Change for the better? Palmer & Harvey reflects on 'transformation'

“Transformational.” That’s how Palmer & Harvey describes the past 18 months - a period that has seen the wholesaling giant transfer its retail symbol group Mace to Costcutter, take over Costcutter’s distribution contract from Nisa, and ­create a joint buying venture called The Buyco - as well as bagging big new contracts with One Stop and Coca-Cola Enterprises. 

P&H MD Martyn Ward admits it hasn’t all been plain sailing, but believes “there was a clear need in the market for consolidation” and the resulting tie-up with Costcutter is now well-placed for growth.

So what has been happening behind the scenes to get the fledgling jv underway? And how has it been overcoming the well-documented availability and distribution problems Costcutter retailers have complained of?

With a buying power of £5bn and a promise to “negotiate the best deals through maximum volume,” the first challenge was to create a “clear separation between P&H, Costcutter and The Buyco.” The Buyco, he explains, negotiates core terms - the net costs on and off promotion. “P&H and Costcutter run their own activity and there is a central negotiation point - it is whiter than white,” he says. Until The Buyco’s dedicated office was opened in August 2014 in Crawley, West Sussex, all suppliers negotiations were conducted away from both P&H and Costcutter’s HQs.

That wasn’t the only challenge in terms of negotiations, Ward admits. “We couldn’t tell them when stores would be transferring [from Nisa to P&H] or how many would be transferring. Not all of the negotiations were simple but there has been incredible support and vision.”

Suppliers “embraced the strategic direction we are taking,” Working with 500 to 600 suppliers, the majority of first-round tier one promotions have been completed, with a number of smaller suppliers to go.

The promise of extra volume - P&H is targeting an extra £300m in sales - is also coming true. Ward says “massive volume increases” in categories such as grocery, household and alcohol have been seen.

New office

At the new Crawley office, The Buyco houses 35 staff, hired from a range of backgrounds, including Sainsbury’s and Debenhams, and covering category, buying and admin roles. It also has a product development kitchen for The Buyco’s Independent own-label range, which now has 500 lines, with about 250 more expected “in the future”. Ward describes feedback on Independent from retailers and their customers as “very positive”. Shoppers particularly appreciate that many products are price-marked or on two-fers, he adds.

“We have started from fresh and there is now a solid pattern of demand,” Ward says. “There were some issues with promotional availability but we are getting it right. Promotional levels are back up to where they should be.”

“We’ve done chilled for 20 years. We are now the largest chilled supplier”

It’s also overcoming misperceptions about its chilled capabilities. “It’s been bandied about that we can’t do chilled, but we have been doing chilled for 20 years,” says Ward. “With Costcutter and One Stop we are the largest chilled supplier in the UK.”

Ward also claims issues with promotional availability that came to the fore this summer - when P&H took over Costcutter’s distribution contract from Nisa - were caused by Nisa. P&H was “ready to start migrating a lot sooner than we did” but “because of contractual obligations and minimum order quantities imposed by Nisa, the majority of the migration took place in a four-to-six week period.”

“The data from Nisa wasn’t flowing as well as we hoped” so P&H found chilled volumes grew faster than forecast, with a number of Costcutter retailers who had not ordered chilled from Nisa ordering from P&H, Ward explains. To cope, P&H brought forward plans to upgrade its Avonmouth depot. The former Morrisons depot was accelerated to full capacity in three weeks.

Nisa CEO Neil Turton refutes Ward’s claim. “I was astonished Martyn Ward should try to shift the blame and claim Nisa had any bearing on service levels to Costcutter retailers. Costcutter and P&H tried to leave their contract with Nisa early and rushed into the change. We were actually very helpful.”

Slow moving

Ward admits “one element we didn’t plan for was the resource for Leeds”. Realised slow-moving lines were affecting the efficiency of its branches, it used the depot of its former alcohol distribution company, Winerite - which had been standing empty for a number of years - and was “racked and ready to go” in three weeks.

Not all problems have been rectified - there are still staff resourcing issues at its Hemel Hempstead branch but service levels are “back up to where they should be,” Ward says.

And P&H has listened, he adds. “Our customers are absolutely right to challenge us. We have listened. We are a learning organisation and we aim for the best service and best overall package.” He cites improvements to its pallet-wrapping capabilities after finding a number of Costcutter retailers still prefer to receive deliveries on pallets rather than in roll cages.

He adds: “There’s been an awful lot of change, but change excites us. Change will ensure the long-term success of convenience retailing.”