How to Do a Walmart Cost Change Scenario
- How to talk to your merchant about a cost change scenario
- The steps for implementing a cost change
- Using the Cost Change Scenario app in Retail Link
There will likely come a time in a supplier’s relationship with Walmart where they’ll need to negotiate a cost increase, and that can feel like a black box in how to get it accomplished. The sales account manager is probably asking:
- “I need to increase my cost to Walmart. How do I even do this?”
- “Where do I start – with my buyer or in Retail Link?”
- “What information do I need?”
- “How long does it take?”
Many suppliers have heard about the “Cost Change Scenario” app in Retail Link, but submitting this form is actually one of the last steps in the process of passing a cost increase. If the supplier has already negotiated the cost increase with their merchant, received approval, and is looking simply for the tactical steps to submit the form in Retail Link, skip below to the section titled “Step 3: Submitting the approved cost increase in CCS”.
However, if you find yourself thinking, “Wait, I need to talk to my merchant? I need to have supporting information? This is a negotiation?”, keep reading, and we will get to the form submission at the end.
If form submission is one of the last steps, what is the first step? Negotiation. To be specific, preparing for the negotiation is truly the first part. The merchant must approve all price increases, and since Walmart leadership has instructed most merchants not to accept cost increases whatsoever... suppliers have to bring their A-game. (As of the publication of this article, this caveat is especially true for grocery categories while Walmart tries to win back share in COVID-19.)
Below are the steps in executing a cost increase:
- Preparing for the cost increase negotiation
- Negotiating with the merchant and achieving an agreement
- Submitting the approved increase in the Retail Link app “Cost Change Scenario”
- Confirming the cost change execution in Retail Link
Step 1: Preparing for the Cost Increase Negotiation
Timing is one of the most critical factors in preparing for the cost increase negotiation and most likely the piece that can be most damaging to the relationship with the supplier’s merchant.
First and foremost, Walmart requires 60 days’ notice before passing a price increase. Most often, Walmart expects to be the last retailer to reflect the increase in stores if the supplier requires a retail increase. Therefore, this notification from the supplier typically happens closer to 90 days out. However, only 60 is required. This minimum 60-day period is where the negotiating takes place.
When Should I Begin This Communication?
Merchants will say the best time to talk pricing is during the line review because this is the time to talk about the next modular relay, with the effective date of the increase (if approved) being at the next reset.
However, some suppliers don’t want to risk spending the entire line review timing talking cost, and so some suppliers choose another time to start the conversation. Additionally, it can be challenging to time these conversations for all retailers’ line reviews, so sometimes it simply isn’t possible to wait until the line review meeting itself.
Preparing for the Discussion
In preparation for communication and discussion, some questions to expect from the merchant during the negotiation are:
- What is the specific reason for the cost increase?
- I (the merchant) track commodity/material cost increases, and, from what I’m seeing, they aren’t increasing as much as you say they are?
- Can you share proof from invoices of pre/post timing that show this increase?
- Why am I not hearing the need for a cost increase from other suppliers in this category?
- Yes, your costs are increasing now, but when the raw material inputs decreased a few years ago, you didn’t pass that decrease on… so why should I (the merchant) absorb the increase now?
- When are other retailers executing this cost increase?
- Will this cost increase still allow me to be 10-20% lower on retail versus competitors?
- For this question, consider the margin requirements of the category and how the cost increase will impact the needed retail increase to maintain margin.
- Is Walmart absorbing more than its fair share of the increase?
- For example, if Walmart represents 30% of the total business for the items in question, is Walmart absorbing more than 30% of the total estimated increased dollars to the supplier?
- How much erosion are you projecting to occur due to the increased retails? How will that affect my overall annual retail sales margin dollars?
- What are you doing internally to reduce costs in other areas to offset this increase?
- Instead of taking a cost increase, let’s instead cancel planned rollbacks and other promotional activities.
Step 2: Preparing for the Cost Increase Negotiation
Once the preparation is complete, it is time to reach out to the merchant to communicate the need for a cost increase and begin negotiations.
Typically, the initial communication goes out on the official company letterhead from the leadership team, communicating the cost increase is happening across all retailers, gives specific information around the need for the increase, and lists the items affected.
Step 3: Submitting the Approved Increase in Retail Link
After the merchant approves the cost increase, the supplier must submit it via the Cost Change Scenario (CCS) application in Retail Link to update the cost in the various systems across the Walmart universe. In the submission process, the supplier needs to complete the steps below for each item receiving an increase:
- Log into Retail Link
- In the search bar, type “Cost Change Scenario,” and open the app
- Enter a scenario name (suppliers typically use names like “August 2021 Single Serve Juice” / “Month Year Category Name”)
- Choose the reason for the cost increase – this must match the reasons provided in the negotiation with the merchant
- Select the department number of these items
- Click “Create”
- After creating the scenario:
- Search the item number(s) on the left and click to add them to the scenario
- For each item, enter in the current cost, the new cost, and the effective date
- IMPORTANT: the costs are for the supplier pack – not the each (example: if the supplier pack quantity is six and the each cost is $1.00, then the new cost is $6.00)
- IMPORTANT: the effective date is the date on which Walmart will order the items at the new cost. Once submitted, suppliers typically cannot change this date, and, if approved, the system will automatically update it for future orders beginning on the effective date
- Review each item again to ensure 100% accuracy
- Submit the form
- Notify the merchant of the scenario submission and ask for confirmation of receipt
Step 4: Confirm the Cost Change Execution in Retail Link
Once the merchant has confirmed acceptance of the price increase, it will not update in the system until the effective date. A best practice is to put the effective date 1-2 days before the order date so that the supplier can confirm the cost update in the system before the next round of orders.
Other Things To Consider
- If the merchant deems a cost increase to be crucial and required for the supplier’s company, it is essential to negotiate the full possible amount at one time.
- It is not beneficial or successful to have to negotiate costs every few years. Doing so damages the relationship with the merchant, and it’s doubtful more than one will pass.
- Consider starting a little higher on the needed increase so that there is room to negotiate.
- Some suppliers use the strategy of going in with an absolute requirement and sticking to it through the whole negotiation to show good faith in discussions. However, many small suppliers have found it beneficial to give a little buffer because there is less bargaining power as they play a smaller role in the overall category and will likely receive tougher negotiating conversations from the merchant.
- It is not uncommon for the retail to increase on the cost increase effective date, even though that “higher cost inventory” has not yet reached the stores.
Passing a cost increase is more than simply submitting a form within Retail Link. While this is the easiest part, it actually is the last thing to consider when approaching a cost increase.
Walmart knows it’s the biggest retailer in the world. So the best advice is to come to the table with clear and convincing evidence that the supplier has done everything they can to mitigate the cost increase internally, and passing some on to the retailer is the only option to keep their business in a healthy position.
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Written by Kelsy Lichtenburg
About Kelsy Lichtenburg
Kelsy has over 6 years of experience in headquarter sales, helping suppliers manage their businesses at Walmart/Sam’s Club, specializing in grocery categories.Read More