Diageo has dropped a major bombshell on the wholesale industry, as it will no longer offer direct supply to businesses that do not meet stringent minimum order thresholds.
In a letter sent to wholesalers this month and seen by The Grocer, the spirits giant informed operators it plans to turn off direct supply from 1 April as they do not order £2m of stock per year.
The letter from Diageo GB MD Nuno Teles explains: “As a valued customer, we are writing to inform you that following a review of Diageo Great Britain’s wholesale and independent free trade business, we are implementing a transformation of our route to market strategy.
“In pursuit of continually improving the way we do business, we have reviewed our current ways of working and after careful consideration have decided to change the criteria which wholesalers must meet to be directly supplied by Diageo.”
It goes on to say Diageo will not be able to accept orders from businesses that do not meet the new criteria after 1 April.
“We understand these changes may impact your business and we are committed to making the transition as seamless as possible. Your Diageo account manager will be in touch to suggest suitable alternative options for the supply,” the letter continues.
The Grocer understands the move will have a huge impact on the wholesale sector, with only around 10 of the UK’s biggest wholesalers qualifying for direct supply under the new rules.
“This is a major move that I believe will limit retailer choice, and as secondary wholesaling is required to maintain distribution across the country to retailers, then prices will rise for both retailers and consumers, and retailer choice will be less,” said one senior wholesale industry source.
“I understand the need to drive efficiencies into their supply chain, but this is a massive jump. Whilst they state it is all about protecting the retailer and engaging with the consumer at point of purchase, I believe this will reduce their distribution in both retail and on-trade.”
Another wholesale director told The Grocer the move was set to have a major impact on his business, as the Smirnoff and Gordon’s maker accounts for more than one-third of his total spirits sales. He also explained he was reluctant to source stock from other wholesalers. “I’m not in business to support my rivals,” he said.
The move by Diageo has also sparked fears from within the sector that other suppliers will follow suit, The Grocer understands.
A Diageo spokeswoman said: ”“Following a strategic review of Diageo GB’s wholesale and independent business, we are implementing a transformation of our route to market strategy.
”We have seen significant changes in how the industry is structured and operated, and as a result we have updated our criteria which wholesalers must meet to be directly supplied by Diageo, as well as our wholesale trade terms. This will promote efficiencies, encourage sharing of data which will drive insight-led decisions and help enable Diageo to better service the independent operator.”