregarding the type of merchandise, the frequency with which the rack merchandisers stocked the majority of their accounts was once a week. Fifty-five per cent stocked 11+3 TABLE II TYPE OF SALESMEN PAYMENT PLAN USED* method of Payment Used % Using Salary-plus-commissions 39% Straight salary 3A Commissions (with or without draw) 18 More than one plan g Salary plus bonus Total 155% _-C 5Source: PersonaI interviews and mail questionnaires lhh most of their stores weekly, 3k per cent every two weeks, seven per cent twice a week, 3 per cent more frequently than twice a week, and l per cent less frequently than once every two weeks. Table XII indicates the percentage of rack jobbers carrying one or more types of non-foods. Although there is considerable overlapping in product lines, one-third of all jobbers carried only one line of products. Better than one-half handled not over two lines. , A tabulation was performed to determine which group or groups of products were the most frequently carried. Health and beauty aids were stocked by 59 per cent of all rack jobbers. School and paper supplies were carried by #5 per cent. The top five product classifications also included: (1) housewares, with A2 per cent stocking, (2) toys, carried by Al per cent, and (3) records, handled by 23 per cent of the Jobbers. A typical rack Jobber dealing in health and beauty aids stocked an average of #15 stores. In school and paper supplies the average was 288 stores; in housewares the aver- age was 275. The average for toys turned out to be 199 stores, and for records it was 185 stores (also see Table XVIII in the Appendix). Some information was gathered on the types of stores which used these rack merchandisers as their source of supply. 1h5 TABLE III PER CENT 0F JOBBERS CARRYING ONE OR.MORE GROUPS OF PRODUCTS* ** Number of Product Percentage of Rack Groupings Handled Jobbers Handling 1 33% 2 22 3 19 2 12 6 1 7 l 8 l W *Source: Personal interviews andfimail questionnaires **Product groupings include: Health and beauty aids, housewares, greeting cards, toys, school and paper supplies, records, magazines and books, tobacco products, and a miscellaneous group of products. 11.6 Each Jobber was asked what percentage of his business (annual sales volume) was done with chain as compared with independ- ent grocery stores. A chain was defined as any organization with four or more retail outlets, while an independent was one having three or fewer outlets. The same question was asked in reference to supermarkets, stores doing annual sales volume of $500,000 or over, as opposed to non-supers, stores doing less than $500,000 volume yearly. The results are given in Tables XIII and XIV respectively. Table XIII shows that 2A per cent of all rack Jobbers were not conducting any business with chain supermarkets. It also points up the fact that 62 per cent of the Jobbers were doing less than A0 per cent of all their business with chain type food retailers. These two facts seem to substan- tiate the theory expressed by many people familiar with rack Jobbing, i.e., rack jobbers are "stronger" in the independent retail outlets. The data in Table XIV indicate that rack Jobbers, as a whole, were not doing much greater volume of business with supermarkets than with non-supermarkets. The conclusion can be deducted that 6 per cent of the Jobbers were not doing any business with stores of $500,000 or more annual sales volume, while 8 per cent were dealing exclusively with these large-size stores. Three-fifths of all jobbers had their own men do the 1&7 TABLE XIII AMOUNT OF BUSINESS DONE WITH CHAINS* Percentage of Business Percentage of Rack Done with Chains** Jobbers Responding 09; 21.76 1 to 19 21 20 to 39 17 #0 to 59 8 2° w a: 1: 0 to 100% Total 158% ;Source: PersonEI IEtervIews and maII questionnaires **Chains are defined as organizations with four or more stores. th TABLE XIV AMOUNT OF BUSINESS DONE WITH SUPERMARKETS* ( Percentage of Business Percentage of Rack Done with Supermarkets** Jobbers Responding 0% 6% 1 to 19 21 20 to 39 15 A0 to 59 16 60 to 79 7 80 to 99 27 100% 8 Total IOO% isource: Personal interviews and mail questionnaires **Supermarkets defined as stores obtaining an annual sales volume of $500,000 or more. 1A9 actual restocking of the grocery stores' shelves. Only A per cent relied upon store personnel to perform this restocking task, while 36 per cent used both their