Manas Kanti Kar_67_C5_22_NS_Assignement 2

1) How do you describe their current negotiation situation?

The Independence Day of United States 4th July is being celebrated as one of the biggest
holiday for the sales of watermelons. The growers yield watermelon every month but the
highest production is in month of May, June and early July. Because of excess production in
these months, the prices remain low as compared to other months. After July, the price
remains flat and further rise in the month of October because of low production in the
country. The extra availability of Watermelon in the month of July at lower price is
enormously significant for Walmart as per profitability viewpoint.

On the other hand Wal-Mart, the world's largest retailer, with its single-minded focus on
EDLP (everyday low prices) and the power to make or break suppliers.

Due to critical weather conditions in 2005 United States, all the key watermelon producing
states faced a major setback. Florida, California, Texas and Georgia are the leading
watermelon producing states. Watermelons prefer long warm growing season and
therefore are primarily produced in the southern part of the United States. Florida and
Georgia are primary production areas for Frey Farms which were also affected by the
critical weather condition in 2005. As a result the production reduced and price got
increased. The major concern of Sarah Talley is the reduced production which will not be
sufficient for the Frey Farm to cater the need of the Walmart in volume and also price.

For Sarah Talley negotiation with Wal-Mart was important to her business, but she also
knew that she would only be able to supply a fraction of the watermelons demanded from
Frey’s sharply reduced crop in Georgia and at a price still deemed too high by the regional
buyer. The only alternative left to Sarah Talley was to procure the melons needed to satisfy
Wal-Mart’s volume requirements from the western shipping region, like Arizona. But
procuring from the western market to supply regional markets for the southern and eastern
United States would incur additional high shipping cost for transporting from west region
to east and south.

In this case, Talley and Wal-Mart are into a negotiation as to only bargain for the price for
4th of July which is United States Independence Day. There is unbalanced power connection
between the Walmart and Frey Farm. Walmart is the largest retailer in the United States so
they have more buyer power also Walmart is more powerful than Frey farms because of
market size that Walmart caters in the country.

From the case we understand that this case of price negotiation only led to winning of one
party either Walmart or Frey farm. There are high possibilities that Sarah Talley provides
Walmart the price they desire but a lower volume as required. This solution will force
Walmart to procure from other places and buyers which will lead to high transportation
cost for Walmart, which is against their business strategy of EDLP.

From the case we understand that for Walmart, their regional buyer held the position of
price being the only aspect with no thought provided to other factors. Even the category
manager was focusing on positions, as they perceived Frey farms as a small supplier run by

Manas Kanti Kar_67_C4_22_CS_Assignement 2

Manas Kanti Kar_67_C5_22_NS_Assignement 2

a young CEO Sarah Talley. So there might be the negotiation style used by the Wal-Mart
buyer is positional bargaining.
From the negotiation both Frey Farm and Walmart want to win the negotiation only on the
basis of price which is not coming to an agreement. Hence, deal is still not sealed after
several rounds of discussion.

The main issues of the negotiation process and listed below: -

 Reduction of profit of the Frey farm as a co-managed suppliers that would offer less
money on account of overhead costs of co-managed mega suppliers in the industry.
 Co-managed suppliers offered little choice on price in front of large retailer like
Walmart.
 Less selling through co-managed supplier as compared to direct selling to Wal-Mart.
 Co-managed suppliers not escalating the exclusivity of Frey Farm business.
Avoidable influence of co-managed mega suppliers on smaller suppliers. In the case
of negotiation with co-managed mega suppliers, there was no clearness in pricing.
They would pass on added fees on account of extra costs on account of inventory
management, staff and management systems.

2) How did they land there?

As we discussed earlier that the primary area of watermelon production for Frey Farms are
Florida and Georgia. In 2005 due to bad weather condition the production of the
watermelons got affected due to that.

Pest attacks also further aggravated the condition of the regions like Florida and Georgia
areas which resulted in slackening of production of watermelons. Hence, lower supply led
to price rise. To meet Walmart demand requirement, Frey farms might have to procure
from other producers in the Western region which would add cost of transportation. Hence,
offering at low price was not profitable for Frey Farms.

Facing both a limited market supply of and increasing market prices for watermelons, Sarah
Talley planned how to approach Wal-Mart’s regional buyer, who had not been to the field to
see the situation first hand which leads to production loss of the watermelons. Sarah Talley
decided to approach negotiations with the buyer in a straightforward and respectful way,
explaining the situation in the field and how the adverse weather conditions, abnormally
high pest and disease exposure that has affected the watermelon industry. But despite her
explanation, the regional buyer insisted on an unacceptably low price at which a contract
for watermelons had to be struck. In support of his position, the buyer/Walmart asserted
that conditions could change dramatically in June in advance of the July 4th holiday.

Unbalanced power relationship existed between the Walmart and Frey Farm, Walmart is a
retail giant while Frey Farm is small family owned and operated supplier of fresh fruits and
vegetables. The supplier connect of Walmart is very strong in United States. Still now Frey
Farm is a regional player and they need support from Walmart to expand their reach in
their other regions of United States. Walmart has stronger bargaining power as a buyer in

Manas Kanti Kar_67_C4_22_CS_Assignement 2

 Manas Kanti Kar_67_C5_22_NS_Assignement 2

this context. The market condition is not analysed by the big player and hence they are
being inflexible about the price.

