Waitrose demands a 5% cut from suppliers
As Tesco and Sainsbury’s traded insults this week over whether there is a supermarket price war or not, The Grocer has learnt of suppliers already coming under pressure from two other rivals looking to shore up margins and boost value credentials.
When Tesco launched its new Price Drop initiative last month, many suppliers expressed fears they would come under pressure from rivals keen to match Tesco and retain margins. This week, those predictions appeared correct, with suppliers reporting pressure from both Waitrose and The Co-operative Group.
The Grocer has learned Waitrose has launched a fresh round of negotiations with suppliers, in particular those of ambient goods, and is asking for cost reductions of up to 5%. Suppliers were made aware of the plans in a letter from Suzanna Duke, Waitrose director of ambient buying, which spelt out that having increased its sales by 20% since 2008 Waitrose’s ambient team was “embarking on a new approach towards the development of supplier strategy and business planning”.
The news comes as Waitrose unveiled a new price-led marketing strategy ‘1000s of ways to great value’ focused on its cheaper Essential range, its brand price match and its pledge to carry over 1,000 offers each week. However, the retailer denied its latest dealings with suppliers were linked to the value campaign or its brand match initiative. “We’re working with suppliers as part of our usual business planning cycle to help us continue to deliver the growth that benefits us all,” said a spokeswoman.
Suppliers were unimpressed. “Waitrose is asking for 5%; we were thinking of something much closer to zero,” said one.
Another branded supplier was worried Waitrose had lost sight of its strategy and was focusing too much on price. “Waitrose isn’t Tesco and doesn’t have the same clout with suppliers,” he warned. “This could lead to about six months of tension for very little gain.”
Meanwhile, a supplier to The Co-operative Group complained to The Grocer this week that he had been asked for a one-off payment of up to 2% of his 2011 sales with the retailer. The own-label supplier said a buyer for The Co-op group explained to him that the retailer had a bad year and needed to recover some of the shortfall, adding that suppliers not seen to be supporting this cause could lose out in the future.
Another fresh foods supplier said: “With The Co-op, we are aware of a request-stroke-demand on price, but I am not aware specific percentages have been asked for.”
The Co-operative Group refused to explain the nature of its recent dealings. “The commercial agreements we have with our suppliers must remain confidential, but we are intent on building long-term relationships which are mutually beneficial,” said a spokesman. “We are always happy to discuss concerns they may have.”
Although The Grocer understands suppliers have not been asked to fund Tesco’s Price Drop so far, Tesco CEO Philip Clarke warned negotiations would remain tough. With UK sales excluding fuel and VAT down 0.5% for the six months to 27 August, he said: “Where we believe margins have got unnecessarily high, there will be more negotiation, but that happens all the time.”
On the same day Sainsbury’s reported like-for-like sales growth of 1.9%, excluding fuel but including VAT, in the 16 weeks to 1 October. CEO Justin King said it had no plans to launch a major offensive against Tesco’s Price drop campaign.
In an exclusive interview with The Grocer, former Asda boss Allan Leighton said the multiple grocers were “not in bad shape” and he was more worried about smaller grocers and independents. “If there is a business case, they have got to be able to borrow money from the banks. You’ve got to get the small and medium-size businesses going as well as the big companies.”