service men and store help in replenishing the shelves. Only 2 per cent of all jobbers reported operating on a consignment basis in selling the goods to the store. Eighty-three per cent said they never sold on consignment, while 15 per cent stated they sometimes entered into consign- ment selling arrangements with their customers. Every rack jobber responding indicated that he followed the practice of taking back merchandise from the store. A host of reasons were given by these jobbers for allowing goods to be returned. A partial list of these reasons and the per- centage of rack Jobbers giving each reason would include: 1. "Not selling fast enough--slew movers." (66%) 2. "Damaged or broken merchandise." (55%) 3. ”Seasonal merchandise." (23%) A. "Out-of-date--obsolete.' (1A%) 5. "Unsaleable." (1A%) 6. 'Soiled." (11%) 7. "Need space for other items." (A%) 8. "Package change." (A%) 9. "wrong locality for item." (A%) 10. "Sales saturation." (A%) From the foregoing list of reasons and the fact that all rack Jobbers have taken back goods, it is possible to see the importance which these enterprisers place upon stock rotation. The question of the average time period covered by the contract between the store and the rack Jobber was submitted 150 to the 6A jobbers who returned the mail questionnaires. Sixty-four per cent of the questionnaires indicated the job- ber had no contract between himself and the stores. Included in this percentage figure were 19 questionnaires on which the question was left unanswered. It can reasonably be assumed that those not responding to this question had no contract 'with the stores. Hence, the majority of the jobbers did not have contracts which involved a period of time. Of the 23 jobbers who had contracts A0 per cent said their average contract ran for a two-week period; 26 per cent reported a time period from 26 months to one year; 17 per cent had "indefinite" time periods; 13 per cent had one-week contracts; and A per cent (one jobber) had an average con- tract covering one month. In attempting to learn of some of the rack jobbers woes and dissatisfactions, the question was submitted as to whether or not grocery store managers ever asked unreasonable things of the rack jobber. Forty-nine of the 76 rack jobbers answered in the affirmative. Twenty-seven did not experience this sort of difficulty with the stores' managerial personnel. The unreasonable requests which were made by the store mana- gers and the number of jobbers complaining about the requests would include: 1. ”Ask for promotional gifts, samples, advertisin , discounts, and display." (8 jobbers reporting 2. "Want an item that won't sell." (6) 3. "want too frequent service." (6) 151 A. "want to return merchandise purchased from other sources." (A) "want extended credit." (3) . "Want item to sell immediately." (3) . "Give us less space.” (3) . "Restrict our delivery." (3) 9. "Want rush hour servicing." (2) 10. "Expect us to re-do a rack within a moments notice."(2) 11. ”All kinds of requests." (2) 12. "Want us to overstock." (2) 13. "Simply don't like non-foods--period1" (2) Relationships with Suppliers Fifty-one per cent of these rack distributors expres- WNI O‘U’c sed dissatisfaction with the requests made of them by some of their suppliers. A complete list of the unreasonable things requested by the suppliers and the number of jobbers listing the request has been given below: 1. "Pressure to overload." (10 jobbers reporting) 2. "Want more and better space on shelves." (8) 3. ”Ask for promotion on items not worthy of any more promotion." (6) A. "Want us to carry all sizes or styles." (6) 5. "Want us to take on unprofitable merchandise." (5) 6. “want us to promote beyond our means." (3) 7. "want us to test 'brain-storm' products for them." 2 . . 8. "Miscellaneous," "dictate policy to us," "ask us to return the items at our expense," "want immediate price changes," "mouthy," and "demand that we pay promptly.” (one jobber reporting each request) An indication of the increasing importance of rack jobbers is seen in the fact that 80 per cent of all the con- tacted jobbers service more grocery stores now than two years ago. .Nine per cent reported no increase or decrease in their 152 number of accounts, while only 11 per cent thought they pres- ently are supplying fewer stores than they were in 195A. The percentages were even more favorable in respect to sales volume. Eighty-seven per cent experienced an increase in volume since 195A, 8 per cent thought their volume had remained relatively stable; and the remaining 5 per cent had suffered a decline in sales volume over the same period of time. The jobbers reporting a decrease in their sales volume gave the following reasons for the decline: 1. Fewer stores in the same territory. (3 jobbers reporting) 2. Chains buying direct. (2) 3. Less display space available. (1) A. Lack of money in the locale due to strikes. (1) 5. New competition.