Smaller wholesalers fear more suppliers will follow Diageo in stopping deliveries if they don’t meet minimum order quantities

One of the biggest issues wholesalers have been battling with in the past two or three years has been patchy levels of availability from suppliers. While there are some reports of this easing, availability remains a major concern. Now, as they look to allay that situation, the sector has been rocked by a fresh supplier bombshell.

That came in the form of a letter from Diageo, informing many wholesalers that it was introducing a new way of supplying the wholesale sector and that only those wholesalers spending over £2m per annum would remain eligible for direct supply. Furthermore, those wholesalers that did not qualify – which is most of them – would stop receiving orders from 1 April.

This news has proved a hammer blow for many wholesalers as Diageo, the maker of brands including Johnnie Walker, Smirnoff, Gordon’s, Baileys and Guinness, in some cases can make up around one third of a wholesaler’s spirit sales.

Affected wholesalers and buying groups are currently still negotiating with Diageo to try and persuade it to think again, meaning there is an unwillingness to speak out publicly at this moment. Privately, however, the anger is palpable.

“Diageo’s move is completely unethical and immoral,” blasts one wholesaler. “We find it astonishing that it is treating smaller wholesalers with such behaviour.”

Another leading grocery wholesaler says: “I feel its actions will be detrimental to many smaller wholesalers as they will no longer be able to source directly. I believe that Diageo’s distribution of its ranges will be compromised as smaller wholesalers will not buy the breadth of range that they may be buying today.” The feelings are similar for specialist foodservice operators, with one wholesale boss agreeing that Diageo’s sales will also be hit. “It’s a misinformed and short-sighted move that shows a complete misunderstanding of the wholesale supply channel into hospitality,” he says. “It will harm Diageo’s business in a big way as wholesalers have more influence over what their customers buy than some branded manufacturers seem to think.”

Diageo says its move is about the “pursuit of continually improving the way we do business”. A spokeswoman told The Grocer last month it would “promote efficiencies and encourage sharing of data, which will drive insight-led decisions and help enable Diageo to better service the independent operator”.

The upshot is that the company will only continue to directly supply 14 off-trade wholesalers and 20 on-trade distributors, of which just three are members of the Big 30: Booker, LWC Drinks and Matthew Clark Bibendum as a part of C&C Group.

Diageo on-trade direct customersDiageo off-trade direct customers
● Booker ● Booker
● Coors ● Dhamecha
● LWC ● Bestway
● Heineken ● HT Drinks
● CMBC ● Parfetts
● Greene King Direct ● United Wholesale Grocers
● C&C Group ● United Wholesale (Scotland)
● Bartons ● Lioncroft Wholesale
● St Austell Brewing Co ● Imperial
● Venus ● Global
● HB Clark ● JW Filshill
● Shepherd Neame Direct ● Millennium C&C
● Imperial ● Elbrook
● Liberation Group ● Soho Cash & Carry
● Dayla Holdings
● Tolchards  
● Coes  
● Asahi Nectar
● JW Lees & Co
● Inverarity Morton

The changes have drawn criticism even from some of those set to retain supply, though others are rubbing their hands in glee, or at least understanding of where the supplier is coming from and why it feels compelled to change its processes in the current trading environment.

“Suppliers spend a lot of money on large sales teams servicing many customers directly,” explains one wholesale managing director. “However, with inflation, many of these accounts are not sustainable when taking into account all the cost. The spraying of promo funding hasn’t really gained distribution, it just creates chase-a-case. Rewind 20 years, many of these accounts would buy from a larger wholesaler anyway. The previous strategy has led to fragmentation, a focus on price and a damaging situation of moving volume round and creating many partially filled deliveries – something that isn’t tenable with the ESG imperatives coming through.”

The situation was further inflamed by Diageo GB managing director Nuno Teles, who rejected the argument that the plans would negatively impact wholesalers. “An independent operator can buy from 10 different sources on average,” he said at the time. “They buy from Tesco, they buy from Amazon, they buy from other wholesalers. That was already happening.”

While the Diageo case has proven a lightning rod for wholesalers, it has also sent waves of concern around the sector that others will look at the situation and use this new supply model as a blueprint for their own operations.

“There is always going to be consolidation in a sector like ours”

JW Filshill chief executive Simon Hannah

When the shortage of lorry drivers first emerged in 2021, some suppliers stopped deliveries to smaller accounts. And though some resumed supply others never went back. And there are concerns that more suppliers will follow suit.

