Making the CDC Work For Us


For quite some time there has been a lot of concern and many questions in the franchise community regarding the CDC flat fee. For instance, franchisees like to know what they are paying for a particular product or SKU, and the flat fee structure made real cost of goods really difficult to discern. Fortunately, at last month’s National Coalition Board of Directors meeting, SEI VP of Logistics Bill Merrigan announced the company is going to eliminate the flat fee and gradually go back to “percent distribution” or markup fees. The company plans to begin the switch in the Northeast and Pacific Northwest regions, and all stores should be back to a markup fee structure by mid-year or third quarter.

While this development is certainly welcomed, the elimination of the CDC flat fee raises a new concern. Over the years SEI has told us that we need to support our CDCs, because the more we buy the more costs will come down. As you may recall, prior to the flat fee, when we were previously with the markup fee structure, this did not happen, and franchisees found other suppliers with similar products at a lower cost. This time, however, there are more stringent restrictions placed on franchisees that limit our ability to “buy outside of the system.” Additionally, SEI is now saying that if we don’t support the CDC we will see higher costs passed on through it. Therefore, in order for CDC markup fees to work this time around, I believe we need a support system in place wherein SEI works hand-in-hand with the franchise community to get local vendors with proven sales records into the CDC so we can order more product we can sell, have fewer writeoffs, and consequently drive down prices.

In order to get SEI to add an independent or non-recommended vendor to the system, it is essential that franchisees keep casino sales data on that company’s products, so SEI category managers can see how the items perform in the store. This idea has already worked for my FOA here in San Francisco. Recently, my association recommended an electronic cigarette vendor to SEI. We presented the supporting data, SEI reviewed it, and now the vendor is recommended throughout the country and is doing very well. Members of my FOA are currently testing Columbia Gorge Organic juices. I put those items in my store in December and in six weeks I sold out large orders. We showed our sales data to SEI, exchanged e-mails back and forth through the proper channels, and now the company is going to set up a meeting with the vendor.

The flat fee is going away and the markup fee structure will be taking over soon. We as franchisees have an obligation to support the CDC, and in return SEI has an obligation to support franchisees. If SEI institutes this process nationwide—wherein it meets with the franchise community and the vendors we recommend to tailor the CDCs to the needs of our stores—then franchisees will buy, and this strategy will indeed bring down the cost of the CDC. I believe this formula will be a win/win/win for the franchise community, for SEI, and most importantly, for our customers, because they will have the selection of products they want in our stores.

The time to implement a new strategy is now, because we are just a few months away from the Hundred Days of Summer and our prime selling season.