.<font color=#006400>****MEMO FROM ERIC
Eric Lehner to me
show details 10:07 AM Reply
From: Eric Lehner
Sent: May 14, 2008 1:06 PM
Subject: RE: Investor Questions
Hello Mr. X,
Thank you for the opportunity of answering your question – and for your encouraging thoughts.
The following is the context of the “National Account” issue. I will forward this response to the investment forum moderator as well, with your name removed for confidentiality, as he may feel that it is of general interest.
At any given moment, we have a number of account targets. These fall into two general categories; large national banners and smaller regional groups. They have different advantages. The large national banner provides the platform for national advertising, but is a more difficult account to secure and manage. They are more demanding in every aspect of operation, drive a harder bargain and are more volatile in their requirements. In other words one can be as easily “de-listed” as listed. The smaller regional groups provide a platform for local advertising. These accounts are more readily secured and more natural to manage because the relationships are more down to earth. They tend to be more stable.
In our case, we were in negotiations with more than one so called “national” banner in the USA and were in a position to be able to push for an announcement in the first week of April if we chose to go for short term pleasure and long term pain that would be caused by certain key concessions. Then, arising from work that we were doing for over a year, the Wal-Mart Canada listing came through at exactly the time that the U.S. listing was being targeted. I made the decision that Wal-Mart, even if it is the Canadian division, is so exceptional in its stature within the retailing world, that this profound development would enable Winning Brands to be wise by keeping our negotiating position calm with certain U.S. parties and not rushing the situation with them. In other words, although the originally contemplated “national” listing would not be made at that moment, another “national” listing (Wal-Mart is national also by any reasonable standard) was in fact being made at the same time, thus creating news equivalency and leaving us in a stronger position with the other negotiations to achieve an equitable arrangement of long term benefit to the shareholders in due course.
Our business plan benefits from being uncomplicated, compared with some new companies that are researching or launching new electronic technology, health sciences, alternative energy sector products etc. In those areas, the dollar amounts required to launch are enormous, initial operating losses are often large and sustained and obsolescence is a greater risk. Our business is something that meets the Warren Buffet test of being understandable.
Our uncomplicated business plan boils down to this – we want to get consumable products that are useful to virtually every household into systematic distribution and shelf presence at thousands of retail points of sale so that they are easily available to millions of consumers on a regular basis. “Cleaning” is about as basic a normal task as can be performed in civilized society and has been the basis of sustained growth for a number of impressive companies over the past 100 years. But like all things that are familiar, there is something to be said for a breath of fresh air from time to time. Therefore despite the existence of good well-established products, there is an opportunity for a more appealing alternative to standard national brands in a number of settings. New brands, if they achieve icon status, can enjoy meteoric success. There was ice cream before Ben & Jerry’s too - but I don’t even have to say any more than that name because we all understand the success story comparison.
Winning Brands has in the past 2 years developed a launch-portfolio of 3 fresh new brands – Winning Colours Stain Remover, KIND Laundry Products and CLEAN1 Outdoor/Indoor Cleaner. Each of these has characteristics that make it plausible for them to become favourites in the households that discover these products. With over 100 Million households in the USA and Canada, even a small regular consumer following becomes very attractive cashflow – and that is only North America, and only for these products and only for households.
The pace of growth is not steady like a line that moves up in a straight trajectory. The growth curve is flatter in the beginning as one goes through market testing, distribution of samples, building sales relationships with potential distributors, training, developing support material, etc. Then, after a while, momentum will take hold and people will begin to actually start to use their products, take before/after pictures and share their experiences with others. Then the curve starts to hook upward a bit and things start to accelerate. This hook is starting to happen now.
