Blog: Dean BestWhy Morrisons is driving debate over prices

Dean Best | 11 February 2008

The onset of rising commodity costs is old news. However, the debate over who will pay the bill is beginning to heat up.

In the UK last week, Marks & Spencer was accused of being “brutal” in its latest round of negotiations with suppliers. The retailer, which saw food sales dip over Christmas and the New Year, is alleged to be demanding deeper discounts and a greater contribution from suppliers towards marketing and advertising.

Now, food manufacturers are loathe to speak about their relationship with retailers. Questions on the subject are normally met with a resigned sigh, variations on the word “tough” and not much else.

However, the fact that squeaks of disapproval, under the condition of anonymity, were heard last week about M&S speaks volumes for competition in the UK. Competition among UK food retailers is as fierce as ever. Grocers, seeing signs that consumers are demanding value as they tighten their belts, are striking a tough stance with suppliers. To simply pass on suppliers’ rising costs to consumers would be commercial suicide, they argue. For food manufacturers, however, the need for some accommodation from retailers is becoming ever-more critical.

The resurgence of Morrisons, the UK’s fourth-largest retailer, is also a key factor in all this. Its success over Christmas was not just built on celebrity-endorsed TV ads but also well-targeted promotions. The company’s continued recovery is making the likes of Asda and Tesco nervous.

One supplier also enjoying a recovery is Unilever. Under the steady stewardship of chief executive Patrick Cescau, the soup-to-shampoo conglomerate is rebuilding after a rocky few years earlier on this decade. Unilever’s full-year results – and its acquisition of Russian ice cream business Inmarko – suggest the company is on the right-track.

Finally, we’d like to send our sincere condolences to the families, friends and colleagues of those who lost their lives or were injured in the explosion at a US sugar refinery last week. Business is business but some perspective is vital at times like these.


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