The Big 30: How the wholesale sector is taking a seat in supermarket boardrooms

Until the pandemic struck, the wholesale sector was still feeling the fallout of the last great deal in 2018 when its biggest fish – Booker – was netted by Tesco, the UK’s biggest retailer. Back then there was regular speculation that Tesco’s rival supermarkets would look to do similar deals by snapping up leading wholesalers or buying groups.

Had anyone suggested that a big wholesaler could instigate a play for a big supermarket, the idea would have been dismissed out of hand.

Not any more. Bestway, now the UK’s third-biggest wholesaler, fuelled exactly that kind of speculation last month by acquiring a 4.4% stake in Sainsbury’s for around £270m. While industry experts believe a takeover is an unlikely prospect, the very fact that it is on manoeuvres shows something is afoot.

Because while Bestway has yet to fully show its hand on its precise intentions for Sainsbury’s, there is growing speculation that by increasing its shareholding it could force its way on to the Sainsbury’s board, either in the form of group CEO Zameer Choudrey or its wholesale MD Dawood Pervez. With a seat at the Sainsbury’s table, it would be in a strong position to bend the supermarket’s strategy to its will – whether through a buying alliance, supply deal or even convincing Sainsbury’s to buy out Bestway’s UK wholesale and pharmacy operations while keeping its banking and concrete arms separate in Pakistan.

The waves made by Bestway’s purchase feels like a metaphor for the wholesale sector as a whole, which has emerged from the trials and tribulations of the pandemic seemingly stronger, better prepared to face up to the prevailing issues of the day, and with a greater say in matters that affect the entire grocery industry.

James Bielby, CEO of trade body the Federation of Wholesale Distributors, argues that the sector is flexing its collective muscle more effectively than ever before. “Wholesale is a healthy sector that is in a good place,” he says. “Wholesaler recognition within government has been something we have been working hard on for a number of years and our profile is higher than it’s ever been.”

At the latest count, FWD’s membership has a combined turnover of £31bn, with consumers paying £48bn for the products they supply via 72,000 retailers and 330,000 foodservice customers.

Its growing influence is felt most particularly among the UK’s biggest wholesalers. Based on their latest available results, the Big 30 turned over £29.3bn last year, a 12% increase year on year. Profit figures are not available for Tesco-owned Booker but barring that, the Big 30’s combined pre-tax profits hit £232.5m, reversing the £16.3m net loss from the previous year, with profit margins of 1.1% on average.

Passing it on

All in all, there is a lot to feel positive about in wholesale. Blakemore Wholesale MD James Russell has just been co-opted on to the influential Food & Drink Sector Council, something Bielby believes wouldn’t have happened a few years ago. “It is a real recognition of the key role wholesalers play in the supply chain,” he says.

That’s not to say Bielby can’t still reel off a host of challenges that are still very much front and centre of his members’ minds, with ongoing train strikes adding to a list that includes the impact of the war in Ukraine, soaring energy prices, food and drink inflation and continuing availability issues.

Many of these factors are of course related and the upshot is that prices are increasing across the grocery industry overall and not just wholesale.

“It’s a real recognition of the key role wholesalers play in the supply chain”

James Bielby, Federation of Wholesale Distributors CEO

Bestway’s Pervez, for example, says it has seen cost price increases coming through from its suppliers of “anything from the low teens to more than 30%”.

The challenge for wholesalers is pushing back where necessary and then attempting to absorb as much of the increases they have agreed to as possible.

“We have passed on increases of circa 10% on lines where our suppliers have had increases across manufacture for materials and costs,” he explains. “But we’ve also been able to delay and mitigate some of this by buying large amounts of outgoing packs or by re-engineering our supply chain with our suppliers and buying more efficiently.”

Inflation has of course been a major issue for all grocery. Last year there were several trade disputes between retailers and suppliers over cost price increases – most notably Tesco and Heinz. Indeed, Booker believes that inflation was the biggest issue facing the sector over the past year.

“Cost pressures have increased in some areas of the supply chain,” confirms CEO Andrew Yaxley. “It’s our job to mitigate as much of this pressure as possible and ensure our customers can find great value at Booker.”

But while not unique to wholesale, one of the main concerns has been the speed of inflation, with suppliers often seeking multiple increases. “Most of the price increases we are seeing are double-digit with many suppliers increasing prices several times over the past 12 months,” says Holland Bazaar MD Mert Ucar.

“We have tried to absorb as many price increases as we can and to do this we have taken a hit on our own margins or in some cases, used our size to try and get better deals from suppliers to maintain margins.”

He adds: “As with any business we have had to increase prices, but we have tried to support our customers by keeping any increase to a minimum.”

