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Supermarkets unfazed

July 20, 2005

It’s official. Britain’s Office of Fair Trading says its Supermarket Code of Practice with suppliers, including printers and packaging companies, is not working. In a published review of the code, introduced in March 2002, the OFT says that around 85 percent of respondents claimed the code had failed to bring about any change in the supermarkets’ behavior (essentially the big four of Asda, Safeway, Tesco and Sainsburys).
But while criticizing the retailers, the OFT is not recommending significant changes. Instead it proposes to conduct an audit of supermarkets dealings with suppliers to find evidence of abuses of the code. This sounds like a traditional bureaucratic cop-out, but to be fair the OFT could not gather any hard evidence from suppliers and therefore could not implement worthwhile changes in its review of the code. Surprise, surprise: It appears that nobody was willing to go on record because they feared reprisals from supermarkets.
The Fair Deal Group, which was set up to monitor implementation of the code, is not impressed with the review. Its members include the British Printing Industries Federation, the Packaging Federation and the GPMU print trades union. Charles Trotman, chairman, said the FDG was grateful that the OFT had acknowledged what suppliers have been saying for months, but doubted whether an audit will produce any meaningful changes to the Code of Practice. “It is vital that suppliers are directly involved in the audit. Otherwise, we will be in a position where the OFT is relying on the supermarkets to solve the problem they are in fact causing. Suppliers should be guaranteed anonymity when making a complaint. If there are abuses of the code taking place, and we certainly believe there are, suppliers must be able to come forward without fear of retribution,” adds Trotman.
The FDG’s concerns are hardly news to label and packaging converters, or sheetfed carton printers for that matter. Forget about cozy ideas of partnerships. Tough-talking buyers tell the suppliers what they are willing to pay and when they want their orders. It’s not ideal, but understandable when we consider the dog-eat-dog nature of retailing at this level. Shopper loyalty is paramount, hence the general emphasis on lower grocery prices, which often turn out more illusionary than real. Concern about the social, economic and environmental harm created by the large retail multiples is increasing, but the convenience of one-stop shopping with free parking is now firmly part of western society.
This is particularly true in Britain, where all supermarket groups now account for about 85 percent of food purchases. Their power prompted the OFT’s decision to examine how supermarkets treat their suppliers. They are also in the news for other reasons. After half a century of growth, this market is nearly saturated. Many local planning authorities now attempt to limit further out-of-town expansions, prompting the multiples to expand stores and sell more discounted nonfood items to maintain sales volume. A few are investing heavily in overseas outlets, while several are building chains of smaller convenience stores in key urban locations.
It seems that a full-scale grocery price war is about to begin in the UK. This follows the end of a 14-month campaign by Wm Morrison to take over the 480-store Safeway chain. The Yorkshire-based Morrison chain built its business on a “pile it high, sell it cheap” policy, just like uncuddly Wal-Mart, which took over Asda a few years back. Stronger competition has prompted both Asda and Tesco to promise tens of millions of pounds worth of price cuts, with a struggling Sainsburys also planning reductions later this year. Meanwhile, label converters no longer boast about their Sainsburys, Asda or Tesco accounts. They left the blue-chip league long ago. Everyone just has to work that little bit harder to give the supermarkets their due.