(1) 6. Fewer items handled. (l) The jobbers reporting an increase in volume over the last two years gave as their reasons: 1. Increase in the number of stores supplied within present territory. (AA reporting) 2. Increase in the amount of display space available in the stores. (37) 3. Increase in the size of the line of merchandise handled. (29) A. Increase in the size of territory. (23) 5. Miscellaneous--more promotional effort (2), better ackaging (1), stores doing higher percentage 1), and more cooperation from store managers (1). Various Cross-Tabulation Analyses There seems to be a rather strong relationship between the jobbers who experienced a decrease either in the number 153 of stores supplied or the volume of business done over the last two years and the type of stores they were supplying. Only 15 per cent of these rack jobbers were doing most of their business with chains, as compared with 85 per cent who depended more upon the independent food stores for business. This could mean that these jobbers have lost some of their chain accounts, and hence, their volume has declined; or it could mean that the jobbers serving independents have experi- enced less success than those serving chain stores. An even larger percentage of the jobbers experiencing a decline in business did most of their sales volume with non-supermarkets, or stores of less than $500,000 annual volume. Here the figure was 91 per cent compared with only 9 per cent who had the majority of their accounts in the form of supermarkets. A cross-tabulation was prepared on the number of jobbers whose sales volume remained the same or decreased since 195A and the number of stores serviced. All but one of the nine, who stated their volume to be decreasing or remaining stable, supplied a number of grocery stores that was less than the average number (359) supplied by all jobbers. This seems to substantiate the old cliche that "size is the secret of success," or that "the rich get richer and the poor get poorer." Of the 23 rack jobbers who had contracts of any time 15A duration with the stores, 20 were doing the majority of their business with independent type stores. One may conclude from this cross-tabulation that chains are less inclined to enter into contractual agreements with rack jobbers. An analysis of the number of salesmen and the number of stores was conducted. As expected, the relationship between the number of salesmen and the number of stores supplied was rather pronounced, i.e., when more stores were serviced, a proportionately larger number of salesmen were employed (see Table XXI in the Appendix). The question of which factor is the cause and which the effect must go unanswered, although it would be the writer's guess that the number of stores would determine the number of salesmen employed, since these men are probably more "service men" than they are "salesmen.” The average number of accounts serviced by one salesman was 8A. ' It also is interesting to note the relationship between the number of years a distributor had been in opera- tion as a rack jobber and the number of grocery stores ser- viced. Again there is a close relationship, with the jobbers who serviced the larger number of stores being in business as service merchandisers a longer period of time (see Table XX in the Appendix). Apparently one entering the service merchandising business cannot expect to "gain success over night." 