Retailers warned: low price focus is stifling innovation

31 October 2002
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31 October 2002 | David Arminas

Grocery retailers must stop cutting suppliers’ margins if they want them to be more innovative, according to a major international supplier.

Paul Polman, president of western Europe at Procter & Gamble, told around 700 delegates to the IGD (Institute of Grocery Distribution) annual conference in London that manufacturers will have to cut research and development budgets.

“Retailers are using price as a weapon for their growth,” he said. “But this in turn puts pressure on manufacturers’ and suppliers’ marketing and product innovation.”

Polman said the UK market was the most advanced in Europe but this could change. He said the trend for heavy discounting is leading to a situation as in Germany, where there is little marketing and innovation because most stores cut supplier margins to offer low prices.

He called for more communication and partnership between retailers and suppliers so that retailers didn’t gain customer loyalty through heavy discounting.

Sara Weller, assistant managing director at Sainsbury’s, agreed with Polman and said the supermarket needs to be a customer of choice for manufacturers that wish to use innovative marketing.

She told SM: “Suppliers increasingly find that the two other major UK retailers, Tesco and Asda Wal-Mart, are so driven to cut costs that we hope suppliers would say there are more opportunities for innovation with us.

“We are more interested in a relationship geared to delivering our goal of being first for food and that has a value for us above being as cheap as possible.”

David McCarthy, a food retail analyst at Citigroup, said he didn’t believe the UK would go the way of Germany, where discount stores dominate.

But he warned delegates that Wal-Mart, which owns Asda, will maintain pressure on UK prices.

“It is buying its non-food for Germany and the UK 15 per cent cheaper as a result of new global procurement, and that is also its target for sourced foods,” he said.

In a recent IGD survey, food and grocery retailers said that customer service was their top priority, but for manufacturers and suppliers it was innovation.

SMoct2002

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