Supermarkets' dirty tricks hurt own-label processors

Own-label processors are buckling under the major supermarkets' cut-throat business tactics over manufacturing solutions, according to industry experts.

Supermarkets are pitting food and drink firms against each other to devise production innovations delivering cheaper and more efficient processes, said Dr David Hopper, technical director of RTS Flexible Systems.

This was piling pressure on manufacturers that were already struggling under the economic slowdown. "They [the supermarkets] are trying not to pass prices on to the consumer," said Hopper. "Increasingly, they are trying to pass the pain on to the supplier. Some of their sharp practices will cross the line at least to a point where someone will say: 'I can't do that any more'."

One processor told Food Manufacture​: "We had a customer tell our competitors exactly which company we used to overcome a problem. Our competitor then approached that supplier asking for a similar machine. This wiped out hours of research and development we had done and we lost our advantage."

Hopper said supermarkets were also bringing manufacturers together to collaborate until they devised an idea, then pitching them against each other to get the cheapest and quickest solution.

If the situation continued in the current climate, it could increase the number of factories being closed because they were unprofitable, Hopper said. "It's like someone who gets more out of a donkey by flogging and flogging it. It's great until it dies. They [the supermarkets] could find themselves in a weaker position because they haven't got enough suppliers."

He added that supermarkets were stifling genuine innovation through such short-termist behaviour, which extended to the length of contracts they offered.

"Someone on a six-month contract does not have the confidence to invest in automation that has a 12-18 month payback," said Hopper.

Genuine collaboration between groups of processors and retailers would deliver substantial long-term benefits, but supermarkets' tactics sometimes fostered an atmosphere of suspicion that hampered this, claimed sources.

The 'Food Sector Consolidation Index 2008' report, prepared by Axis Management Consulting on behalf of Grant Thornton and Barclays, claimed retailer pressure would accelerate firm failures and acquisitions, particularly in own label.

Axis Consulting md Jonathan Smith said few own label suppliers could afford to take the line of Northern Foods, which sacrificed an unprofitable £45M ready meal contract with Marks & Spencer.

Some firms were using their profitable operations to subsidise their other plants that were struggling, said Smith.