International buying groups are a threat to UK grocery values

Fmcg leaders across mainland Europe have long had to work with international buying groups (IBGs). They’ve had wrestle to generate commercial benefits from the tough annual agreements demanded by entities like Epic, AgeCore, Coopernic, AMS, and EMD. 

Since these groups first emerged back in the mid-1990s, they have typically extracted between 200 and 600 basis points of margin per year from target suppliers, who often feel very unsatisfied with the lack of delivery on any reciprocal business development agreements.

The fundamental tactic used by these buying groups is to threaten a supplier’s business in all the markets covered by their retail members. This can include delisting a third of a supplier’s range in each market, if they are unable to close a central negotiation for the additional ‘investment’.

In return for this ‘investment’, which sits on top of all the commercial agreements made locally, a supplier might be able to agree a few limited counterparts like data access, or in the best of cases, a European member-wide promotion event. The buying group agreements rarely deliver a positive ROI for the supplier, and the term ‘paying for peace’ has been adopted by many fmcgs trying to justify their spend.

UK commercial leaders have largely ducked these painful negotiations, and just hope UK retailers continue to choose not to participate in the IBG circus. In 2019, Morrisons’ membership of AMS raised eyebrows, but so far, it has been limited to a ‘smart sourcing’ arrangement.

The recent news that Kaufland – sister company to Lidl under the Schwarz Group – has agreed to join AgeCore, having previously been a member of EMD, is another signal that the buying groups continue to attract and recruit new members, renewing each group’s significant threat to suppliers’ P&Ls.

AgeCore now has six retailer members: Eroski, Intermarché, Coop Switzerland, Colruyt, Conad, and Kaufland. It operates in 15 markets, covering 9,405 stores and accessing nearly 8.6 million shoppers every day. Although it acts as a central buying group negotiating ‘extra deals’ on behalf of its members, it is clear its buying power – and its ability to delist suppliers – extends far beyond the deals it negotiates.

It is predictable that IBGs will get involved in selling the retail media services of their members. This would immediately tip the balance in local retail media contract negotiations, and interfere massively with the comprehensive rollout of one of the most important dynamics in retailing over the past decade.

There is always a place for tough negotiations here in the UK, but if UK suppliers were forced into centralised IBG, multi-retailer agreements, our grocery industry as a whole would inevitably suffer. There would be less product innovation, fewer supply chain efficiency initiatives, lower marketing spends, and, of course, increased tension between retailers and suppliers, eroding trust.

Shoppers would have an inferior shopping experience, and ultimately prices would rise. From the highest levels of government to the smallest supplier, this is something we must work to avoid.