Explained: how public sector food & drink procurement plans affect wholesalers

Earlier this month, the government announced a major shakeup in the way public sector food and drink is procured. Rather than continue with the current system, whereby a range of large and small wholesalers bid for individual public sector contracts, it has opted to propose a new single-supplier model.

The news has provoked strong reactions from wholesalers, who say the changes could negatively impact their business. But how will the new contract work? Who might win the tender, and are there any positives to be taken?

What is changing and why?

The Crown Commercial Service (CCS) is proposing a four-year £100m contract to supply 14,000 food and drink products to the entire public sector. The contract will be awarded this winter to a single operator known as a ‘prime supplier’ with the launch planned for the spring of 2024.

This is a change from the current system, where wholesalers of differing sizes can bid for individual public sector contracts which suit their customer mix and capabilities.

Under the new plans, public sector organisations will be able to procure food and drink via a centralised online platform, which the government believes will simplify the ordering process.

The CCS says the new arrangement had been designed to support the wider public sector in accessing local and seasonal produce in a more sustainable and efficient way.

It argues the agreement will support local and regional food producers, save the public money and help to reduce emissions by increasing efficiency and decreasing food miles. 

In addition, the government says the social impact of the scheme will be monitored throughout its lifetime and measured for its ability to tackle economic equality, support local education and promote wellbeing.

No public sector organisation will be mandated to buy using the new scheme. This means service providers may continue to procure food and drink using their existing network of wholesalers after the contract goes live. In addition, many public sector institutions already have long-term deals with wholesalers which will continue to be honoured.

However, there is naturally concern from many regional wholesalers that a government-backed scheme could become the default solution, which would have a significant impact on turnover.

How far along is the process and can it be stopped?

The Cabinet Office, of which CCS is a part, says it is still in the development and engagement phase of the agreement, and is seeking further feedback from suppliers.

According to the government, customer and supplier market engagement began in 2021. However, the Federation of Wholesale Distributors says it has not been consulted about the proposed changes.

“It’s extraordinary that CCS has gone this far without consulting the companies that keep the public sector fed and watered,” said FWD CEO James Bielby.

A number of wholesalers are writing to their local MPs to stress the negative impact which the plan could have on regional jobs if it is implemented.

The new direction was particularly unexpected, because it appears to be in direct contradiction with Defra’s commercial plan for SMEs.

The plan, which dates back to March 2016, set an aspirational target for the government department to award 33% of its third-party spending to small and medium-sized businesses.

In the latest version of the plan, published in March of last year, Defra pledged to implement a procurement strategy to “encourage SME participation and locally sourced supply”. However, conversely, it seems the new contract will make things more difficult for smaller companies.

“On the one hand, Defra is working on getting more SMEs involved in public sector work, but the Crown Commercial Service are going the other way,” said Dunsters Farm director Tom Mathew.

”Defra’s target is admirable, but the risk of a single-supplier framework is that it concentrates the logistics with a handful of operators, which will decrease competition in the marketplace.”

What are the key concerns for wholesalers?

Wholesalers fear that, regardless of who wins the contract, the majority of operators supplying the public sector will either be frozen out entirely or have to jump through many more hoops to access a market which they are already supplying.

There is some confusion about precisely what type of business might constitute the ‘prime supplier’. The current understanding, information published by CCS, is that it could be a consultancy, a consortium of businesses such as a buying group, or an existing national wholesaler. However, the government has still not clarified its position.

Arguably the most worrying option for smaller regional wholesalers would be for an existing national wholesaler to win the contract. In this scenario, there are fears a monopoly would develop. This could freeze out small and medium-sized enterprises that currently supply food and drink to schools, hospitals, prisons and care homes as a core element of their business.

Meanwhile, a coalition of businesses or a buying group is thought to be impractical for a single tender. This is because different buying group members are likely to stock different ranges of products and would not all be able to supply to every location across the country.

The feeling within the industry is that a consultancy would be the most likely and viable option. In this case, the prime supplier would oversee the procurement process and award business to a range of wholesalers to fulfil the contract.

However, there are fears this would introduce more bureaucracy into the tender process and add an additional margin.

“Public sector contracts are notoriously lower-margin, and if a consultancy is going to take its cut then wholesalers will lose out yet again,” said one major buying group.

“Procurement consultancies are popping up all over the place and these guys make their money by cutting the margin from the wholesaler.”

Which wholesaler could win the contract?

Realistically, there are only three major wholesalers with the capability to supply every postcode in the country: Booker, Bidfood and Sysco GB.

Of these, arguably Bidfood and Sysco are the best placed due to their previous experience of working with government at this scale.

During the pandemic, the two businesses were awarded a joint £208m contract by Defra to supply five million food parcels to clinically vulnerable people who were shielding. The contract was described at the time as the biggest food redistribution relief programme since World War II.

However, many people within the industry are sceptical that a single wholesaler would be able to fulfil a contract on a much larger scale.

“It’s a ridiculous idea,” one major wholesaler told The Grocer. “Public food expenditure is about £3bn and nobody is sat there with that much capacity.

“You can’t tender a military base alongside a primary school, they have completely different product types, delivery profiles and security requirements.

“What I imagine they’ll be looking for is someone to manage the contracting process which, to me, is just adding another margin.”

Bestway MD Dawood Pervez agrees: “One wholesaler, including the big boys as I understand it, would not be able to fulfil such a requirement, and may not be so keen to do so either.”

“It’s a major logistical undertaking which would need proper resource planning. Only once that has been done would they be able to work out if it was worth their while.”

Is there any chance of success for the project, and are there any benefits for wholesalers?

In the first instance, wholesalers argue that implementing a single-supplier framework with no known quantities and no set locations, and expecting prices to be lower, shows a misunderstanding of how the industry works.

One independent wholesaler said: “We price each individual job based on the needs of the customer. If you want delivery five times a week, that will be more expensive. If you’ve got remote locations with a lower order value, then that affects the price too. You can’t just quote for all scenarios.”

However, some people in the sector agree more could be done to streamline supply.

“A lot of public sector bodies are currently splitting up categories unnecessarily,” one national wholesaler told The Grocer. “For example, they might have a tender for crisps and soft drinks, and a separate one for grocery.

“This is incredibly time-consuming, wasteful and bad for emissions, because they’re getting a lot of deliveries from different suppliers.

”However, to then throw the baby out with the bathwater by going to a singular unified model just isn’t realistic. I think the answer lies somewhere between the current approach and what they’re proposing.”

Supposing the contract was awarded to a consultancy, a potential silver lining could come in the form of quarterly price reviews, which the government says will be written into the terms of any deal. This may mitigate against some of the challenges posed by the ongoing inflationary environment.

For the last few years, many wholesalers have had to prop up loss-making public sector contracts which have failed to rise in line with inflation. In September, The Grocer reported 95% of FWD members were unlikely to continue to bid for future contracts due to this issue unless the government stepped in.