The supermarket summoned many of its suppliers to head office briefings on June 18. They were told Morrisons planned to source greater volumes from fewer suppliers, to increase efficiency and improve buying terms.
One supplier confirmed recently that the supermarket demanded “ridiculous” savings of "half a million pounds" from each of its remaining suppliers. “The message was double your investment or get lost", said the supplier, who asked not to be named.
Practical problems
But the retailer is encountering practical problems as its buyers meet suppliers to discuss individual accounts, sources told FoodManufacture.co.uk.
“One difficulty is how you agree a spec and an ingredient list for a particular own-label product,” said one supplier. “The complexity of the tendering process is perhaps delaying bringing this to fruition. The quality of ingredients can also vary, and Morrisons could end up with some very inferior products.”
The commercial negotiations were in a state of some “inertia”, he suggested.
Another supplier told this publication: “There has to be an element of negotiation, we are working with them. The goodwill of the past is being stretched as far as it can possibly go.
'Very nervous’
“Suppliers are being played off against each other. We have just got to try to salvage the relationship. All this just makes everyone very nervous.”
A spokesman for Morrisons said that the process of discussion with suppliers had “not moved on” since FoodManufacture revealed its savings plan at the beginning of the month. He said: “There is no definitive date when it will finish.”
Meanwhile, the retailer this week launched a £400M bond issue as it looks to strengthen its funding.
Morrisons said the cash from the bond, an alternative to bank debt, will be used for its general corporate purposes.
In a statement, it added that the bond will extend the average maturity of its remaining debt, reduce reliance on bank financing and diversify and strengthen its overall funding structure.
The 14-year bond will have a coupon of 3.5% payable semi-annually and a repayment on July 27 2026. The banks supporting the issue are: BNP Paribas, Lloyds Bank, and Santander GBM.
In the year ahead, the long-awaited Morrisons.com online store is expected to launch and the company aims to strengthen its position in the convenience market.
One analyst said: “The fact that it is accessing funding at a 3.5% rate is a good thing.”
Analyst Clive Black of Shore Capital told FoodManufacture.co.uk: “The Morrisons bond was part of the group's ongoing financial management. We don't consider the fund raise to be an especially big deal as opposed to sound and necessary housekeeping. Additionally, we do not believe that the refinancing marks any change of strategy or signals corporate activity.”
Jonathan Pritchard, from Oriel Securities, said: “They are bottom of the pecking order in terms of Big Four like-for-like-sales growth. They need to get into the convenience market and onto online shopping.”
To read how Morrisons’ demands for half a million pound savings, left suppliers reeling, click here.