It’s very important to remember that where we are at on this curve affects the negotiation atmosphere with the largest banners. In simplistic terms – the newer you are, the less interested the national banners are in displacing any known product on their shelves. From the national retailer’s perspective – why should they risk removing something that they know for something that they don’t? Therefore, approaching the largest banners early has the potential for both good and bad. Yes, you might get listed, but you will probably pay a heavy price in lost negotiating equity. The eagerness to get that early listing can easily tempt a supplier to grant too many concessions. For example, merely to illustrate a point: It might not sound like a lot to agree to a predictive 3% defective goods allowance (ie to let the retailer automatically deduct that as a “fee” for what they predict may be goods damaged in transit, returned by the consumer or defective for any reason). But what if you really think that your deliveries will be on time, will arrive in good condition, will be complete and have no deficiencies? Then that 3% is a permanently forfeited encroachment on Winning Brands’ profitability. There are many such fees, discounts and allowances which are negotiable if both parties want to consummate the deal, rather than one party pressing harder than the other. So far, I’ve just mentioned the dollars and cents of those negotiations. What about the label? What do you do if a buyer wants you to change the package or label in a way that benefits that particular chain, but makes the product less suitable for other chains? The obvious reaction of having several sets of inventory for the different retailers may be impractical and expensive. It might even be unethical because it might cause the consumer to buy the same product twice or more just because it has different applications specified on different packages. That may sound smart in a business sense, but could be a violation of trust with the consumer believing that Winning Brands delivers the best value-for-money equation, if it is not handled carefully.
In summary, despite the desire by shareholders for news breakthroughs, I am sticking to my plan and personality of keeping things real. The “brick by brick” approach may not seem glamorous at first, but it results in a steadier more realistic success over the long term. Winning Brands is much better off having its products in reach of several thousand independently owned stores through many regional distributors and then being taken on to the shelves of the high profile US banners rather than the other way around because more money will be left on the table for Winning Brands shareholders as a result – and our brand assets will be less interfered with by store specific demands. Having said that, we are of course still in constant engagement with the largest banners to see what can be done equitably even at this early stage. There are subtle variations to all these issues that would not be in the interest of the company to discuss publicly.
Winning Brands shares are valuable because of this diversification of Winning Brands interests amongst a variety of medium sized business partners rather than reliance on a few super-sized partners. The medium sized partners are more willing to help build a brand and more inclined to stay with it for the time required for it to catches on. The leadership of certain Canadian subsidiaries of major U.S. retailers to support the emergence of Winning Colours Stain Remover is much appreciated and of tremendous value to building our case in the USA. Winning Brands must support the work of these retailers and ensure that their leadership is rewarded with success. Success in Canada is important to shareholders long term because a great deal can be tried and implemented quickly in Canada first, serving as effective testing for the USA and proving beyond a doubt what can be accomplished when Winning Brands is given the opportunity of working in such business relationships.
A firm that manages its negotiations respectfully but sensibly will over the long term be a better supplier and financial performer than a publicity driven organization.
I very much appreciate your interest in Winning Brands Corporation.
Eric Lehner, CEO
Winning Brands Corporation
Sent: May 11, 2008 3:14 PM
Subject: Investor Questions
Dear Mr. Lehner
First I would like to congratulate you on the recent success of the company, and the rapid rate that Winning Brands is becoming a global household name. My question to you is about the current stock price. Investing in Pink Sheet stocks I understand is very speculative in nature, and every company encounters hurdles. I invest in Pink Sheets that have a solid management team, that is focused on building the company as well as being as transparent as they can be with out jeopardizing the integrity of the company. I feel that I am not alone in this type of investing when it comes to Pink Sheets. This is why I chose your company. I feel that I have not encounters such a motivated, and driven management team. This being said I want to get your opinion on the current evaluation of the stock price. I have read the press releases about the national account, and also your communications with some investor boards moderators. Do you believe that this current delay in the account is effecting the evaluation of the stock by traders that look at this as the management’s lack of communication, and poor delivery of goals that were stated in press releases? Again I would like your opinion, and in no way do I feel the delay in the national account is due to any lack of effort on your or your management teams part. I come from a line of work were I understand how difficult even the smallest contract or plan can be to implement. However I do not have any background on how management looks at these setbacks, and the strategies a management team must utilize when such delays arise?
I would also like to thank you for the way that you and your team have tried to build a solid company. A company that doesn’t release information for a quick spike in the share price, but you release information that is vital to developing long term growth and will result in continuous growth in a company that has a wide range of great products. Thank you again for your time.