The seven sins of supermarket supply

There was a lovely story this week about Waitrose sending out 30,000 biodegradable jackets to keep newly born lambs warm in the unseasonable Easter chill.

Mark Ritson

Cue a series of delightful pictures of baby sheep, looking snug in the snow wearing their environmentally friendly coats while a Waitrose spokesperson helpfully pointed out that the supermarket’s “dedicated lamb supply chain” and its ability to “work closely with all their farmers” had enabled its rapid response.

Supermarkets in general would like consumers to believe they have close and positive relationships with their suppliers and the recent horse meat scandal has seen the big four talking about how they work with their supply chains. But the cosy relationship suggested by the Waitrose story isn’t necessarily true of them all.

In 2008, the Government introduced a Groceries Code to protect Britain’s 7,000 suppliers from the supermarkets they supply – retailers with a turnover of more than £1bn. When that code didn’t gain traction it went one step further last month and appointed Christine Tacon to become the first ‘Grocery Code Adjudicator’. She will ensure the code is enforced and apply punishments if it is not.

So what is Tacon looking for? I have taken the liberty of providing her with a helpful starting point. I’m not sure how many of the sins below break her code but they are certainly common.

Original sin of slotting fees: Years ago, it became the custom to ask for a cash payment upfront when a supplier wanted to launch a new product in a store to cover the potential costs of failure. Soon the cash figures got higher, often pushing £1m per SKU. The fees were extended to not just risky new launches but most products, becoming a ‘pay to stay’ proposal for even well established brands. Research firm GfK estimated in a 2007 report for the Competition Commission that 25 per cent of British suppliers were paying these fees on a regular basis.

Sin of supplemental costs: Bolstered by the new found ability to charge slotting fees, many supermarkets expanded the approach into other ‘costs’. They began to charge suppliers when their products were shoplifted from stores or for arbitrary costs such as store refitting or simply missing a sales target. One chain fined its suppliers £85 every time it received a complaint from a customer about its product, even when the supplier was not to blame, Tacon claimed in an Observer interview last weekend.

Sin of imposed marketing support: It goes under a wide spectrum of titles from ‘co-operative support’ to ‘funds to trade’ but it’s often about as co-operative as a punch in the balls. The ‘marketing’ in question might be a new ad campaign or a rebate programme but, whatever the tactic, you can be sure that suppliers are instructed to help out with the costs. GfK’s survey for the Competition Commission found that 70 per cent of suppliers were making either regular or occasional payments towards their retailers’ marketing and promotional costs. At its most blatant, this comes down to supermarkets simply demanding suppliers drop or freeze prices to enable them to beat their rivals while protecting profits.

Sin of last minute contract alterations: Despite it taking months to grow their stuff and several days to process and deliver, suppliers are often hit at the last minute with changes in supply terms. Suddenly, the retailer wants more or less stock, or a renegotiation of an agreed price. Who needs negotiating skills when you have a supplier in your office with 40 trucks of perishable vegetables in your depot?

Sin of delayed payment: Even if suppliers do keep their contract and manage to stomach all the extra ‘support’ costs, they still might be waiting weeks for payment. Despite the standard terms of 30 days, several supermarkets are notorious late payers. One national brand is regularly cited as paying only after 70 days. Most of the big UK supermarkets have, however, signed up to the Prompt Payment Code.

Sin of silence: There’s been a lot of smoke over the years from suppliers but never any fire. You can either take that lack of explicit supplier complaint as proof that all supermarkets are just lamb-loving innocents or that, as one anonymous supplier told a previous inquiry into supermarket power, “it would be commercial suicide for any supplier to give a true and honest account” of their dealings with the big retailers.

Sin of delisting: Losing a place in a supermarket is a fact of life and can be caused by a loss of brand equity or decrease in demand. But there have long been rumours, examined by the Competition Commission, that a significant amount of delisting is revenge on a supplier who will not conform to a retailer’s requests. The Competition Commission was told in 2008 that suppliers were too frightened to come forward with hard facts “for fear of being delisted or other retaliation by their main customers”.

Tacon’s job is to find out if anything has changed since 2008.

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