How the Big 30 Wholesalers fear more suppliers will walk on by

That came in the form of a letter from Diageo, informing many wholesalers that it was introducing a new way of supplying the wholesale sector and that only those wholesalers spending over £2m per annum would remain eligible for direct supply. Furthermore, those wholesalers that did not qualify – which is most of them – would stop receiving orders from 1 April.

This news has proved a hammer blow for many wholesalers as Diageo, the maker of brands including Johnnie Walker, Smirnoff, Gordon’s, Baileys and Guinness, in some cases can make up around one third of a wholesaler’s spirit sales.

Affected wholesalers and buying groups are currently still negotiating with Diageo to try and persuade it to think again, meaning there is an unwillingness to speak out publicly at this moment. Privately, however, the anger is palpable.

“Diageo’s move is completely unethical and immoral,” blasts one wholesaler. “We find it astonishing that it is treating smaller wholesalers with such behaviour.”

Another leading grocery wholesaler says: “I feel its actions will be detrimental to many smaller wholesalers as they will no longer be able to source directly. I believe that Diageo’s distribution of its ranges will be compromised as smaller wholesalers will not buy the breadth of range that they may be buying today.” The feelings are similar for specialist foodservice operators, with one wholesale boss agreeing that Diageo’s sales will also be hit. “It’s a misinformed and short-sighted move that shows a complete misunderstanding of the wholesale supply channel into hospitality,” he says. “It will harm Diageo’s business in a big way as wholesalers have more influence over what their customers buy than some branded manufacturers seem to think.”

Diageo says its move is about the “pursuit of continually improving the way we do business”. A spokeswoman told The Grocer last month it would “promote efficiencies and encourage sharing of data, which will drive insight-led decisions and help enable Diageo to better service the independent operator”.

The upshot is that the company will only continue to directly supply 14 off-trade wholesalers and 20 on-trade distributors, of which just three are members of the Big 30: Booker, LWC Drinks and Matthew Clark Bibendum as a part of C&C Group.

The changes have drawn criticism even from some of those set to retain supply, though others are rubbing their hands in glee, or at least understanding of where the supplier is coming from and why it feels compelled to change its processes in the current trading environment.

“Suppliers spend a lot of money on large sales teams servicing many customers directly,” explains one wholesale managing director. “However, with inflation, many of these accounts are not sustainable when taking into account all the cost. The spraying of promo funding hasn’t really gained distribution, it just creates chase-a-case. Rewind 20 years, many of these accounts would buy from a larger wholesaler anyway. The previous strategy has led to fragmentation, a focus on price and a damaging situation of moving volume round and creating many partially filled deliveries – something that isn’t tenable with the ESG imperatives coming through.”

The situation was further inflamed by Diageo GB managing director Nuno Teles, who rejected the argument that the plans would negatively impact wholesalers. “An independent operator can buy from 10 different sources on average,” he said at the time. “They buy from Tesco, they buy from Amazon, they buy from other wholesalers. That was already happening.”

While the Diageo case has proven a lightning rod for wholesalers, it has also sent waves of concern around the sector that others will look at the situation and use this new supply model as a blueprint for their own operations.

“There is always going to be consolidation in a sector like ours”

JW Filshill chief executive Simon Hannah

When the shortage of lorry drivers first emerged in 2021, some suppliers stopped deliveries to smaller accounts. And though some resumed supply others never went back. And there are concerns that more suppliers will follow suit.

“The impact on the wholesale sector will be detrimental to the breadth of ranges carried by independent wholesalers, which will inevitably result in loss of sales and profits for those wholesalers,” explains a major wholesaler. “Diageo is also expecting larger wholesalers to take the credit risk of supplying smaller wholesalers, which is going to mean a low margin trading environment. I believe Diageo has considered all the factors and will benefit from a cost saving perspective.”

This final point is where wholesalers fear the situation spreading. “We hope our suppliers will see the uproar and behave sensibly with wholesalers in general,” says one senior wholesale executive. “However, some may see this as a way to review their terms of trade and impose conditions not fair for the wholesale channel.”

Another operator puts it more bluntly. “I trust that other suppliers will be wiser,” he says, acknowledging that when it comes to supplier-wholesaler relations they are “generally positive. Diageo is the exception not the rule.”

That is certainly not a view shared by all. Warns another wholesaler: “Major suppliers are looking to consolidate their supply chain, which may well assist them in cost cutting. This may create certain supply-side opportunities for mid to large-sized wholesalers. The supplier base is looking for easy routes to market without being willing to work with the independent wholesale trade, who play a very important part in the UK supply chain. It is a short-sighted view, but it seems to be the way the market is moving.”

One answer to this for wholesalers is to look at ways to collaborate better. The response from one wholesaler last month to the breaking Diageo news was “I’m not in business to support my rivals”. But while many will be reluctant to go down a secondary supply route, a more enhanced way of working together through the different buying groups could be a viable response for small, medium-sized and even bigger operators. Key to this could be central distribution, something The Grocer understands is currently under consideration at the UK’s biggest buying group, Unitas. However, that is not something that can be set up overnight or at the flick of switch. Such a network could take 18 months to two years. Will its members push for and invest in such a move? If the Diageo move shows anything, it is how quickly the landscape can change, and wholesalers will need to adapt fast.

Wholesalers are, of course, still investing in their businesses, despite what remains a challenging economic environment. While there is consensus that the pressures caused by soaring inflation over the past two years are finally easing to a degree, there remains, as the Federation of Wholesale Distributors calls it, “a cost of doing business crisis”.