“The impact on the wholesale sector will be detrimental to the breadth of ranges carried by independent wholesalers, which will inevitably result in loss of sales and profits for those wholesalers,” explains a major wholesaler. “Diageo is also expecting larger wholesalers to take the credit risk of supplying smaller wholesalers, which is going to mean a low margin trading environment. I believe Diageo has considered all the factors and will benefit from a cost saving perspective.”

This final point is where wholesalers fear the situation spreading. “We hope our suppliers will see the uproar and behave sensibly with wholesalers in general,” says one senior wholesale executive. “However, some may see this as a way to review their terms of trade and impose conditions not fair for the wholesale channel.”

Another operator puts it more bluntly. “I trust that other suppliers will be wiser,” he says, acknowledging that when it comes to supplier-wholesaler relations they are “generally positive. Diageo is the exception not the rule.”

Parfetts Birmingham

Source: Parfetts

Eighteen of the Big 30 are at different spots than they took in 2023

That is certainly not a view shared by all. Warns another wholesaler: “Major suppliers are looking to consolidate their supply chain, which may well assist them in cost cutting. This may create certain supply-side opportunities for mid to large-sized wholesalers. The supplier base is looking for easy routes to market without being willing to work with the independent wholesale trade, who play a very important part in the UK supply chain. It is a short-sighted view, but it seems to be the way the market is moving.”

One answer to this for wholesalers is to look at ways to collaborate better. The response from one wholesaler last month to the breaking Diageo news was “I’m not in business to support my rivals”. But while many will be reluctant to go down a secondary supply route, a more enhanced way of working together through the different buying groups could be a viable response for small, medium-sized and even bigger operators. Key to this could be central distribution, something The Grocer understands is currently under consideration at the UK’s biggest buying group, Unitas. However, that is not something that can be set up overnight or at the flick of switch. Such a network could take 18 months to two years. Will its members push for and invest in such a move? If the Diageo move shows anything, it is how quickly the landscape can change, and wholesalers will need to adapt fast.

Wholesalers are, of course, still investing in their businesses, despite what remains a challenging economic environment. While there is consensus that the pressures caused by soaring inflation over the past two years are finally easing to a degree, there remains, as the Federation of Wholesale Distributors calls it, “a cost of doing business crisis”.


Availability pressure

This, says Bestway Wholesale managing director Dawood Pervez, is an important factor in putting pressure on availability.

“The combined costs increase resulting from Brexit, energy bills, inflation and living wage increases will continue to lead to conditions of poor availability from manufacturers, which will not only impact our business but wider than this, the availability of affordable food,” he says.

JW Filshill chief executive Simon Hannah agrees that availability still has room for improvement. “Service levels over the last few years have been challenging across most categories,” he says. “We have experienced a marginal improvement on inbound availability. However, certain categories, such as confectionery, remain at unacceptable levels versus retail and consumer demand, which is a huge opportunity on missed sales, value and margin.”

This, along with rising cost prices, has led Filshill to “source new suppliers to ensure our customers have alternative brand options to fulfil shopper demand,” adds Hannah. “We have worked incredibly hard with suppliers on forecasting, focused ranges, promotions and data sharing whilst being as flexible as we can to accommodate variables relating to inbound delivery.”

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There’s only so much wholesalers can do, however. “Competition we see as healthy and not necessarily as a threat but more of an opportunity,” suggests Holland Bazaar MD Mert Ucar. “Factors out of our control, however, pose a much greater threat.

“A rise in fixed costs to the business is always a concern and the past 12 months has seen many rises in the form of minimum wage, CPIs and energy bills.

“Due to the tight margins a typical wholesale business runs on, an increase in these costs has a major impact. To maintain our margins, we have to look at how we can affect the bottom line, by looking at efficiencies in processes.”

Ucar is certainly on the money when he reflects on the tight margins in wholesale. The overall profit margin for this year’s combined Big 30 has improved by remains at a slender 1.4%.

2TBNR44 (1)

Source: Alamy

In January, UKHospitality estimated the cost of industrial action across the rail network had hit the hospitality sector to the tune of £4bn – at a time when it was also dealing with soaring inflation, labour shortages and supply chain disruption

Slowing inflation

While costs such as the national living wage continue to soar, the one light at the end of the tunnel for wholesalers is an easing of inflation. But as Henderson Wholesale sales and marketing director Paddy Doody points out, “it is still at a rate much higher than two years ago”.

