British farmers believe they’ve had a rough ride in recent times, afflicted by beef bans in many overseas markets and plummeting livestock prices. Food industry observers believe they are about to receive more bad news.
Farmers have joined forces with small grocery suppliers to demand better treatment from the big supermarket chains. And they hope the Competition Commission’s inquiry into retail practices will boost their cause.
But observers hold out little hope that the commission will come to their aid when it publishes its findings in June, especially after having dealt a blow to the Government’s “Anti-rip-off Britain” campaign by stating UK grocers do not charge excessively high prices (MW February 3).
Smaller suppliers are aggrieved at what they see as abuses of power by major multiples in order to forge exclusive deals with major manufacturers. They claim it cuts their share of the retail food market – which has a turnover of about &£60bn a year – and reduces consumer choice.
The National Farmers’ Union (NFU) has outlined measures it believes will give them a fairer deal. Head of food and marketing Helen Lo claims supermarkets abuse their power by using hidden costs to price small suppliers out of trading agreements: “We hope the commission will highlight areas of malpractice and draw up a code of conduct so agreements are more transparent.”
Category management has given smaller manufacturers a headache for some time. In theory, retailers appoint suppliers – or “category captains” – to improve the standing of an entire product category rather than just its own brands. But smaller suppliers are sceptical of this practice, believing those in control of category shake-ups have a hidden agenda to increase their own share of the shelf space.
One observer claims 12 per cent of suppliers now supply 70 per cent of UK supermarkets goods.
Another source says Britvic Soft Drinks’ announcement that it is to pour &£20m into a category management programme for leading brands Pepsi, Tango and 7-Up (MW February 10) masks a bid to sweep smaller suppliers off the shelves. He claims: “The bigger groups could use the situation to improve their position, and brands such as Irn Bru and Virgin Cola may be hurt by Britvic’s move.”
Britvic marketing director Andrew Marsden says: “That implication is simply not true. We’re working towards maximum category growth, which will benefit retailers and manufacturers of other brands.”
Suppliers that have been overlooked in favour of category leaders have their own ideas about what steps the commission should take. David Hands, spokesman for the Federation of Small Businesses, says: “The commission should call for a system similar to the law in France, where about ten per cent of shelf space is given to local suppliers.
“It also needs to examine how the big four supermarkets – Asda, Sainsbury’s, Tesco and Safeway – are in bed with each other and won’t undercut each others’ prices.”
But retailers are vigorously fighting these claims as they await hearings before the commission.
A former senior marketer with one of the UK’s biggest supermarket chains says: “Retailers are so intensely competitive that there appears to be a degree of collusion.
“They give the impression of having a common strategy – when in fact they’re simply copying each other.”
Safeway former marketing director Roger Partington says claims that supermarkets abuse their power are mostly unfair: “There are examples of bad practice, but compared with 20 years ago things have improved a lot.
“The process of selection is much clearer to potential suppliers and allows them to make more of a contribution to the process.”
Partington says claims that consumer choice has been reduced are false because the number of supermarket product lines has increased from 6,000 to 20,000 in the past 15 years.
Retail bosses believe the commission may recommend contracts between supermarkets and suppliers so that trade is seen to be fair.
Another retail industry source says: “A number of multiples never had contracts, because it hasn’t been a problem. They work order by order. There has never been anything sinister about it.”
Suppliers say contracts could prevent retailers from ending agreements with manufacturers at a moment’s notice. But Safeway director of corporate affairs Kevin Hawkins says multiples would include clauses as a precaution against changes in the market during the contract period.
Analysts say supermarkets have power over even the biggest companies and can play them off against each other. It leaves second- and third-tier brands lagging behind in the race to get onto supermarket shelves.
Partington adds: “The Office of Fair Trading spent a year examining the issue in 1998 and was unable to reach any solutions. The commission is not going to find it any different.”
Hawkins says: “I think that in the long-term there will be two types of supplier: large multinationals with huge scale economies and brand strength, and small specialists with no scale economies but the ability to innovate. If you are neither of these, the odds are you will be part of the consolidation process, or you will go out of business. There is not a lot the commission can do about that.”
Despite the best intentions of the Government to help small suppliers, most observers expect they will be let down by the commission – and that they could continue to be shut out by supermarkets. The danger is that, while multiples and major suppliers shake hands on exclusive deals, reduced choice could drive shoppers away.