Creating one trading group for independents is a great idea. But nobody is buying it, reports John Wood

That point is clearly not lost on Martin Beaumont, chief executive of the Co-operative Group, which runs CRTG. He told this year’s Association of Convenience Stores conference that the group was looking at ways of forming new alliances with other buying organisations. He said that the independent sector needed to adopt more collaborative business models. He explained: “If we are all to withstand Tesco and the like, then we all need to get closer together - big and small.”

With the major supermarket chains increasing their grip on the grocery market, and pushing down prices in the process, independent retailers are having to re-examine their business strategies as they look for new ways of competing. And one revolutionary idea keeps bubbling to the surface: is the time right to create a supergroup that would be responsible for buying for the entire independent retail sector?
The co-operative movement has set something of a precedent here that other retailers are wondering whether they should follow. After all, if 41 co-operative retail societies can come together to leverage better terms from suppliers by channelling all their purchasing through a central buying organisation - CRTG - just think what could be achieved if the independent sector pooled even part of its still huge buying power in a similar way.
It all sounds pretty good in theory. But, as always, the reality is far more complex. While most leaders in the sector have given the idea of a supergroup some thought, most doubt whether it would work and nobody has any appetite for experimenting.
“The reality is that nothing should be off the agenda,” concedes Spar UK managing director Jerry Marwood.
He argues that volume alone is not going to win concessions from suppliers: “It’s not just about buying power but standards. We need to add value to suppliers’ products. Retailing is as important to the supplier as volume. It’s not about buying groups - it’s about selling groups.”
He’s right, of course. A key reason for the success of the CRTG is that its members are disciplined when it comes to issues such as ranging, marketing and the implementation of centrally-negotiated promotions.
Marwood believes that pooling buying power would only work if it could be done with groups with similar ways of working.
“You need to line up with a peer group that retails in a consistent and well managed way. If other retailers have other agendas there is no control over the output.”
Spar’s experience with the Group Trading Alliance bears out his arguments. The group, which also included the Landmark cash and carry buying group and Makro, was dissolved late in 2002. The GTA story also shows how a combination of cash and carry operators and retail groups would add further complexity into any supergroup.
Marwood explains why: “You had Spar which was moving to a retail position, Landmark was wholesale, and there was Makro. Each business had a different strategy to put the product in front of the consumer, and that was the problem.
“It is a misconception that it is all about volume. If we can find a way to add volume we will always look at it, but it is only worth it if you can do it in a consistent manner.”
And the main buying groups agree with Marwood: volume alone is not the answer.
Landmark MD Martin Williams says: “We have considered it in the past, but I’m not sure you would get the benefits in terms that might be expected for the volume. Suppliers are rewarding what you do. They are looking for a return on their investment.”
Williams says that when Landmark lost substantial volume last year, following the departure of its largest member, Bestway, terms did not suffer as might have been expected. “In fact,” he adds, “They have got better because we have been able to offer suppliers a more co-ordinated approach.”
The independent sector should unite in an attempt to influence prices, says Williams, but rather than through sheer commercial pressure it should be through trade associations such as the Federation of Wholesale Distributors and the Association of Convenience Stores pressing suppliers for a level playing field when it comes to price.
Even Nisa-Today’s, the biggest example of an independent buying group, and one where cash and carry and retail have been joined together successfully, gives only a qualified approval for the supergroup concept. Neil Turton, managing director of commercial services, says: “We fundamentally believe the sector’s best interests are served via a combination of like-minded organisations. However, in today’s environment, it is not possible to add value by simply adding turnover through a marriage of convenience.”
Turton says any buying group has to introduce efficiencies into the system, especially in the supply chain, but also in execution, to build a powerful business case for suppliers. Pointing to Nisa’s substantial investment in its distribution system, he adds: “We simply have to be as big and efficient as the big four.”
But there’s another powerful reason why most groups would fight the creation of any supergroup - the fierce competition that exists between them.
As Christopher Adams, chairman of Palmer & Harvey McLane, points out: “Volume is a significant factor, hence the success of Nisa-Today’s, but I do not believe it is appropriate to share buying prices with my competitors.”
With P& H having been a member of Nisa-Today’s some years ago, and then leaving, Adams points out that he has seen the argument from both sides. And he is another big sceptic about the value of teaming up with companies he sees as rivals.
“The most important factor is servicing customers and helping them to grow their businesses, because that is how we can grow ours. I do not believe that by forming a bigger group we would be able to service our customers any better.”
With such strong objections, it’s clear that a supergroup is a great idea whose time has not yet come. And probably never will.