Creaming off the profits?

25 April 2007

26 April 2007

As supermarkets rake in billions, there are calls for changes to the law to protect suppliers from being unfairly squeezed. Paul Snell reports

Deserved or not, momentum is gathering towards formal regulation of the relationships between big retailers and their suppliers.

And it isn't just groups representing suppliers who are speaking out about perceived inequality. The New Economics Foundation and Friends of the Earth have added their support.

An appetite for the idea even exists among buyers. A recent poll carried out by SM found that 62 per cent would be in favour of some kind of third-party mediation between buyers and suppliers.

But groups calling for a watchdog are still undecided on the form and role such a third party should take.

"We would like someone to have a two-part role, to enforce the rules and ensure everyone is acting in a proper way, and to offer best-practice models of working," says Robin Tapper, senior adviser, food chain relations at the National Farmers' Union, which backs the idea. "We envisage a kind of Food Standards Agency, to enforce a buying framework and act as a beacon."

But a spokesman for the Forum of Private Business, which also supports introducing a regulator, told SM: "We want a watchdog that looks at the scale of market share and could look at the problems for suppliers and competition in the market."

But the role of other, similar bodies does not convince opponents of the idea.

There are concerns that a third party would mean more red tape and a further burden to suppliers. "It would always grate for us to be asking for more regulation on business, we are a fairly anti-regulatory body. The issues raised could be dealt with if the Competition Commission and the Office of Fair Trading bared their teeth," says a spokesman for the Federation of Small Businesses.

Supplier groups also questioned the effectiveness of the Competition Commission's current enquiry into the grocery market. They suggested that suppliers were too afraid of losing business from the supermarkets to present evidence of mistreatment.

The commission has promised to investigate the "climate of fear", and this month postponed publication of its final report until next February to collect more evidence. But the commission also said it was difficult to judge how widespread bad behaviour was, because of the lack of evidence.

While Tesco did not respond to SM's request for a comment, the retailer's recent submission to the commission indicates its view. The supermarket said it was a victim of complaints from poor-performing retailers and suppliers, and that the reduction of costs in its supply chain were due to "skill and attention to detail".

Perhaps, as Sainsbury's has said, a more responsible approach to relations from both sides could be the answer. Tapper believes so, and points to Tesco's guarantee to provide a fair price for milk to its farmers through direct contact. "We are 110 per cent behind the concept of an integrated supply chain, where all the suppliers and retailers have transparent relationships," he says. "What Tesco has proved with its milk deal is that it isn't just the smaller, more specialised retailers that can do it."



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