Supermarkets have chosen to conduct “warfare” with suppliers rather than take collaborative action to handle the flood of CPI requests and more recent demands for deflation, according to a report by the Groceries Code Adjudicator.
Mark White today published a “deep dive” report into views of suppliers about the conduct of supermarkets under GSCOP. The initial results of the survey in June showed former top of the table Aldi and second-placed Tesco had both plunged down the pecking order for perceived adherence to the code.
With the report marking 10 years since the formation of the GCA, White said retailers’ behaviour had shown steady improvements. Average compliance had increased from 73% in 2014 to 92% in 2023.
However, after last year’s report showed relationships going backwards for the first time, White warned this year’s continuing battles over cost price inflation requests had seen tensions worsen.
“I was disappointed to see some of the comments in the deep dive survey,” said the Adjudicator in a speech to suppliers and code compliance officers today.
“Suppliers mentioned ‘combative’ retailers who have returned to pre-pandemic behaviour, leading to stalled innovation.
“This issue, particularly when negotiations have been conducted poorly, has had a significant impact on the relationships of retailers and suppliers.”
White said the report showed supermarkets appeared “less invested in the continued relationships with their suppliers”, adding “suppliers feel there is now less good faith shown by retailers in CPI negotiations”.
The report found that while supermarkets had been engulfed with demands for CPIs in the past two years, the tide had now begun to turn, with retailers demanding cost price decreases.
It added: “Some major retailers have begun asking for price decreases, accompanied by delist threats, forcing suppliers to operate at a loss, which they feel has created an unfair playing field and changed power dynamics.”
The deep dive quoted one anonymous supplier to sum up the situation, who said: “2022 was warfare. There are individuals [in supermarket buying teams] who can’t let it go, almost looking to punish us because we got price increases through.”
Another added: ’Everybody was very concerned about what the other retailers were doing … every retailer threatened to take the business off us.”
This year’s survey showed Aldi, which had topped the YouGov table for eight of the past 10 years, falling to seventh out of 14 retailers, with Tesco, which last year finished second and had steadily improved its performance since the introduction of the GSCOP poll, coming in sixth.
Sources have claimed Aldi’s comparatively poor performance in the league table had coincided with its breakthrough into the ‘big four’.
Tesco has also come under fire for its controversial call for suppliers to pay fulfilment fees for suppliers using its online and Booker wholesale services – though the cut-off for the survey came before that plan was launched.
White said he now expected all retailers under the code to take action to become more collaborative.
“All 14 retailers need to consider what they can do to reignite the collaborative engagement that was in place during the pandemic … and should be considering for each action they take.
“Without positive relationships the shelves will not be full and consumers will not enjoy the choices that they have when they do their shopping.”
Ged Futter, founder of The Retail Mind, said the report showed the “brutal” environment suppliers were being exposed to, but predicted relations would worsen in the months to come.
“This is the current environment that suppliers are working in – more aggressive and less trusting than ever before.
“Retailers are focused solely on lowering costs. They are even asking for cost decreases when they never gave an increase in the first place.
“From the GCA’s speech it’s clear that he is aware of the big issues being faced and is prepared to have tough conversations.
“The next six months will be more brutal in the grocery market than at any time in the last four years. Retailers will continue to be aggressive.”
However, David Sables, CEO at Sentinel Management Consultants, said he believed the Adjudicator was overstepping the mark by attempting to intervene in CPIs, with GSCOP technically not able to be brought into play when it comes to prices.
“Yes we have seen some return to worsening behaviour, but for the Adjudicator to keep talking about the need for more collaboration is bordering on insulting.
“The fact is that the behaviour is the result of market conditions just as was the collaboration we saw between retailers and suppliers during the pandemic.
“I fear that the report is in danger of ignoring reality.”