The Competition and Markets Authority (CMA) has been asked to investigate after Holland & Barrett demanded suppliers cut their prices by 5%.
The Forum of Private Business (FPB) has written to the CMA asking it to consider whether a letter sent by the health supplement retailer breaks the terms of the Competition Act 1998.
A CMA spokesman said: "I can confirm that we have had receipt of correspondence from the FPB that we are considering".
In the letter, opening “Dear Supplier”, Holland & Barrett said turnover had increased by 11.7% during 2015 but “suppliers have not been contributing proportionately to the growth of the business”.
The letter, signed by Holland & Barrett chief executive Peter Aldis, said: “Indeed, during a period when there has been little or no inflation, a general fall in food prices and fuel costs at their lowest for more than a decade, we have seen our margin eroded substantially by increased product costs.”
Aldis said the company required “a reduction in costs of at least 5% from all our suppliers”, in addition to an already implemented “freeze on cost increases”.
“This will be entirely separate from the 12.5% retrospective discount introduced last June in respect of stock which we ship internationally,” said the letter.
In addition, Aldis said suppliers would have to cover a £3m investment in security measures to tackle product theft “in the form of invoice adjustments and/or free stock”.
The letter went on: “We will be holding a Suppliers’ Day on 11 February to share with you our exciting plans for the future.”
Ian Cass, managing director of the Forum of Private Business, which has a Hall of Shame of companies accused of treating suppliers badly, described the letter as a “smash and grab raid” on the supply chain.
“I am surprised at the unwholesome attitude of Holland & Barratt,” he said.
“Many of [Holland & Barrett’s] suppliers are small firms who have helped the retailer increase its margins and have been unable to put up prices themselves over the last few years.
“Sometimes it is helpful to suppliers to offer discounts to retailers in return for product placement or increased marketing of their products, which is beneficial to both parties, but this needs to be agreed by both sides, not a unilateral decision as in this case.”
As well as writing to the CMA, the FPB has also written to Holland & Barrett, encouraging them to sign up to the Prompt Payment Code.
A spokesperson for Holland & Barrett, which reported profits of £146m last year – a 12% rise, said it had made significant investments over recent years to drive the growth of the brand, including a major increase to both UK and overseas store numbers and investments in both staff training and ecommerce technologies including click and collect.
“Naturally, suppliers benefit from the resultant increase in sales this growth brings, as well as customer and brand reach,” the spokesperson said.
“This latest initiative is not the start of a negotiation process but a further part of this growth strategy which we are now in the process of communicating to our suppliers.”