155 The number of years an establishment had operated as a rack jobber seemed to have no significant effect upon the upward or downward trend in the jobber's volume of business. Likewise, no startling results were obtained from running cross-tabulations between: (1) frequency with which stores “were stocked and length of time in business, (2) frequency with which stores were stocked and contract arrangements with stores, (3) method of compensating salesmen and number of salesmen, (A) number of years in business as a wholesaler and number of years in rack merchandising, and (5) type of merchandise stocked and contract agreements with stores. CHAPTER X SUMMARY AND CONCLUSIONS Analypical Approach The object of this study was to analyze the past, present and expected future Operations of a comparatively new type of wholesaler known as a "rack jobber" or "service merchandiser" so that a more concrete concept of this middle- man would result. Both secondary data and primary data were used in approaching the problem. Primary data included information obtained from a dozen rack jobbers and eight grocery store managers, who were personally interviewed, and some 225 jobbers who were mailed mimeographed letters and questionnaires. These questionnaires contained information pertaining to age and size of the jobbers overall operations, his relationships with retailers, his relationships with his suppliers, and the growth in his operations. Supermarket Qperations Many problems have confronted the grocery store entrepreneur since the evolution of the food store from the old-time general store to the beautiful new supermarket of today. The advent of the supermarket along with its self-ser- vice type of operations brought problems in relation to dis- play techniques, packaging considerations, pricing methods, pilferage control, advertising techniques, purchasing con- 157 siderations, lower profit margins, and many other areas. As the cash register tapes grew longer and turnover grew larger, competition grew stronger and profit margins grew smaller. As far as the supermarket operator was concerned, the first two points pleased him immensely, but the competi- tion and lower margin considerations caused him a great deal of concern. Many managed to keep their doors open through the darkest periods; others were not so fortunate. A M Blessing £93 .MEEI“§2£'M° Those operators who stayed in business were seeking solutions to their dilemma. Many learned the "hard way" to cope with their packaging, displaying, and pricing problems. The problem of low profit margins was met by many with the inception of non-foods in their markets. Non-foods, with a gross profit of 25 per cent to 35 per cent, was a "far cry" from the gross profits ranging around 17 per cent on food items. Furthermore, non-foods were a "natural" for the super- market. One important factor favoring the sale of non-foods in grocery stores was the change which has taken place in con- sumer buying habits. As the housewife makes two or three trips to the food store in an average week, it is only nat- ural for her to purchase her non-food necessities upon seeing them displayed in her store. Thus, impulse buying and con- venience of purchase are big factors in the sale of this mer- chandise. 158 The life-saver had arrived for the supermarket oper- ators! But the majority of these chaps were not familar 'with the pecularities of non-food merchandising. In addition, many learned that their warehousing, delivering, and stocking facilities were not equipped to do an adequate job of merchan- dising for such products as housewares, toys, health and beauty aids, soft goods, school supplies, and phonograph records. gpg‘gppg Solution-eipglgppk_ Jobber. The supermarket operators saw the possibilities of non-foods in their stores. Many realised the possibility of achieving little or no suc- cess when trying to merchandise these items themselves. Although a bit leery at first, these operators began to see the advantages of turning their non-food departments over to an "expert in the field," a rack jobber. In effect, the rack jobber has given the supermarket another department, i.e., non-foods. He maintains this depart- ment without troubling the store's personnel. The store man- ager is relieved of the responsibility of caring for his non-foods. Furthermore, the profit margin he offers the retailer is very attractive. As a rule, the store provides two things: (1) store space, and (2) collecting the custoe mer's money. Functions ppd Services Performed. The rack jobber is 159 performing a great service for the retailer when he pur- chases the goods from a multiplicity of manufacturers making all types of products. ‘Wise discretion is of utmost impor- tance if the goods that are bought are to attain successful sale through the supermarket. If these rack merchandisers are to be successful, they must make every attempt to obtain the goods which consumers will buy. Rack jobbers are assuming a risk when they guaran- tee the store that, in the event of poor sales performance, the poor sellers will be replaced by other merchandise. After the goods have been bought, they are stored temporarily in the jobber's warehouse until such time as they are used to "fill an order.