Morrisons is facing a backlash after telling suppliers it wants them to bring forward millions of pounds of spending to help it hit revised financial targets under CEO Rami Baitiéh’s turnaround plans.
The supermarket is understood to have contacted suppliers across a raft of categories in what sources described as “bullish” demands for investment due in its Q4 period to be accelerated to its current Q3, which ends this month.
The Grocer has received information from more than a dozen suppliers who have expressed disquiet at the demands. Negotiation experts also criticised the strategy as a short-term tactic that could backfire on the retailer.
One supplier asked to bring forward spending told The Grocer Morrisons had asked for its Q4 marketing payment to be made early, with an incentive of being offered free marketing to the same value in Q4.
“Morrisons lump sum payments are attached to in-store media delivery,” they said.
“They are asking suppliers to bring the Q4 investment into Q3, to be spent on media in July, invoiced in July.
“In return, suppliers get the same value of ‘free’ media in Q4.
“This is a very short-term tactic and Morrisons’ problem is they don’t have the scale to browbeat suppliers into submission.”
“Morrisons have been managing their cash fairly aggressively in the past few months, with some requests for “marketing support”, added another source.
“One client was asked by a Morrisons buyer how much the investment into Morrisons media was behind the launch, and when they asked for the options open to them to support and to build a package, they were told it was all about the total amount, and the detail could be agreed later.
“We know that Morrisons are carrying a lot of debt and are managing this debt loading, and it felt to us that there was a real effort to reduce this debt pile in an effort to deliver a better set of financial results.
Morrisons continues to juggle its turnaround and its investment in prices and a revamp of its Market Street proposition with a quest to save money.
In Q1, Morrisons boss Baitiéh raised the targets for saving for the supermarket this year to £1bn from the previous £700m.
David Sables, CEO of Sentinel Management Consultants, described the activity by Morrisons as a “fairly unheard of dash for the line in terms of volume”.
“It looks to be happening across a multitude of suppliers spread across categories.
“It’s bad for Morrisons for two reasons. Firstly, this sort of activity could end with a whole host of confusing and overlapping promotions.
“What this means is you get clutter, and you ruin your proposition for the shopper, and that’s a medium-term issue for anyone who does it.
“More importantly, it’s a damning sign that their volumes are down to the point where if the feel they need to rescue them by asking suppliers to bail them out.”
Ged Futter, founder of The Retail Mind, also strongly criticised the move by Morrisons.
He said “suppliers need to stand firm and if they do want to do it make sure they get something back”.
“Whenever you’re pulling money forward it’s because you’ve got internal numbers that you need to hit and your sales aren’t getting you over the line. It’s a sign of a business that’s struggling.
“Year end is approaching and Morrisons are being bullish with demands for year-on-year spend with weeks for suppliers to magically find the cash,” added another supplier.
“When will they stop? When the suppliers all stop the trucks.”
A Morrisons spokesman told The Grocer: “Commercial income is a normal part of how the industry does business.
“We agree commercial terms with our suppliers that generally run from November to October in line with our financial year. This will include income for activity that runs during that time such as media. How that income is distributed throughout the year is in line with the trade plan agreed with the supplier and plans can obviously change as the year progresses.
“Recognition of this income is governed by financial accounting standards and supported by rigorous internal audit and financial controls to ensure it is recognised properly in our financial statements. The payment date of commercial income may differ to the date it is recognised.
“We strive to create strong, collaborative relationships with all our suppliers. Our ways of working ensure that supplier negotiations are approached fairly and reasonably whilst looking to work as hard as possible for our customers.”
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