Relationships between supermarkets and their suppliers are becoming strained as a result of the credit crunch.
Some 600 delegates at yesterday’s IGD convention in London were polled about the current relationship between supermarket buyers and suppliers’ account managers.
The largest single group (four out of 10 delegates) described it as “confrontational” and the majority (71%) said there had been a move to greater short-termism over past 12 months.
One account manager told TalkingRetail.com that Asda buyers in current negotiations were banning any talk of new product development (NPD) and insisting that the only investment should be in reducing costs.
She described the approach as “a kick in the teeth.”
Irwin Lee, UK & Ireland managing director for Procter & Gamble, delivered a plea to delegates for co-operation.
He said: “I don’t believe it should all be just about price. We need to find the right balanced solutions.
“There’s a risk we might slip backwards to more transactional and confrontational relationships.”
Lee added: “Value of course is the concern these days, but we have to be careful that the intense focus on price does not lead to commoditisation.”
Innovation, he said, was what differentiated brands.
He continued: “Consumers want us to continue delivering innovation and value on the big brands that we trust.
“Now, more than ever, we need to work together to bring value and innovation for our shoppers.
“It’s very easy to retreat into a relationship driven only by cost and assume consumers are only influenced by price.”
IGD chief executive Joanne Denney-Finch asked: “Will brands and retailers see their interests diverging? Possibly, but I don’t think it’s likely. In an upside-down world I’m convinced we will need stronger not weaker relationships.”
Yet Rick Bendel, Asda’s group marketing director, made it clear that his company was intensely focused on price cutting.
It was supermarkets’ duty to reduce costs as ordinary people faced financial hardship in the UK’s slowing economy, he argued.
“People are bleeding, and if we don’t do something about it we won’t get the rewards in the future,” Bendel said.
Key questions retailers needed to ask themselves included:
• Are we being responsible and cutting our costs aggressively?
• Are we trying to manage price perception, or are we genuinely saving people money?
• Is private label the weapon of affordability or just a range extension?
• Are we on the customer agenda or the supplier agenda?
He described Asda’s mantra of “everyday low cost” as not a tactic but a vocation.
Bendel concluded: “This is a new world. It won’t change in 12 months, or two years. The decisions we take in the next 12 months will define the future of all of our businesses and the grocery industry for the next 10 years.”
Tesco executive director Lucy Neville-Rolfe said: “It’s more important than ever that retailers help suppliers understand how customers are changing.”
She added: “We need to focus more on price and especially the cost of fresh food.”
by David Shrimpton