“ Frequently the prices are marked on the merchandise before it leaves the warehouse. However, the manufacturer usually establishes the price of a product either through Fair Trade or through his suggested price lists. Dividing large shipments into one or two dozen units, stock control, salvage of returned merchandise, and preparing goods for shipment are common duties being executed at the jobber's warehouse. Transporting the goods from the warehouse to the store's door is another function. It is not uncommon for a jobber to have a fleet of trucks which will service the stores anywhere from.three times a week to once a month. Most jobbers extend their services further by actually putting the goods on the 160 non-foods racks in the stores. Even the racks are loaned to many retailers by their jobbers. In addition, special display fixtures are provided the stores. Dump, table, and shelf extension displays have gained wide-spread popularity as types of special display fixtures. Rack jobbers have taken an active part in supplying manufacturers with market information. Likewise, much help is given the store operators in this respect. Package specifications, size and nature of consumer demands, promo- tional advice, and pricing suggestions are included in the service which the jobber gives his suppliers and customers. The two associations of rack jobbers, the American Rack Her- chandisers Institute and the Toiletry Merchandisers Associa- tion, have acted as clearinghouses for market information. If one rack jobbing service could be singled out as being the most valuable, it probably would be stock rotation. When a product does not sell in one locale, a jobber replaces it with another product. The poor seller may then be placed in another store where the sales results may be reversed. Other services which are performed by many jobbers include: (1) filing of excise tax reports with the govern- ment, (2) advertising, (3) seasonal promotions, (A) making shelves and merchandise presentable, and (5) complete hand- ling of all records on shipments and receipts. 161 szgp,pg Merchandise Handled. Rack jabbing is not limited to non-foods. Soft drinks, bakery products, and potato chips are placed in many grocery stores by rack jobbers. However, this study has been limited to non-food merchandise. The most popular non-foods in which rack jobbers specialise are drugs, housewares, toys, paper products, magazines and books, records, appliances, soft goods, greeting cards, jewelry, pet supplies, tobacco products, and garden utensils. The individual items which are selected for display must sell themselves. Impulse buying plays a dominent role, as does national advertising and brand name. The products receive little or no sales push from the store personnel; therefore, many writers have said that this merchandise must be "preseld." Problems Encountered. One of the main problems which rack jobbers have with their suppliers is that of compensation. The rack jobber maintains he should receive larger discounts than regular drug or housewares distributors because of the services he performs for his suppliers. The suppliers, who are usually manufacturers, contend that they would be dis- criminating unduly if special concessions were given. The jobber claims the manufacturers are putting a great deal of "pressure" on them to carry complete lines. Some say they cannot depend on the manufacturers' shipping schedules. Others report that some manufacturers refuse to \ 162 deal with their concerns because of the possible repercus- sions from druggists, department stores, and hardware retail- ers. ‘ On the selling side of the picture many problems also arise. Retailer demands for extended credit, larger percent- ages, increased deliveries, less space, more products, lower prices, immediate success of an item, and faster turnover are not only contradictory but frequently outright impossible. Other selling problems perplexing rack jobbers concern pilferage, space