Big chains are an easy target, and rightly so in many instances. But food’s journey from supplier to consumer is more complex – and evolving – says Andrew Fearne.
Picture this: you are the supplier of a highly perishable and seasonable food commodity to a major supermarket. You are a significant player in your sector, say summer fruits, but the supplier of only one of 30,000 product lines for the supermarket.
Your supply programmes are generally agreed annually with your customer, the supermarket, with prices and promotions contingent upon availability and demand.
As we approach the seasonal peak you receive a call from the buyer. (The names are fictitious but the nature of the conversation is not.)
Buyer: Just called to discuss our pricing and promotional plans over the next two weeks. We want to run a promotion and discount the product by one third off the planned price.
Supplier: But we agreed a price already! Supply is more or less as planned, and we know consumers don’t respond to price promotions on this product at this time of the year because demand is already at its peak.
Buyer: I know, but we want to go on promotion with this product. You have ten minutes to agree or we will remove all your products from our shelves within 24 hours. The clock starts now Fred, I will hold and wait for your answer…
Fred calls in his boss, the MD. The conversation continues with the supplier continuing to defend the agreed strategy and operational plan for the season, and the lack of justification for such an action by the supermarket.
Buyer: A minute to go. What is your answer?
Supplier: No, we are not going to do this.
Buyer: So what are you going to do with all that product in the supply chain? If you sell it on the open market you will crash the price.
Supplier: Yes we will, so everyone will get lower price product, the consumer won’t buy any more and the whole industry will suffer. If anyone asks us why we did it, we will tell them…
Buyer: OK, bye for now.
Thereafter business is resumed ‘as normal’.
In short supply
Purchasing managers the world over are will recognise this as the kind of unethical behaviour that was standard practice in the pre-historic days of adversarial trading and opportunism which used to be the norm in food supply chains. Many observers believe this to be the way supermarkets continue to behave today, abusing their power and behaving unethically to extract concessions from weak suppliers who are struggling to survive in an increasingly competitive trading environment.
The reality is that conversations like these and the unethical abuse of buying power are rapidly becoming the exception in many, if not most, of our supermarket supply chains, as supermarkets finally wake up to the commercial damage this behaviour does to their business. Supermarkets are also more aware of the benefits to be gained from developing strategic relationships with key suppliers.
One of the most important conclusions from our research at the Centre for Value Chain Research, University of Kent, on justice in supermarket supply chains, involving hundreds of supermarket supplies and conversations with supermarket employees in various functional areas (buying, merchandising, technical, logistics), is that supermarkets vary markedly in their treatment of suppliers – we must stop talking about supermarkets as one amorphous group.
Buyers are a critical component in the interface between organisations but their buying role is, we believe, diminishing, as supermarkets become increasingly dependent on fewer, larger, more sophisticated suppliers who take on more of the responsibility for delivering on the promise supermarkets make to their shoppers.
Food for thought
During the course of our research we have seen numerous examples of good, bad and downright ugly behaviour. But we do not concur with the widely held view that supermarkets’ abuse of power is systemic. Indeed, we believe that many aspects of supermarket procurement processes and supermarket buyer behaviour are poorly understood, not least because they are extremely difficult to research.
It is easy to gain access to supermarket suppliers and those who have fallen victim to rationalisation and are all too willing to tell tales of unethical buying behaviour. But the same suppliers are less willing to reveal their own lack of strategic vision or investment in developing relationships with their supermarket customers and then, crucially, making use of them to become more efficient and effective in delivering value in the eyes of final consumers.
The fact is that supermarkets are a dominant force in retail food supply chains the world over, and the behaviour of supermarket buyers in many countries leaves a lot to be desired – they are no angels! However, the best UK supermarkets are light years ahead of the best in other developed countries in terms of the way they work to develop collaborative relationships with those suppliers willing and able to invest in building strategic relationships with them.
As supermarkets and their supply chains evolve and migrate towards this more collaborative model, there will be casualties along the way. However, we should not confuse structural adjustment and the unethical behaviour of the few with a systemic abuse of power designed to rip the heart out of British agriculture.
Supermarkets have a vested interest in a sustainable food and farming industry in this country, but they need help in making it happen and should not be shouldered with all the blame when it does not!
About Andrew Fearne
Andrew Fearne is Professor of Food Marketing and Supply Chain Management and Director of the Centre for Value Chain Research at Kent Business School, University of Kent. For the latest thinking on value chains follow us on Twitter: @valuechains.