Julian Hunt & Rod Addy
Somerfield has been warned that it would be making a huge mistake if it pursues plans to push a factory gate pricing initiative for ambient goods.
The warning follows industry reports of a concerted campaign by the retailer to lower prices on shelves and cut supply chain costs. One supplier told The Grocer: “We are aware of a consolidation project, where Somerfield is looking for supply chain efficiencies. We have been asked to contribute information to a consultant it has drafted in to focus on this.”
Logistics experts say retailers will face renewed pressure to increase efficiency across the supply chain this year.
Some executives on our supplier reader panel confirmed that Somerfield, which has been involved in backhauling and factory gate pricing for some time, is trying to increase the volume of goods distributed on that basis. But one supplier said: “Somerfield does not have the critical mass with most suppliers to make this work. The operational people understand that, unlike the powers that be who came up with this scheme. In-store availability will be far worse over time.”
Factory gate pricing - where the retailer takes responsibility for haulage and so pays less for the goods - is commonplace. Two thirds of our panel said they supplied retailers on this basis, and most had been doing so for more than two years.
Our reader poll found that 83% of the suppliers engaged in factory gate pricing or backhauling thought its impact on their business was neutral. However, some claimed FGP was still causing headaches for retailers concerning delivery and availability.
One leading retail logistics director insisted that these sorts of initiatives could be stepped up. “As fuel prices move, the driver shortage becomes more apparent and the whole market gets tougher, we will all be focusing on costs again - and coming up with something even more ingenious,” he said.
Somerfield has been engaged in a flurry of supplier meetings in the past fortnight. Many manufacturers met with new trading and marketing director Colin Smith, former commercial director for Tesco.
“He’s saying that Somerfield needs to look at all the terms it has with suppliers and that existing agreements are in the past,” said one source.
Somerfield declined to comment on the initiatives.