allotment, promotion, pricing, returns, and store managers' lack of concern. Competition has been a problem to many jobbers. Some chains are buying direct from manufacturers. Others are pur- chasing their non-foods from regular drug or housewares wholesalers who offer only a few services. Others have joined cooperative buying organisations. Some buy from their food salesmen who handle non-foods incidental to their food products. fiffppp,§pppmgppgp,Outlets. The retail druggists have felt the effects of the sale of drugs in supermarkets. To rid themselves of the supermarket curse they have tried several means, including legal action, various forms of pres- sure on manufacturers, and "inflammatory" advertising methods. Undoubtedly the druggists' sales volume in this merchandise has declined proportionate to their other sales as evidenced 163 by the old cliche, ”When something begins to hurt, people begin to holler." - Although department, hardware, variety, and tobacco stores have voiced their disparagement less publicly, they have suffered in sales volume since the inception of cigar- ettes, toasters, and kitchenwares in supermarkets. _D_9_e_s_ 19113 M gpppgp 931g; M? The answer to this question can be approached from two points-of-view, i.e., margins or services. It is between these two "forces" that a rack jobber must establish some point of equilibrium. He has the choice of offering the retailer more services and lower gross margin percentages or offering larger percent- ages and fewer services. "The candle can't be burned at both ends," or the rack merchandiser may find he is operating in the red or out of business. It would be desirable for some retailers to receive larger percentages in lieu of services. Some feel that they can provide some of the services such as shelf restocking, pricing, displaying, etc. cheaper and better than their jobbers. Others may maximise their total net profits from non-foods by having the rack jobbers perform more services and reduce the retailers' take accordingly. If one were to submit a generalization about all rack jobbers, it can be said that these distributors should offer more services to the smaller grocery establishments. This 16A would necessitate a decrease in the amount of discount given these retailers. The contrary should prevail when speak- ing of large chain organizations. Therefore, the problem is not simply one of offering more or less; it is a question of putting two factors together in the proper combination. The rack jobber must realize that he is dealing with a heterogeneous group of customers and that there is considerable variance in the needs of these retail- ers. It is imperative that the jobber look upon his customers as individuals rather than masses. Only in this fashion will both the profits of the jobber and the profits of the retailer be maximized. Fppppp Prediction A From personal associations with numerous rack jobbers and after a perusal of the available literature in the field, the writer predicts that rack jobbers will at least maintain their present position and quite possibly continue to increase the size of their business-~both volumewise and percentage- wise. This general prediction will be made more specific and will be somewhat qualified in the next few paragraphs. In the successful sale of non-food items in super- markets an\ important consideration is the service which these products must receive. It is difficult to say just how important rack jobbing will be five or ten years from now. It seems to the writer that the type of merchandise is 165 a decisive factor in determining when, where, and to what extent rack jobbers will be used. Also, of course, much depends upon the rack merchandiser himself. If the merchandise requires a good deal of rotation due to seasonal demand, infrequent purchase, or impulse sell- ing, then it appears that a supermarket operator may well maximize his profits in these non-foods by using a service distributor. Housewares and toys are indicative of this type of merchandise. If the merchandise is purchased regu- larly and is not of a seasonal nature, many stores, espe- cially established chain organizations, can benefit through buying direct from the manufacturers or "non-service" whole- salers. Such items as toothpaste, shaving creams, hair preparations, and baby needs are indicative of the latter type of products. The rack jobber may find his popularity