It might be the consumer’s favourite aisle, but fresh produce suppliers are at breaking point. Richard Clarke reports on how the impending crisis could affect the multiples
Fresh produce is arguably a supermarket’s most important aisle, since it’s the first a shopper sees upon entering a store. According to research carried out for The Grocer earlier this year, it is also shoppers’ favourite section: they spend longer browsing the aisle than any other.
Consumers are also spending more in the aisle. TNS says year-on-year value sales rose 4% in the year to April 24.
Nevertheless, it is impossible to ignore claims that the fresh produce supply chain is at breaking point. Suppliers say the price pressure the multiples are exerting on them, and their demanding product specifications, are so great that they will soon be forced to seek markets elsewhere.
In April, South Africa’s growers claimed that worsening returns from supplying UK supermarkets meant some producers were already starting to hawk their produce around Asia.
Days later, the Fresh Produce Consortium waded into the row. President Alan McCutchion said: “Retailers’ consistent and prolonged policy of ‘we will not be beaten on price’ is making the UK uncompetitive. There is a real danger that quality supply will not be available. Producers and exporters have alternative outlets and the UK is slipping down the list of their priority markets to supply.”
The multiples point out that it is not in their interest to endanger sources of supply.
Sainsbury category manager for vegetables, Tony Sullivan, admits he is conscious of the pressure suppliers face, but says that the best way to help them is “to maximise volumes and sell more produce”.
“We work with our suppliers, who work with the growers, to ensure we are all operating as efficiently as possible.”
However, Tim Kershaw, director of supply chain consultancy Libra Europe, offers a note of caution. “What suppliers are doing at the moment is trading margin for volumes,” he says. “But there comes a point when you can squeeze no more.”
Kershaw thinks the threat of supermarkets’ supply channels drying up is a real one. “There are better margins to be had from supplying the Continent. Eastern Europe is becoming an attractive proposition to growers, including British growers, because there are fewer quality constraints. The expectations of supermarkets here are considerably higher.”
Kershaw says the UK multiples’ intense focus on quality could be their undoing. “They are obsessed with conformity - they want everything to be the same shape and size. The amount of stuff that never makes the grade is huge. Products in the UK also have a shorter shelf life than anywhere else in Europe. This drives costs up, which puts pressure on the retailers’ margins and, in turn,
the margins of their suppliers.” Asda refutes many of Kershaw’s claims, arguing that produce that doesn’t meet Grade I standards is used in its Smartprice range, which means nothing goes to waste.
It also claims its ‘cost-plus’ approach to doing business means British growers are desperate to become suppliers.
Suppliers could turn their focus to smaller retailers, such as Budgens, with just 0.3% of the grocery market. But not everyone can supply the likes of Budgens, which means most growers and traders will be forced to think carefully about whether or not they can afford to maintain business links with the big UK supermarkets.
The message is stark: if the harbingers of doom are to be believed, and the threat of suppliers switching to other markets is real, then major retailers may have to reassess their attitude to low pricing to avoid difficulties securing quality produce.
Fresh produce is arguably a supermarket’s most important aisle, since it’s the first a shopper sees upon entering a store. According to research carried out for The Grocer earlier this year, it is also shoppers’ favourite section: they spend longer browsing the aisle than any other.
Consumers are also spending more in the aisle. TNS says year-on-year value sales rose 4% in the year to April 24.
Nevertheless, it is impossible to ignore claims that the fresh produce supply chain is at breaking point. Suppliers say the price pressure the multiples are exerting on them, and their demanding product specifications, are so great that they will soon be forced to seek markets elsewhere.
In April, South Africa’s growers claimed that worsening returns from supplying UK supermarkets meant some producers were already starting to hawk their produce around Asia.
Days later, the Fresh Produce Consortium waded into the row. President Alan McCutchion said: “Retailers’ consistent and prolonged policy of ‘we will not be beaten on price’ is making the UK uncompetitive. There is a real danger that quality supply will not be available. Producers and exporters have alternative outlets and the UK is slipping down the list of their priority markets to supply.”
The multiples point out that it is not in their interest to endanger sources of supply.
Sainsbury category manager for vegetables, Tony Sullivan, admits he is conscious of the pressure suppliers face, but says that the best way to help them is “to maximise volumes and sell more produce”.
“We work with our suppliers, who work with the growers, to ensure we are all operating as efficiently as possible.”
However, Tim Kershaw, director of supply chain consultancy Libra Europe, offers a note of caution. “What suppliers are doing at the moment is trading margin for volumes,” he says. “But there comes a point when you can squeeze no more.”
Kershaw thinks the threat of supermarkets’ supply channels drying up is a real one. “There are better margins to be had from supplying the Continent. Eastern Europe is becoming an attractive proposition to growers, including British growers, because there are fewer quality constraints. The expectations of supermarkets here are considerably higher.”
Kershaw says the UK multiples’ intense focus on quality could be their undoing. “They are obsessed with conformity - they want everything to be the same shape and size. The amount of stuff that never makes the grade is huge. Products in the UK also have a shorter shelf life than anywhere else in Europe. This drives costs up, which puts pressure on the retailers’ margins and, in turn,
the margins of their suppliers.” Asda refutes many of Kershaw’s claims, arguing that produce that doesn’t meet Grade I standards is used in its Smartprice range, which means nothing goes to waste.
It also claims its ‘cost-plus’ approach to doing business means British growers are desperate to become suppliers.
Suppliers could turn their focus to smaller retailers, such as Budgens, with just 0.3% of the grocery market. But not everyone can supply the likes of Budgens, which means most growers and traders will be forced to think carefully about whether or not they can afford to maintain business links with the big UK supermarkets.
The message is stark: if the harbingers of doom are to be believed, and the threat of suppliers switching to other markets is real, then major retailers may have to reassess their attitude to low pricing to avoid difficulties securing quality produce.
No comments yet