Price-marked packs

Margin is crucial, but in the case of wholesalers it is not just their own profitability they are concerned with. For this sector to work, wholesalers need to ensure there is an acceptable shared margin for themselves and their customers. With cost prices rising so much and so fast, it has created something of a pressure point, particularly around price-marked packs (PMPs).

In the midst of a cost of living crisis, convenience retailers are keener than ever to convey a value message and PMPs are a vital part of this. Suppliers are asking wholesalers to pay more for their goods, with wholesalers asking for increases in the price marks so that the shared margin can be protected. There has understandably been some nervousness among some suppliers that pushing the retail price too high will scare customers away from buying.

The result has been further tension in price negotiations, the most notable example coming in October when it emerged that Unitas was boycotting some of Mars Confectionery’s £1 sugar sharing bags for this very reason.

Unitas MD John Kinney says the buying group is no longer in dispute with any of its suppliers but points out that “an awful lot of hard work is still going on to make sure that cost price increases are fair and equitable”.

“We’ve been working with suppliers to find a compromise and an acceptable way forward,” he says. “Suppliers can’t expect us to accept it without challenging. Our wholesalers won’t accept it, our retailers won’t accept it, nor will the consumers accept it.”

The danger, he warns, is that if shared margin is not protected on PMPs then retailers will seek to convey value to shoppers by switching to less well-known brands, which will ultimately alienate shoppers who will look to find the key branded lines elsewhere.

“It’s not perfect but it is improving”

Pradip Dhamecha, Dhamecha CEO 

Parfetts joint-MD Guy Swindell agrees. “The number one focus at Parfetts is to support retailer margins, who face a raft of rising business costs. To help mitigate the impact of rising prices, we have expanded the number of promotions we run. seasonal events are designed to drive footfall, increase basket spend and grow margins. Plus, we are continuing to offer our usual promotional support, including one-day specials, manager’s specials, three-weekly promotions schedules and supplier takeovers.

“As a result, we are confident that we are leading the industry in delivering value to our retailers and their customers.”

This message is echoed by wholesalers across the board. Where there is more divergence of opinion is around availability. This time last year, poor service levels for suppliers was by far the biggest concern among wholesalers. “Quite simply, we’ve experienced the good, the bad and the totally unacceptable,” bemoans Bestway’s Pervez.

“Although many suppliers have been very supportive of Bestway and have also worked with us to find ways to work around the challenges, we are still seeing an imbalance of how the available stock is distributed across the industry.

“This year, suppliers have forecasted poorly, and ill-managed NPD launches and PMP changes too. “Factory inefficiencies and breakdowns have left us short of key lines at key points in the year, which has resulted in a loss of sales for our customers, poor service for the end shopper and for us, empty shelves for our retailers,” says Pervez.

“We continue to see a concerning trend where in many cases the number of account managers, and thus service levels, are reducing,” he adds. “As we continue to grow, it’s increasingly important for us to have good representation of account managers.”

JW Filshill CEO Simon Hannah says that “service levels have mildly improved vs the previous year but some categories are performing at very low levels”.

He adds: “There are instances where our sector appears to be disadvantaged in terms of availability. We are watching this closely and working with Unitas to ensure we as a sector are getting our fair share of stock.”

Others, however, have noticed greater improvements. “Our suppliers have been affected by the same macro factors resulting in a corresponding impact on service level,” sympathises Blakemore’s Russell.

“At one point we were operating at an unprecedented 87% inbound availability. Working collaboratively across trading, replenishment, and logistics and with a drilled down approach product by product, solutions such as supplier backhaul, cross docking across our network, range changes, forecasting and planning collaboratively has resulted in a consistent 97% service in 2023.”

Dhamecha CEO Pradip Dhamecha sums it up as “service levels have improved slightly over the year. It’s not perfect but it is improving.”

Despite these ongoing challenges overall, there is a sense of optimism in the sector. After several years of battling one crisis after another, FWD communications director David Visick says “we’re almost, I don’t like to say normal, but we’re coping with the level of difference and going back to the longer-term themes and planning as well.”

A key sign of this is investment going into either acquisitions or major new developments. Blakemore’s performance has clearly benefited from its new Bedford depot coming fully on-stream last year. In October, Holland Bazaar bought one Hyperama depot, with Dhamecha mopping up the remaining two sites in November, while the next few months will see Parfetts open a new depot in Birmingham and Filshill relocating to its new state of the art facility near Glasgow Airport.

“Some categories are performing at very low levels”

Simon Hannah, JW Filshill CEO

The toughest market is foodservice, but Bidcorp UK has already made two wholesaler acquisitions in 2023, and Welsh foodservice specialist Castell Howell will also be adding new capacity this year.

Of course, the market is still hugely challenging and the reduction of government energy support from April looks to be another roadblock up ahead, but it certainly feels like wholesale is back on the right track.