A remarkable feature of the recession has been the resilience of the supermarkets (as well as many grocery retailers). And the point is amply demonstrated in our cover story, which shows that, as commodity prices rose 23.3%, the net impact on gross margins at the major multiples was a mere 10 basis points fall, against consumer food price inflation of 5.8%.
That's left suppliers to absorb the vast majority of costs. As OC&C's Global 50 rankings show, even the international fmcg giants are feeling the strain, with a 160 basis points decline in gross margins, two-thirds recording a decline in operating margins and an average decline in ROCE from 18.5% to 15.8%.
Inevitably, this will be taken by the media as an opportunity to berate supermarkets for the power they exert, and I do not entirely wish to disavow them from this opinion, particularly since these are gross margins, so all that stuff about cost reduction programmes isn't relevant here.
But it would be wrong to think the retailers haven't had to absorb significant costs, and they've taken big cuts on the balance sheets due to property asset writedowns, too (which explains why Sainsbury's went to the City last week to raise fresh funds).
And big suppliers are powerful, too. Nestlé, the world's largest food and drink manufacturer is, in value terms, actually bigger than Tesco, with sales of $94.8bn versus Tesco's $86.4bn. But its gross margins, while falling by 100 basis points, are a ginormous 48.7% (versus Tesco's roughly flat 7.8%), and its operating margins increased (after stripping out disposals) from 14.0% to 14.3% (versus Tesco's static 5.9%).
Apples and pears, you will say. But in truth, Nestlé and Tesco have far more in common than their differences suggest. Both are powerful. And both have the flexibility of a diverse product offer to be able to wriggle out of a recession. It's all in the mix. It's if you don't have that mix that you're in trouble.
That's left suppliers to absorb the vast majority of costs. As OC&C's Global 50 rankings show, even the international fmcg giants are feeling the strain, with a 160 basis points decline in gross margins, two-thirds recording a decline in operating margins and an average decline in ROCE from 18.5% to 15.8%.
Inevitably, this will be taken by the media as an opportunity to berate supermarkets for the power they exert, and I do not entirely wish to disavow them from this opinion, particularly since these are gross margins, so all that stuff about cost reduction programmes isn't relevant here.
But it would be wrong to think the retailers haven't had to absorb significant costs, and they've taken big cuts on the balance sheets due to property asset writedowns, too (which explains why Sainsbury's went to the City last week to raise fresh funds).
And big suppliers are powerful, too. Nestlé, the world's largest food and drink manufacturer is, in value terms, actually bigger than Tesco, with sales of $94.8bn versus Tesco's $86.4bn. But its gross margins, while falling by 100 basis points, are a ginormous 48.7% (versus Tesco's roughly flat 7.8%), and its operating margins increased (after stripping out disposals) from 14.0% to 14.3% (versus Tesco's static 5.9%).
Apples and pears, you will say. But in truth, Nestlé and Tesco have far more in common than their differences suggest. Both are powerful. And both have the flexibility of a diverse product offer to be able to wriggle out of a recession. It's all in the mix. It's if you don't have that mix that you're in trouble.
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