UK supermarkets have pledged to absorb much of the cost of the foot and mouth crisis. As a result of this cost, retailers’ demands on suppliers are likely to change in the long term. The new code of conduct for supplier relations will do little to alter the fact that the supermarkets are in a dominant position. Suppliers that want to prosper in the future will need to start second-guessing the supermarkets’ next moves.
Last Friday, the leading supermarkets in the UK promised to protect consumers from increased meat prices as a result of the foot and mouth crisis by absorbing as much of the extra costs as they could. This followed a stinging attack on UK supermarket power by Prime Minister Tony Blair last Thursday. It’s already a tough time to be a major grocery multiple in the
UK. Media attention to ‘rip-off Britain’, political pressure, Wal-Mart’s arrival, Competition Commission inquiries and food scares have all put greater pressure on the retailers’ businesses.
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In the past suppliers have generally suffered the knock-on effects of the pressures that the supermarkets face, but things seem to be going slightly more their way recently. Whilst the grocery retailers were cleared of operating complex monopolies, they were criticized for certain practices, leading to the implementation of a new code of conduct for supplier relations. The code attempts to prevent supermarkets from demanding payment for access to shelf space and from applying varying standards to different suppliers.
The new code of conduct will favor suppliers, decreasing supermarkets’ flexibility and increasing their costs. In addition, suppliers are now receiving heavyweight political backing following the food scares of the past decade. Despite these benefits for suppliers, the UK supermarkets will certainly still remain in a powerful position.
Regardless of the political arguments, this crisis will change the relationships between supermarkets and their suppliers. Grocery retailers will now place an even greater focus on being able to trace where products came from and will want compensation when they lose sales as a result of food scares. At the same time, supermarkets in the UK will continue to seek to increase efficiency and improve their margins.
After the foot and mouth crisis is over, the longer-term effects for suppliers will become more apparent. Supermarkets will begin to make different demands of their suppliers; the suppliers that react fastest by altering their supply chains and working practices will be well placed to
benefit.
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