“We believe the peak has passed, but all things considered, it will be difficult to see prices dropping to where they once were,” he says.

“Henderson Group is continuously innovating and trialling new concepts to bring improved cost efficiencies at store level. We also co-invest with our retailers to help futureproof their businesses so that they can implement many of our innovations and reap the rewards in the long run.

“For our shoppers, we invested £7.8m into our value offering in 2023 and that level of investment will continue into 2024.”

Given all the challenges facing wholesale right now, it will be fascinating to see how the market plays out in the next year or so. There has been a steady flow of mergers and acquisitions on the foodservice side for the past couple of years, but barring some smaller-scale mergers, little has changed in grocery wholesale since Midlands-based Hyperama Wholesale exited the market by selling two depots to Dhamecha at the end of 2022.

“We’re seeing a significant slowing down of inflation, but it is still at a rate much higher than two years ago”

Henderson Wholesale sales and marketing director Paddy Doody

Could we be set for a wave of consolidation? It is a possibility, suggests Filshill’s Hannah.

“Wholesalers service a wide range of sectors, some of which are performing better than others given the economic climate and shopper trends,” he says. “There is always going to be consolidation in a sector like ours where companies are looking to either diversify their offering, expand in their current sector specialism or drive greater scale to enhance efficiency and growth opportunities. I expect to see consolidation on that basis.”

Artist's impression of new JW Filshill premises at Westway Park near Glasgow Airport

Source: JW Filshill

“We have sourced new suppliers to ensure our customers have alternative brand options”

Bestway’s Pervez agrees. “Some businesses have no family succession and therefore want to exit,” he suggests. “Others have ridden the inflation wave and think the timing is good to get out on a high.”

A combination of supplier wrangles, rising costs and global economic uncertainty sees the wholesale sector and its leading operators under enormous pressure, but if this sector is anything it is resilient. Over the years it has faced down the threat of the major supermarkets, the discounters, labour shortages, government red tape and even the pandemic.

There is no doubt the Big 30 and many of those below this level will face these current challenges head on. The interesting thing will be watching how they go about tackling them.

Reasons to be cheerful: why the sector is investing

Given all the obstacles that continue to face foodservice wholesalers and their customers, you would be forgiven for thinking they must be feeling pretty gloomy.

To name a few, there’s soaring inflation, labour shortages and supply chain disruption, while hospitality customers in particular are having to navigate rising food prices, rent and energy bills in an environment of low consumer confidence and disruption caused by ongoing rail strikes.

In January, UKHospitality estimated the cost of industrial action across the rail network had hit the hospitality sector to the tune of £4bn. And after more than 6,000 hospitality venues closed in 2023 (bringing the total since the pandemic to nearly 23,000 [CGA]), January saw a fresh wave of high-profile restaurants, including celebrity chef Simon Rimmer’s Greens, shutting their doors for good.

“It’s counterintuitive, but we do hear foodservice members say they’re doing well and they are investing a lot of money,” says FWD chief executive James Bielby.

It’s partly linked to a recovery in sales since the pandemic, while restructuring and a fresh wave of consolidation has helped larger players remaining to adapt.

“We are seeing good demand and sales are growing, but the sector remains volatile,” says Sysco GB CEO Paul Nieduszynski.

“While the situation has improved for many food businesses since the pandemic, there are still some very significant challenges across the sector.

“However, against that backdrop, we are pleased with the progress we are making as Sysco in Great Britain. Bringing our fresh and broadline businesses closer together enables us to maximise opportunities to consolidate our proposition, offering customers an award-winning product range, delivered with market-leading service. It also simplifies customers’ lives with one order, one delivery, one invoice, one point of contact – and of course a more attractive price we can offer as it’s more efficient for us.”

Success hasn’t come without a price, admits Castell Howell finance director Nigel Williams. “To support our customers, we have had to reduce our margins which has had a knock-on effect,” he says. “However, this is a strategy we believe will have long-term benefits.”

Bidcorp UK CEO Andrew Selley says wholesalers have had to pivot to handle the pressures they are facing, and is calling for government to provide a better platform for businesses to succeed.

“We need government to understand the continued pressure businesses are under and find consistent ways of supporting them.”