Industry fears for Tesco's price drop
Despite assurances from Tesco's UK chief executive Richard Brasher that the cuts wouldn't be paid for entirely by Tesco's suppliers, few were in any doubt that they would ultimately end up picking up the bill, if history was anything to go by.
Under Tesco's Big Price Drop initiative, the price of about 3,000 products will be reduced, including 1,000 own-label lines. The cuts will focus on food staples, said Tesco.
The retailer said the initiative would be partly paid for by cuts in the way it awards points under its Clubcard loyalty scheme something which inevitably attracted criticism for being a cynical move by Tesco's main competitors and "simplifying" its promotional activity. Increasing numbers of promotions by all retailers, paid for in the main by suppliers, has long been a bone of contention for manufacturers.
Responding to the announcement, Chilled Foods Association secretary general Kaarin Goodburn was among a number of industry commentators to express concern about the potential damage it would cause to manufacturers. Many have complained to Food Manufacture over the past year that they were already under the cosh from retailers who were reluctant to accept price rises that would help processors cover their soaring input cost increases.
"If there is going to be a food supply in this country then we need to be able to pay for it," Goodburn told our sister website FoodManufacture.co.uk. "If you keep squeezing the suppliers they might well go out of business."
It echoed a warning made to Food Manufacture by Brian Stein, chief executive of Samworth Brothers, a long-standing own-label supplier to Tesco. "There is an obligation on the retailers to manage their supply base carefully," said Stein.
To be fair, Stein had stressed that, in all the years Samworth had been trading with Tesco, he had found Britain's biggest retailer to be tough, but fair. While intimating that price negotiations could sometimes be fraught, he remarked that Tesco was prepared to listen to the arguments made by suppliers, such as Samworth, with which it had a long-term relationship and that really understood the own-label market.
But it was not just Tesco that caused food and drink suppliers to take a deep intake of breath last month: Marks & Spencer (M&S) also caused some consternation by announcing that it was undertaking a high-profile shift into premium speciality foods, with around 100 new imported products, associated with a revamp of 100 of its stores.
Head of corporate PR at M&S, Clare Wilkes, told FoodManufacture.co.uk: "On the food side we had become too close to the mainstream supermarket business. We wanted to take a step towards speciality and bring in some food experience which would surprise and delight our customers."
While attempting to reassure existing M&S suppliers by saying this development was designed to "complement" its existing range supplied by UK suppliers and that it was keen to talk to them about new ideas, Wilkes' comments will inevitably have caused some concern about a significant shift in focus by the upmarket retailer.
