Mutually beneficial

31 August, 2007
The BRC's Kevin Hawkins hits back at last week's article by business advisors Grant Thornton, which criticised supermarket price pressures
Page 15 
The success of Britain's bakery sector is built around a strong, mutually beneficial relationship with the major supermarkets.
Last week, on these pages, it was reported that a recent survey of UK food suppliers had revealed that 83% of company directors expected to see more firms within their sector go out of business. Much of the blame for this, according to Grant Thornton, the company which carried out the survey, rests with the big supermarkets. Rubbish!Earlier this year, the Competition Commission, reporting on its exhaustive and continuing investigation into the grocery sector, stated that there was "little evidence of any ongoing decline in profits" for manufacturers and processors.In fact, on the three occasions over the past eight years that the Commission has investigated the grocery sector, it has failed to unearth any evidence to support claims that retailers are using their position to profit at the expense of their suppliers. The scale economies arising from increasing market shares have been passed on to consumers in lower prices and product innovation.It is somewhat surprising, then, that Grant Thornton, from a survey of just 50 suppliers, has been able to draw such simplistic conclusions about the state of the grocery market and the relationship between retailers and their suppliers. The reality is that the majority of suppliers enjoy mutually advantageous working relationships with supermarkets.Indeed, the Competition Commission's own, much more extensive survey of suppliers suggests that supply relationships are generally positive, with 94% of respondents saying they believe they will still be in business in five years' time and 80% saying they have been able to invest in their businesses in the past two years. That is not indicative of a supply chain breaking under pressure. In the bakery market, the share of retailers' own-brand products in total sales has been halted and reversed by the big manufacturers, through product individuality and aggressive marketing.Supermarkets know that if they put their suppliers under pressure, it restricts investment and stifles innovation, which is why they aim to foster long-term constructive relationships. One of the things the bakery sector has been able to do well in recent years is innovate to meet the changing tastes of consumers. Bakers were among the swiftest to recognise and react to consumers' growing interest in health and nutrition, developing new brands and premium and speciality product lines to meet the demand for something different. Super- markets have supported and encouraged this strategy.The supermarkets' main aim is to serve their customers, which is best done by creating a viable, innovative and competitive supply chain. This is the only way to deliver the choice, quality and innovation that consumers demand.There will always be arguments between supermarkets and their suppliers over terms and conditions, as there are in all supply chains, but supermarkets recognise that treating suppliers badly is bad business, which is why both parties seek, and generally enjoy, mutually beneficial relationships. n



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