Walmart has not analysed their BATNA. In fact from the case we can see that the BATNA of
Walmart is not very strong. If the negotiation is not successful and if Frey farms deny their
proposal, they will have to purchase watermelon from market at high price which can
hamper their EDLP scheme. If Frey farms agree to meet demand, Sarah Talley will have to
incur huge transportation cost which ultimately lowers their profitability and
competitiveness in the industry. Moreover, in an effort to offer low price Frey farms will
have to deal with other co-managed supplier of Walmart. This will further reduce the profit
for Frey farms. Moreover Walmart will also have to pay more to its other co-managed
suppliers.
Thus the two parties come to a deadlock in negotiation from the above scenario.

The interest of the Frey farm and Walmart are listed below which plays an important role in
the negotiation process;-

Interests of the Frey Farm Interests of Walmart

Commitment to provide fresh produce products
Sell pumpkins and watermelons
Business growth strategies along with Wal-Mart and
support the conversion of Division one store to a Walmart
Supercenter
To achieve a efficient logistic system and to support
Walmart in their EDLP program
Less strategically positioned than competitors like Del
Monte in terms of product differentiation and available
resources
Servicing all customer’s needs in one store, including
groceries and fresh produce.
Offer groceries and fresh produce to customers
Offer locally grown, fresh produce at fair market prices
for a particular region.
Expand from Division one store to Supercenter with
their most successful business strategy EDLP
Not to depend on a single suppliers in order to derisk the
supply chain and also they want some supplier who can
supply fresh fruits in a consistent way within a certain
cost. But their business relation may be turn out to be a
costly affair with Fray farm as Sarah Tally is only 19
years old, too young to do a serious business deal.

Supply watermelons for the contract period from 1 June to Agreement for Jun-July contract at rates lesser than
4 July, 2005 market prices during the 4 th July period
Establish relationship with particular suppliers for high
Become a co-supplier of Wal-Mart
volume business
Want to work with mega-suppliers, so that they can
To negotiate with Walmart for a long term relationship
invest time, people & money

3) What advice would you offer Sarah Talley?

Before commencement of the further negotiation with Walmart, Sarah Talley needs to
cultivate clear BATNA to strengthen Frey Farm’s impact in the negotiation process. As from
the case we understand that in this deal of 4th of July-Independence Day, Sarah Talley’s
objective was not clear. She was well familiar with the fact that Walmart follows low price
strategy (EDLP), but was not self-assured enough to put her proposal forward for being co-

Manas Kanti Kar_67_C4_22_CS_Assignement 2

Manas Kanti Kar_67_C5_22_NS_Assignement 2

managed supplier, as the negotiation only revolved around price and not the bigger
objective of being co-managed supplier.

The challenge of negotiation that Sarah Talley is facing is to reach a settlement that is most
encouraging for Frey Farm. ZOPA (zone of possible agreement) of the negotiation should be
looked upon in this case. The final settlement of this negotiation should fall above the Frey
Farms reservation point and below the Walmart reservation point.

Following are the suggestions for the Sarah Talley: -

1) Sarah Talley could approach Wal-Mart and restart the negotiation once again. The 2005
incident of unfavourable weather conditions could be just for one year, and expect the same
might not hold true for the upcoming years.
She must try to build rapport with key executives of Wal-Mart and try to change the
perception of trust that they might have regarding her young age.

2) Sarah Talley must make the first offer after understanding Walmart interest. Sarah Talley
should focus on getting the business understanding of Walmart and how the business of
Walmart runs. She should focus on creating good relationship to gain faith for further
scrutiny of offer by buyer. She should also try to develop a very good relationship with
regional buyers. Initially Sarah only had thoughtful about Walmart negotiating power but
did not explore the chance of her firm being co-managed as supplier. Intermediate Solution
to reach negotiation as a co-manged supplier must be worked out so that both can avoid
unnecessary cost and Walmart can live up to EDLP scheme in this case.

3) Sarah Talley should support the firms’ offers with facts and data. Sarah Talley should
present the rationale of Frey Farm being co-managed supplier and invite the Walmart to
buy into rationale. She could invite the regional team to have situation field inspection of
2005 of the production regions like Florida and Georgia provinces and reason for slackening
supplies with high price. Be transparent and convey to Walmart, the real prices at which she
is transacting with the co-managed supplier and ask them whether it is a fair price as
compared to co-managed supplier. This might clear out any assumptions, if any. This may
lead to negotiate on the basis of the interest rather than simply on the pricing

3) Sara Talley should explore other BATNA and opportunities other than Walmart. Sarah
Talley need to focus on inventive solutions for a mutually beneficial conclusion to increase
apparent power of Frey Farms as a supplier. She can propose to be co-managed supplier.
Innovative ways need to be adopted in this case to manage the inventory and reduce the
inventory holding cost for Walmart also. Talley should focus on communicating strategies
on why Walmart should make her firm as a co-managed supplier and how it will be
profitable for Walmart also in implementing the EDLP scheme for the fruits and groceries.
Commitment of Frey Farm being co-managed supplier will be to satisfy the interest of
Walmart. Instead of directly attacking Walmart’s approach of appointing co-managed mega
suppliers, she can ask for real reasons for selecting them. This discussion can result in
getting better perspective and understanding of the Walmart’s real motives behind the
selection of the co-managed suppliers.

Manas Kanti Kar_67_C4_22_CS_Assignement 2

Manas Kanti Kar_67_C5_22_NS_Assignement 2

4) Sarah Talley can negotiate with Walmart on the other products as well along with
watermelon and pumpkin in order to increase the pie of the share of the benefits for both
Frey Firm and Walmart.

5) If the negotiation ends in no deal then Sarah Talley can explore the option of the business
diversification like juice and other food products which can be prepared from watermelons
and pumpkins. I

Manas Kanti Kar_67_C4_22_CS_Assignement 2