The retailers have come in for a lot of stick recently over food availability, price inflation and, most recently, Tesco for requesting a change of terms for its online fulfilment. Retail commentators have deemed it all “outrageous”. But are UK grocers really the devil incarnate or just trying to do their best for the consumer in challenging times?
Retailers are not charities. They are commercial organisations whose job is to make a profit. Tesco’s profit of £2.6bn may seem eye-wateringly high, but its net profit percentage is only 5%. Retail labour costs have increased between 7% to 11% in the past 12 months, and energy costs including distribution and lighting are going through the roof.
The profit cracks are starting to show – Morrisons has made a £1.5bn pre-tax loss, while Asda is looking to sell property to cover costs and Iceland is having insurance issues. They are all trying to find creative ways to raise funds or save money by removing counters or dimming the lights to survive.
They are also protecting against inflation. Retailers are under huge social pressure to keep inflation under control, and yet they are castigated for hard negotiating tactics and finding ways of saving money. Many suppliers are genuinely struggling, but some are not: Coca-Cola’s net global margin is 22.7%, up from 22.1% on the previous year.
Maybe that was John Allan’s target when he criticised suppliers earlier this year. He is not alone. Back in 2008, in France, chief of Leclerc Michel-Edouard Leclerc placed full-page ads in French media accusing manufacturers of profiteering. Without the retailers keeping the lid on supplier pricing, there would be an explosion of inflationary prices that people cannot or will not pay.
The downside of this focus on keeping prices as low as possible for the consumer has resulted in many producers and growers leaving the industry, because they cannot make money. Hence there have been shortages of fruit and vegetables, eggs, meat and other produce and that is likely to continue.
But is that the fault of retailers, or the consumers who are not prepared to pay more? I live in France and we pay 25% more for food than in the UK, so does there need to be another step change in basic foodstuff costs to ensure farmers come back to growing what we need? Without blaming the retailers?
Finally, retailers do provide a great service for food SMEs seeking growth. They give instant access to many more distribution points with one point of delivery, with regular high-volume orders. This enables the SME to make economies of scale savings. They raise the standards of quality and give valuable feedback on various elements including manufacturing and marketing. They are hard taskmasters, but often suppliers become stronger and more competitive as a result – they just need training to negotiate the best deals.
We need to stop retailer bashing and start thinking about solutions to ensure we continue to have our enviably high standard of retail. The media needs to stop slating their local supermarket for not having enough tomatoes and pursue the government for more investment in agriculture. The average consumer needs to understand how much it costs to grow those tomatoes and that a fair price needs to be paid.
And we need to spare a thought for the retail buyers, who are under huge pressure to keep shelves full, negotiate the best deals during unprecedented inflation and keep their jobs.
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