in the larger chains declining in the future. In fact, it is believed that the relationship of these chains with the drug rack jobber is presently in a period of transition. These chain organ- izations are of a magnitude which enables them to establish their own warehouses, delivery service, and servicing of the non-foods racks within their stores. It has taken them a period of several years to gain the necessary experience with non-foods, but once this has been obtained there is little reason for them to hesitate in operating their own 166 non-foods departments. As was stated previously, the pro- nounced trend in this direction will be seen in the health and beauty aids field. In housewares these chains may gain a higher profit percentage by going direct, but they may encounter lower net profits in so doing. In the smaller supermarket chains and the single-unit independent stores the rack jobber will continue to receive wide-spread use. Many small manufacturers use selling agents or manufacturers' agents for the distribution of their pro- ducts because they cannot afford to maintain salesforces of their own. Similarly, the smaller supermarkets will tend to use rack jobbers because they cannot afford to establish warehouses, hire skilled personnel, contact the many sources of supply, etc. For the small independent food store the rack jobber is the most economical way of obtaining non-foods. Hence, its profits are maximized in this fashion. Again it should be stressed that the foregoing several paragraphs represent only predictions of what might happen. The intent of these remarks is ppp to recommend one source of supply over another for any particular food store, for there are many factors which enter into this decision-making pro- cess. Furthermore, the choice itself is to be made by the store’s management after a careful survey of the ramifications of each alternative. BIBLIOGRAPHY 168 BIBLIOGRAPHY A. BOOKLETS Anon. "Non-Food Volume through Point-of-Sale Display," American Rack Merchandisers Association, pp. 1-13. Anon. "Product Packaging for Self-Service," American Rack Merchandisers Association, p. 3-5. B. PERIODICALS Abramson, Jules. "Make More Money in Health and Beauty Aids,” Progressive Grocer, (February, 195A). PP. A5-50. Anon. 'ARMI Head Predicts Rack Sales Will Top $100,000,000 1353)3’" Advertising 5gp, XXIV, No. 36 (September 7, s P0 v Anon. "ARMI Makes Point-by-Point Rebuttal of Weiss Indict- ment of Rack Jobbers," Advertisin ‘ggp, XXV, No. 5 (February 1, 195A), pp. 2, I25. Anon. "Contribution of the Rack Merchandiser " Super Market Merchandisin , (August, 1955), p. 2-A, a reprint. Anon. "Court Decision Uphold Super Dru Sales " Su er Market Merchandisin , (August, 1953 . pp. 132, Anon. "Finds Plastics Hike Supermarket Sales by Rack Jobbers," Advertising Agg, (July 19, 195A), p. 59. Anon. "How Can Housewares Best Be Served7," Super Market Merchandising, (April, 1952), pp. 9A-97. Anon. “Meijers Non-Food Sales Jump 300%,“ Sn e Market Merchandising,.(March, 1956), pp. 53, 5 . Anon. "New Breed of.Wholesa1er," Business Week, (January 23’ 195“), pe 41-h29 h“. Anon. "N. J. Supers Resist Druggists' Sméars," Su er Market Merchandising, (May, 195A), pp. 191, , 195. Anon. "New York's Independent Druggists Back New Promotion to Meet Chain Store Competition," Advertising Age, (March 23, 1953), p. 2. . 169 Anon. "1955 Reached New Peaks in Sales And Stores," Super Market Merchandisin , (January, 1956), p. 37. Anon. "Non-Foods Jump to Major Rank," Su er Market Mer- chandisin , (January, 195A), pp. 36- . Anon. ”Pioneered Drug Racks in Grocery Stores," Printers Anon. "Rack Jobbers Do a 3100 Million Volume Handling Supermarket Housewares,” Business Week, (September 5, 1953), p. 52. Anon. "Supermarket Trade Takes on Records," Business week, (may 85 195“): PP- L69 #7. Freeman, Irving. "Soft Goods Lines for the Super Market," Super Market Merchandising, (September, 1952), p. 152. Gralla, Lawrence. "Do's and Dont's for Supermarket Boxes," American Boxmaker, (September, 195A), pp. 10, ll. Horn, John D. "Merchandising Non-Food Items through Super Markets," Journal 2; Marketin , XVIII, No. A (April, 195A). 