Supermarket buyers using suppliers as 'cannon fodder' in price wars

Will Green is news editor of Supply Management
25 November 2014

Supermarket buyers are using suppliers as “cannon fodder” in price wars that are “causing pain throughout the supply chain”, according to accountancy firm Moore Stephens.

Moore Stephens said the number of food production firms going bust in the 12 months to September 2014 had increased 28 per cent compared to the same period in 2013, from 114 to 146.

The firm said supermarkets’ “banker-style trading floors” and  “aggressive buying practices”, including demanding contributions from suppliers, were leading to increased insolvencies.

Duncan Swift, who leads the food advisory group at Moore Stephens, said: “The supermarkets are going through the bloodiest price war in nearly two decades and are using food producers as the cannon fodder.

“Supermarkets have engaged in questionable buying practices for years, but it’s getting worse and clearly wreaking havoc on the UK food production sector.

“UK supermarkets are trying to compete on price with Aldi and Lidl, but with profit margins that are far higher than these discount chains. To try and make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers falling.”

The firm said the rise in suppliers going under went against a trend of falling liquidations in the economy as whole, which fell 8 per cent over the same timescale.

“The culture of the buying teams at the supermarkets is the big problem. Most supermarkets have banker-style trading floors and bonus schemes for their buyers,” said Swift.

“Supermarket buyers’ bonuses are contingent on securing cash contributions from suppliers, which typically lead to de-listing threats, short-notice cancellation of supplier orders and spurious deductions from the monies the suppliers are owed.”

Swift said suppliers feared making reports to the Groceries Code Adjudicator.

“The fear of losing business from supermarkets means that food producers rarely, if ever, complain about clear breaches of agreed industry standards,” he said. “That means there is no check on the highly aggressive buying practices of the supermarkets, which causes great uncertainty that a price agreed with a buyer will actually be paid and more food producer insolvencies is the result.”

The British Retail Consortium said it was “far too simplistic” to blame retailers for the situation and “there may be a number of reasons for failure”.

Andrew Opie, director of food and sustainability, said: “All major supermarkets know the only way to deliver consistent quality and value in a competitive market is by building long-term sustainable relationships with their suppliers. That's why so many suppliers have worked with the same retailer for so long.”

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