Roll your sleeves up, go to a mainstream UK supermarket and pick up a branded food product – any branded food product. The company that supplied it will have paid the retailer thousands of pounds in what is called ‘marketing support’ for that product to be available on the shelves in a certain number of stores. These non-refundable payments used to go by names such as listing fees, hello money or shelf money.
Whatever this money may have been called in the past, the practice of charging suppliers for shelf space remains the tip of an iceberg that sorts out those food brands with a commercial dowry from those with none. The basic building block of supermarket stock management is the Stock Keeping Unit (SKU), which identifies the different product pack sizes and variants (e.g. flavours). Every SKU will have some form of marketing support, which goes part way towards explaining why supermarkets can afford to sell food more cheaply. However, this is more illusionary than real, since shoppers remember special offers more readily than non-promotional prices.
Given that the shelves of a large supermarket can contain 20,000 or more food SKUs, multiple retailers are in a position to bank a substantial lump sum before even placing orders with suppliers, let alone paying for any goods they may order. In general, the resulting invoices will often be paid out of the sale of the goods concerned and slow-moving lines will be weeded out.
Across much of Europe, the food industry supply chain has evolved to a similar formula: thousands of primary producers, hundreds of food manufacturers, supplying a handful of major retailers who account for most of the food sold to the general public. Like the waist in an hourglass, retailers throughout the industrialised world control the narrow passage through which food is sold, in micro-managed environments, to millions of consumers.
The power that multiple retailers exert on their suppliers upstream is phenomenal. Ten or fifteen years ago a single retailer might have accounted for 20% to 25% of a supplier’s total sales. Today, the proportion can be as high as 40%. Retailers can break a business: the threat of delisting a product is usually sufficient for buyers to get what they want. Recognising this, the UK competition authorities developed the watershed Groceries (Supply Chain Practices) Market Investigation Order 2009, which came into force on 4th February, 2010.
The resulting UK Groceries Supply Code of Practice (GSCOP) required the UK’s 10 largest retailers to appoint compliance officers from the ranks of senior buyers. About a year ago, former Cooperative Farms Managing Director, Christine Tacon was appointed as the first Grocery Code Adjudicator and has opened ongoing conversations on topics that are too commercially sensitive to be discussed in public. The publication of a letter to British Brands Group director John Noble in December 2013 can be seen as a gentle warning to the retailers that they can ‘request’ money for certain shelf locations, but not ‘require’ such payments, unless it forms part of a promotion. Gondola ends for example, those plastic racks of additional product at the end of an aisle, count as promotional shelf spaces.
Speaking to the Sustainable Food Trust, Noble welcomed Tacon’s work as a positive development for brand owners. There is still ‘a climate of caution,’ and for suppliers, relations with retail buyers remain a ‘very delicate balancing act.’ His membership is ‘still encountering abuses,’ but now has an official channel through which to resolve issues without compromising commercial confidentiality. Tacon is, as her office made clear, enforcing a voluntary code for the Department for Business, not ‘actively steering’ the development of the code.
One serious limitation of the current code is that it can only apply to direct suppliers, leaving the position of primary producers and intermediaries in the supply chain little changed. Take the fresh produce category, for example.
Produce grades and calibrations are specified to the millimetre; retail buyers can demand cauliflowers are white and not cream; they can specify packaging from ‘preferred’ converters: the list of boxes to tick for fruit and vegetables sales can be extensive. And since most supermarket fresh produce is sold through packers and producer organisations, the primary producers have no access to the Groceries Code Adjudicator.
Isolated for most of their working days, many farmers live in fear of supermarket buyers and are afraid to speak out. A thread last year in the UK Food Group mailing list gave an anecdotal account of a grower who ploughed in 60 acres (25 hectares) of cauliflowers because a good growing season meant the cauliflowers were bigger than the size specified by the retailer and were therefore too big for the required polythene bags.
Despite promises of anonymity, the farmer concerned turned down requests to film the destruction of the crop. Nor did he challenge the requirement to keep some 240,000 cauliflowers off the spot market, an immediate avenue for the discounted sale of bulk product. Many supermarkets ban subsequent sales of rejected produce on the spot-market, for fear that the veg they rejected will show up in other places at a lower cost. Deep-rooted fear amongst suppliers and lack of a suitable channels through which to talk openly of commercial abuse, just reinforces the existing business patterns for primary producers. Unchecked, these abuses will continue to haunt supermarket supplier relations like a ghost in the machine for seasons to come.
Not everyone in the food industry believes that suppliers suffer at the hands of supermarket buyers, but a straw poll carried out by The Grocer in 2012 suggested that one in four believed that bribery in the supply chain was getting worse. As farming struggles to survive in the face of ever-lower prices for producers, we have to ask, can this really be smoke without fire?
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