380-335. Kelne, Nathan. "Rack Jobbers Prove Out as Merchandisers.... But Now They want Bigger Discounts," Printers' ka, Levis, Allen. "Rack Jobbers Seek New Three for Supers: Can Your Line.Meet Their Specifications?," Sales Mana ement, (October 15, 1953), pp. 78-80. , Lorin, Joseph. "What Is Happening to Non-Food Lines in Super Markets?," Printers' Ink, (July A, 1952), p. 21. Marks, Hal. "How we Spur Profits from Drugs and Sundries " Super Market Merchandising, (October, 1952), pp. 67-7 . Mueller Robert W. "Food Store Sales Up 6.9% in Year Marked by Sharp Competition Mergers, Stamp Plans," Progressive Grocer, (March, 1956), p. A6. Muelésr, Rogergog.sfl:Heaiggzapd Beauty Aid Sales in(Food ores D co Erasrssaiza.firecsr April 195A), p. 57. 60e63. ’ ’ ’ 170 .Mueller, Robert W. "Super.Markets Did A3.5% of Total Independent Sales in 1955,u Progressive Grocer, (April, 1956 3 Po #60 Nolen, Herman 0. "Drug Stores Are Winning Against Super- markets," AdvertisingIAgg, (January 12, 1953), p. 3. Pockrandt, Fred 0., Sr. "Where Are Non-Foods Going?," Chain Store 552: (March, 1956), pp. 68, 69, 18 . , Sigler, Carl. "What's Ahead in Sales of Toiletries and Soft Goods in the Grocery Field," Printers' Ink, (October 23, 1953), pp. A0, A1. . weiss, E. B. uNon-Foods in Su er Markets Require Stock Rotation," Printers' Ink, August 8, 1952), p. 29. Weiss, E. B. "Non-Food Volume of Food Supers Fog Food Consumption Picture," Advertisin. 5gp, XXV, No. 31 (August 2, 195“), po 10 e - ‘Weiss, E. B. "Where Does the Rack Jobber Stand? " Adverti- sing 5gp, XXV, No. 2 (January 11, 195A), p.- 8- . Zimmerman, M; Me "Why Super Markets Use Rack Jobbers,” Sales Management, (October 15, 1952), pp. 108-111. C. DIRECTORIES ARMI Director gpg Bu ers"Guide (December 20, 1955), Amer- ican ack Merchan sers Institute, Chicago, Illinois. Membershi Active and Associate (July 1 1955) Toiletry erc disers I§§ociation, New York: New Y6rk. . National Director 2; Rack Jobbers (1955), Gale Research ompany, o umbus, o. D. BULLETINS Anon. "Non-Foods in Supermarket Hit 15-20% of Total Volume," ARMI News, III, No. 12 (December, 1955), p. 3. Anon. ARMI News, IV, No. 12 (December, 1955), p. 1,A. Anon. ARMI News, IV, No. 1 (January, 1956), p. 1, 2. I. a. a. 171 Anon. ARMI News, IV, No. 2 (February, 1956), p. 2. Anon. ARMI News, IV, No. 3 (March,.l956), pp. 2, 3. Anon. "Distributors Counsel Manufacturers: 'Right Pack- aging' Key to 'Super' Sales," ARMI News, IV, No. 3 (March, 1956), p. 2.~ . Anon. "Non-Foods in Supermarket Hit 15-20% of Total Volume," ARMI News, III, No. 12 (December, 1955), p. A. Anon. “Pro-Thanksgiving Article Quotes wesco Sales Predic- tion,” ARMI News, III, No. 12 (December, 1955), p. A. Hoying, L. H. "Kroger Official in Virginia Credits ARMI Distributor for Bi Housewares Sales," ARMI News, IV, No. 3 (March, 1956 , p. 1. Jackson, J. H. "ARMI Service Distributor Saves Profits by Cuttin Costs, Chain Executive Says," ARMI News, IV, No. 2 February, 1956), p. 2. Pockrandt, Fred C. "Why I want Service Distributor for Non-Foods in Su er Market,“ ARMI News, III, No. 12 (December, 1955 , p. 1. Super Market Merchandising, (October, 1955), an ARMI adver- tisifig Broc ure, p. . . Zimmerman, M. M. ARMI News, IV, No. 2 (February, 1956), p. 3, an address. E. ADDRESSES Mueller, Robert H. "Health and Beauty Aids Sales and Mer- chandising through Rack Jobbers," New York: Merchan- dising Executives Club, August 10, 1955, p. 2, 3, 5, 6-10. (Mimeographed.) Zimmerman, M..M. "The Rack Merchandiser's Future in the Super Market," Chicago: Fifth Annual Convention of ARMI, January 17, 1956, p. 1-6. 172 F. NEWSPAPERS Anon. Supermarket News, (November 3, 1952), p. 6. Anon. "Health Aids Go Service to Foil Pilferage in N. Y.," Supermarket News, (July 18, 1955), p. 25. Hess, Dan. "Panelists Vary on Non-Foods Buying, Selling," Supermarket News, IV, No. 38 (September 19, 1955), p. 31. G . WRITTEN COMMUNICATIONS Brewer, J. B. Toiletry Merchandisers Association, Executive Secretary, (March 17, 1956), a letter. DeForest, L. Bowden. American Rack Merchandisers Institute, Vice-President, (February 22, 1956), a letter. APPENDIX l7h TABLE IV . NUMBER OF YEARS IN BUSINESS AS A WHOLESALER I -: - r Length of Time Number of in Business Jobbers Replying Fewer than 5 yrs. 16 5 yrs. to 9.99 yrs. 19 10 yrs. to lh.99 yrs. 10 15 yrs. to 19.99 yrs. 5 20 yrs. or over %; Total number of respondents 175 TABLE XVI NUMBER OF YEARS IN BUSINESS AS A RACK JOBBER Length of Time Number of in Business Jobbers Replying fl Fewer than 2.5 yrs. 3 2.5 yrs. to h.99 yrs. 17 5 yrs. to 7.h9 yrs. 32 7.5 yrs. to 9.99 yrs. 8 10 yrs. to 1h.99 yrs. 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