After a two-week-long series of invitations to Cheshunt’s cosy cubicles – to discuss price cuts, trade term changes and contributions – punch-drunk suppliers know exactly how he feels.
This is classic Tesco territory. There is nothing illegal about what Tesco is doing – certainly not before the new Grocery Supply Code of Practice is drawn up. Indeed, it seems entirely ‘reasonable’ for Tesco to choose this moment to negotiate, with the supermarkets waging a bitter war, while Nestlé, Danone and Philip Morris all announced strong results this week.
Tesco is keen not only to address its perception on price, but also to recover the cost of all this downtrading. If the discount range is worth, say, £500m, at a lower margin, then it must be costing £100m. So how’s it going to find that?
As Sir Terry told me earlier this month, “it’s a judgement call, like all these things”. And with so much political focus now on small businesses, Tesco would be unwise to go there, so it appears to be honing in on large and medium-size businesses. But selecting candidates surely can’t be based only on size. Who needs more help right now, for example? A small, successful local supplier, or Premier Foods, in a vicious circle of soaring pension fund liabilities and plummeting share price allied to unmanageable debt?
Quite a few large and medium-size suppliers are reeling too, after several rounds of this. Suppliers have also reported being shocked and stunned by the scale and style of the negotiations. One told us he was asked for a contribution that was 15% of his total turnover.
And having subsidised the cheap promotions itself to drive footfall so it could make money on grocery (a tactic Aldi and Lidl spotted and exploited), Tesco appears now to want the drinks boys to pay. Dingalingling. What round are we in?