Harpers Special Report: multiple and supplier relations uncovered

By Gemma McKenna

Published: 08 October, 2014

Tesco has taken a bit of a battering in recent months, with profits slipping and then the little matter of the £250 million profit overstatement. But although Tesco is in the spotlight, there are issues for all of the major retailers right now, as the discounters go from strength to strength and the Big Four's choke hold on the market weakens. Harpers.co.uk spoke to some of the wine trade's key suppliers and ex-buyers to find out their views.

Tesco

Questions are now being asked about whether there needs to be greater scrutiny of retailer/supplier relations across the board. Adrian Bailey MP, chair of the parliamentary business committee, has mentioned this in light of the Tesco accounting error.

While some commentators are scathing of how suppliers and retailers interact, and quick to malign the major operators, a host of key suppliers felt that while it is easy to blame buyers, suppliers have to acknowledge the role they play in cutting deals.

Harpers.co.uk spoke to some of the wine trade's key suppliers and ex-buyers to find out their views.

Matthew Dickinson

Matthew Dickinson, former commercial director at Thierry's Wine Services, said retailers haven't become more demanding, but more sophisticated. "It's normal that they employ buyers who are creative and good at asking the supply base for support. If a buyer holds all the power the negotiations will be tough on you."

Another source said the onus was on suppliers, because, "does any supermarket need a particular wine brand? If you are uncooperative there's a queue of another 100 wine brands waiting". But, he pointed out that is the same "whether it's Tesco or the Dorchester".

The same wine supplier said he was "not that surprised" to hear of Tesco's accounting error. He added that Dave Lewis, not being "a Tesco man" had put a stop to practices he thought odd - such as suppliers being invoiced for certain things at key times of the year (just before reporting periods). "It's just a way that Tesco have of doing things that's different from what others do."

"If you were getting on well with Tesco you would find a way to make it happen, and you would get your reward a couple of months later."

According to the source, other retailers would have a more "strategic and collaborative way" of achieving the same goals.

Questions over how suppliers pay for promotions are being asked, but a number of suppliers told Harpers they discount the average net price rather than paying separate fees.

Balance of power

"Supermarkets use power, but the question is do they abuse it?" asked another former key supplier.

Some suppliers, who are desperate to win supermarket business, agree to deals which aren't necessarily in their own best interests. "From there it's an inexorable slide downwards. They feel aggrieved, but they should be most annoyed with themselves,"

"If your business is based around supermarkets you must clearly understand the rules of the game you're playing."

Interestingly, most suppliers likened dealing with supermarkets to playing a game. As Dickinson points out, "over the last 10 years suppliers have given fees relating to positioning and pricing discounts - a whole different basket of things - but there's nothing illegal in that. It's all part of the commercial transaction outside of the standard price and purchase side. It's not unusual".

"Supermarkets use power, but the question is do they abuse it?"

If you're going in to negotiate with buyers then you must be prepared, and know your limits. You must also be the kind of person not afraid to assert themselves, or walk away should the deal become unattractive. The choice rests with suppliers, Dickinson says, "they do not have to supply under those terms". He said that while retailers may be able to "abuse their dominant position" over milk suppliers, "that's not the case in wine". "In wine we have a relatively evenly-balanced playing field."

Bernard Fontannaz, founder of South Africa's Origin Wine, said: "It's clear, the game is changing. The market is changing quite dramatically. There's a new dynamic. The consumer is changing and the offering will have to change too. Supermarkets are under pressure. For suppliers, it means they've "got to stay ahead of the game" through understanding consumer needs, and delivering products to cater for them in an effective way. "It's about who can adopt fastest," he said.

Retailers may make demands, but "you're never forced to do it, you can walk away at any given time". He warns that suppliers should only do business "as long as it makes sense" to them.

"The perfect storm is coming. But if you're a good sailor, you can survive. The market is becoming more competitive, and the wine sector is very fragmented."

Tesco

Government regulation - good or bad?

None of the suppliers we spoke to were in favour of the government getting involved in the complexities of retailer/supplier relations.

Dickinson does not believe it is necessary and that customers are smart enough to work out what is going on: "Customers understand which brands are more heavily promoted than others, and can see past brand messages to buy the product they want."

Another source was not convinced, saying that a more collaborative approach from suppliers and customers working together would be welcome.

"It does cut both ways - you've got to be a good supplier to get trust and get them to deal with you."

