The Grocer’s survey of top fmcg businesses reveals varying attitudes to NPD, says Kevin Hawkins

One of the most stimulating features of this magazine is the annual OC&C survey of the sales and financial performance of the top 150 suppliers. This year's is interesting for three reasons.

First, it indicates perhaps more strongly than in recent years a correlation between size and profitability. Of the 50 biggest suppliers, 11 reported operating margins of 10% or more, while 12 came in with 3% or less. Among the smallest 25, however, only three reported margins of 10% or more and 15 reported 3% or less (six of them were negative). The obvious inference is that low inflation and a tough marketplace emphasise the advantages of scale and brand strength.

Secondly, it suggests we will see an acceleration in acquisitions throughout the sector, particularly in the ranks of the middle-sized players. Over the past two years some companies have cut their cost base and deferred their investment plans. As a result, they are now sitting on cash piles and awaiting suitable opportunities to buy up rivals or complementary businesses. The companies in the smallest-25 group that reported the lowest margins are virtually all family-owned; perhaps an opportunity to sell out would be welcomed by some of them.

The most interesting talking point, however, is the varying level of innovation. Some have increased their investment in NPD, while others have done the opposite. It begs the familiar question of what makes one business more innovative than another operating in the same marketplace. Is it simply the quality of management and the culture of the organisation, or is there an external influence at work? A recent survey in The Times quoted one rising supplier as saying that the UK food industry owes some of its international competitiveness to the pressure and disciplines imposed by leading supermarkets.

Against this we have the Competition Com­mission's argument that the transfer of "excessive" risks and costs by supermarkets to suppliers could reduce the latter's incentive to innovate. This was the basis of their case for the Groceries Supply Code of Practice and the ombudsman.

One can understand why some suppliers made this claim anything for a new tactical advantage in future negotiations with their retail customers. However, the evidence is speculative; a flimsy foundation for a high-cost solution.

Kevin Hawkins is an independent retail consultant.