For 60 years the secret of success as an fmcg supplier was to attach yourself to the coat tails of the multiples and enjoy the ride. Sure it was a bit bumpy at times. S
But consumers are abandoning the supermarkets in their droves, with Morrisons - which this week was spinning frantically about ‘good early progress’, strong cash flow and working capital improvements, while profits halve and sales plummet - not alone among the big four (indeed the top five) in being jilted in favour of those cheap-date discounters.
“Suppliers have a fatal attraction to the supermarkets, and the relationship is in some instances veering from high maintenance to bunny boiler” - Adam Leyland, Editor
The impact for suppliers has been profound. Our OC&C 150 report shows profit margins stabilised after several years of decline. But for how long? The figures relate mostly to 2013 (even 2012), and the relationship with the mults has grown markedly more messy: from high maintenance to bunny boiler territory in some instances.
It’s no surprise buyers are reviewing ranges, and pricing architectures, in the wake of the mayhem caused by the discounters. We would imagine there’s a lot of soul searching at Tesco HQ right now. And Morrisons alluded this week to the removal of 2,000 lines from its (already quite limited) range.
Suppliers will be keen to support range reviews, particularly ones thought through rationally, and enable valued customers to return to growth. But not all buyers are behaving rationally now: we’ve heard stories of buyers pulling new listings, even ranges, days before they go on shelf; and the speed with which products are coming in and going out again is shortening as buyers frantically flail about for solutions to declining sales.
For suppliers, this is infuriating, unsettling, costly. And with discounters apparently guaranteeing growth, while the supermarkets demand loyalty, who should they choose? Suppliers have always had a fatal attraction to supermarkets. Should they spurn them for a hot new date with destiny?