Another source reckons it's too easy to throw the baby out with the bathwater. The government "could spend an awful lot of money looking for an easy solution to a really complex issue. Let's not forget a lot of suppliers have done really well from supermarket business."

Lidl 17

The simplified model

The recent woes seem confined to the major retailers, with discounters such as Lidl and Aldi reporting consistent and dizzying profit increases. Dickinson says the simplified model offered by discounters means "they can predict demand better" as they don't run the same kind of promotional calendar so there are no highs and lows. "It makes a supplier's life easier, but it should make it cheaper too - they drive a hard bargain as a result. Big retailers need to look at whether their customers are looking for a simplified model."

As for whether the major retailers should look more closely at what's going on with discounters, another source says the Aldis and Lidls of this world are "very easy to deal with" by virtue of their very regular ordering, which doesn't vary much.

Weak characters need not apply, says one supplier

"When I first started dealing with UK retailers I realised that unless you push back they would walk all over you."

One supermarket wanted to pass a VAT rise back to this particular supplier, but he stuck to his guns saying 'it should be passed on to consumers', a response which was greeted with a smirk by the buyer, who then moved on.

"The closer you get to retailers, the more they try it on." But he is circumspect, saying "he doesn't blame them for pushing their luck". The more business you do with the retailer, the more they push. "If you're selling £10 million through Tesco, that £10 million is a drop in the ocean to them. But to you it's huge. That gives them a huge amount of power."

Suppliers, particularly the key account managers tasked with dealing with the major retailers, have to be of "strong character" and not afraid to assert themselves.

Angela Mount, former Somerfield buyer, on being a buyer in a difficult climate

"It's very easy for beleaguered suppliers to blame retailers and individual buyers. I was called every name under the sun when I was at Somerfield. They're doing their job. It's no easier for them than for the suppliers having their margins cut from under them."

ANGELA MOUNT_150

I was still at Somerfield when there was a profits warning. Buyers have their fingers burnt down to the bone tapping on their calculators. You're just glued to your desk redoing forecasts, over and over again, working out how you're going to claw the deficit back. If the numbers are short, the message that comes from above is, 'we need to bring in more'. The pressure on buyers is enormous at any company facing a difficult year-end, and each buyer is tasked with bringing in a certain extra amount each week. It was one of the many factors that finally made me decide to leave Somerfield. The message was 'get the brands listed who are going to pay us money'. The window to recoup the sales/revenue to hit budget was too short to implement even radical promotional strategies, and the pressure was on to recruit marketing monies. I felt my integrity as a buyer was being compromised. You had to say, 'I know we did that deal but I now need another £15,000 from you'.

I couldn't see how I could go from building a constructive relationship with suppliers to stripping it right back and going only for wines where you could bring in marketing and advertising funds, especially in the short term. We had daily updates and were each targeted with a fixed amount to bring in each day.

Being very blunt about it, and since Somerfield no longer exists, and I can speak openly, we were asked to bring money forward from the next financial year and were told if you have to delist and bring in products that you will get more cash on, then do it. I must stress that these comments relate only to my experience at Somerfield seven years ago, when the company was in dire straits, and has no relevance to the issues facing supermarket buyers today.

As someone who had taken on products and built up the range and credibility over 12 years the strategy of tearing it all down to build a less diverse and engaging range around cash margin was not the way I wanted to go. I think that I was thought of as tough but fair. I felt in the latter days that I may as well have been buying digestive biscuits or baked beans. It went to commodity buying.

Regulation: I can only comment from a wine perspective - it must be very different for butchers, meat producers and the dairy sector. I'm fed up with suppliers whingeing about buyers' demands. If you don't want to trade in that market then don't. If you do, then be grown up and get on with it.

My concern is around junior buyers who have neither the experience, knowledge or gravitas to build relationships. They're just driving a price negotiation; fortunately the buying structure in the majority of the major retailers, between commercial buyers and product group managers, and team discussions, will usually ensure that reasonable decisions are made, but in times of stress, then the onus is on the commercial team to bring in the extra revenue - and very quickly. I'm all for tough negotiations, but that's where there is a weakness. There are some superb supermarket buyers in the industry, who, through their wealth of experience, get the whole picture, and understand the wider ramifications of relationship building and range management plans, whilst adhering to their own business targets and constraints. But there are several who don't'. A little bit of knowledge, intuition and understanding is priceless. Many get it, some don't.