Poor contracts affect supermarket suppliers

9 September 2007
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10 September 2007 | Paul Snell

A lack of formal contract terms is damaging the business of food suppliers, according to a survey.

A study carried out by accountants Grant Thornton's Agribusiness Recovery Group found that nearly two thirds of food suppliers do not have formal contracts with supermarkets. Only 22 per cent of firms surveyed said they had written terms, while others had some formalised terms.

The lack of formal agreements was blamed for supermarkets being able to cancel or significantly reduce their order within 72 hours of delivery, which affected a quarter of suppliers. Some 60 per cent of suppliers also said they had no notice period for termination with retailers.

Despite this, 30 per cent of suppliers said they did not want formal terms because it was "the price to pay for survival", and almost a quarter said supermarkets were unwilling to provide them.

"Solutions to the major financial distress caused by the market power wielded by the major multiples on the supply chain have yet to emerge," said Duncan Swift, head of Grant Thornton's Agribusiness Recovery Group. "The solution should be found in fair and clear terms of reference in the supermarket-supplier relationship. While our own survey suggests that 30 per cent of suppliers don't want written contracts, this is largely endemic of an industry which has lost its way."

He added that put-upon suppliers were now mimicking the tactics of big retailers further down the supply chain.

Of the 50 company directors surveyed, 80 per cent said their products were sold for up to 30 per cent less than three years ago.


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