Wholesale has had it tough over the past couple of years – with Palmer & Harvey no exception. Even now, sales and profits remain flat. But things are looking up, says this week’s guest editor, P&H CEO Chris Etherington. Beth Phillips put your questions to him – and a few of our own...

Q: How has P&H performed since the management buyout in 2008?
A: We're exactly where we wanted to be. We're more or less the same as last year but we've been on an investment programme over the past three years. We did think about whether or not we should continue this in a recession but we decided we were going to because we believe we'll be much stronger when we come out of the other side.

They'll be fewer players but we'll definitely be one of them. We generated about £100m of cash last year and we've been able to pay our bank debt down by £120m. So things are really positive.

Q: How have the recent redundancies at P&H affected morale?
A: You have to put things in context. We reduced our HQ headcount by 30 out of 330. It was driven by a business process redesign so it's about how we work more efficiently and improve our processes.

If anything it has had a positive effect because when people look at their colleagues and see waste in the business, they expect the management to do something about it.

Q: How is PalMak, your buying alliance with Makro, getting on? How many suppliers are on board?
A: It's going very well. We have the majority of the top 39 suppliers that we had targeted signed up, or about to be signed up, so we're delighted with progress.

Very shortly we'll be talking about the businesses we're working with. It's fair to say we've had a mixed reaction from suppliers. Some were not quite sure what this was all about but others immediately saw the benefits and have been very positive about it. Doing the unexpected is always the best way and that's why it's working so well.

Q: And what about your more traditional businesses, such as Snacksdirect and Sweetsdirect?
A: We've been running Snacks­direct for a number of years now and it's a very successful business model. We launched Sweetsdirect nationally last April and it's going from strength to strength. When I started my career many, many years ago, van sales was the majority of the wholesale business.

That died down and eventually bottomed out completely, but now it's coming back round again because people are looking for a personal service. They really appreciate someone stepping over the door, helping them with their products and doing a bit of merchandising.

Q: Do you think delivered wholesaling will overtake cash & carry?
A: I think the cash & carries have done particularly well over the past 18 months. In a recessionary period people go to a cash & carry more. Over the previous 10 years the two lines of delivered and cash & carry were converging.

Cash & carry was going down and delivered was going up. These lines would have crossed in 2008 but for the recession. It's a matter of time before that happens again and that will drive consolidation in the market.

Q: Have you got your eye on any companies?
A: We're not planning any acquisitions but we believe the marketplace will consolidate either through acquisition or collaboration. There needs to be more involvement among the big players. I think we'll see the bigger players collaborating and I wouldn't be surprised if others went the same way as PalMak.

Q: What is the biggest threat to the wholesale sector?
A: The economy. Consumer trends are quite interesting. They're definitely changing and we have to be able to recognise that. You have to have a very good relationship with retailers and be committed to delivering a lot of added value and demonstrate that you can grow your customers' business.

Unless you've got the ability to fine-tune your offer, then you'll find it difficult going forward.

Q: So not duty fraud?
A: The Federation of Wholesale Distributors has been doing a great job on this. It can do a lot more by using the force of the major wholesalers to lobby HMRC effectively. But customers also have to get involved.

When a product is definitely being sold at below cost they should blow the whistle. As soon as people stop buying then the route will dry up. It's only there because people buy it.

Q: P&H has not been a member of the Federation of Wholesale Distributors for a number of years but in May you were named deputy chairman. Why has P&H rejoined?
A: The view from within FWD was that the FWD would be stronger if it had the biggest delivered wholesaler on board. We felt we could help better being in rather than out, and I thought it was the right thing to do.

Q: Because of your tobacco contracts with the multiples, critics say you aren't a wholesaler. Are they right?
A: We're a delivered wholesaler. We're a distributor, but you can't get away from the fact that we buy product and sell it. We don't do anything on a third-party logistics basis. So we're a wholesaler.

Q: Why do you deliver tobacco for the multiples? Can't they do it themselves?
A: We have a complementary skill set to the major multiples' in-house distribution. They are absolutely world class at what they do for their stores, but there are certain products that are sometimes best handled in a different way. Tobacco has proven to be one of those categories for some of our customers and we've been able to give them a very good service for a number of years. It helps to drive our operating cost base down and that has a spin-off in terms of being able to keep us competitive in the independent sector.

Q: How are you preparing for the tobacco display ban?
A: We have seen from what happens in other countries that a display ban will hit sales. What it will also do is drive the black market and we have to work together to make sure that's minimised.

We're working with all our customers on different scenarios and obviously we are concerned about the effect it will have on independents. I'm still hopeful there could be a u-turn. The Conservatives have said they will review it and if they don't, we'll be disappointed.

Q: How much of your business is to the independent sector?
A: We operate in four customer sectors. Distribution, as we call it, to the major multiples, makes up about £2.5bn of turnover. Multiple customers such as Martin McColl and forecourt operators make up about £1bn. Independents and wholesale make up about £700m. In terms of our customer base, our customer numbers are predominantly independent.

Q: Indies have reported big sales increases during the World Cup. How did your symbol fascia Mace get on?
A: It would have been better if England had won it but, despite that, Mace sales were up 7.2% during the World Cup period versus the period before. We thought that would be the case, although we didn't realise it was going to be as good as that.

Crisps and snacks were up 14%, drinks up 20.9% and chilled up 13.7%. The real benefit would have been in the second half of the competition when no one would have known from one part of the week to the next whether England would have been in because that would have generated more impulse purchases.

Q: Are there too many players in the symbol group market?
A: When you get to about 2,000 outlets, you're probably everywhere you could be in the UK and therefore there's a level of saturation. We're in the fortunate position that we have a relatively low number of stores, unlike some of our competitors.

For us it's about quality not quantity. We don't believe in just splashing fascias up and saying that's part of the group. It's all about the in-store discipline, commitment from the retailer and that we give them the support to make sure they provide their customers with a consistent offer. We think we've got scope because we're below the watermark.

Q: Last year you lost the chilled contract with One Stop after investing a lot into the category. Has this affected your ambitions for chilled?
A: Absolutely not, no. We were ­obviously very disappointed that One Stop chose to go back to van sales, but we have continued to invest in that area. We subsequently won the chilled contract for Martin McColl in June so we're doing all of their chilled now. We continue to grow in chilled and we're looking to drive that into the independent sector and into the larger convenience stores particularly.

Traditionally we haven't been as comprehensive a player as some of our competitors but we've invested in our infrastructure to create multi-temperature distribution. We've invested in vehicles and our depot network and we are well ­positioned to push ahead and drive some volume through that.

Q: Any predictions on fuel prices?
A: That's like predicting who's going to win the 3.30 at Ascot. Our predictions for the beginning of the year were wrong from week one so you never can tell.

The view generally is that fuel prices are going to be pretty flat for the rest of this year but in the second quarter of 2011 we will start to see it move up again. But that's only a prediction. Anything can happen.

Read more
Editor's Comment: Deal with price rises responsibly or regulators will do it for us (31 July 2010)
Etherington: P&H ‘is where we want it to be’ (31 July 2010)