News that Tesco has increased delivery charges to its primary distribution partners due to ongoing driver shortages, has opened the proverbial Pandora’s box.
It’s an explicit acknowledgement by Tesco of the inflationary forces in the market. And while Sainsbury’s is cutting prices, while upping profit forecasts Tesco’s move opens the door for other retailers to follow suit. The 1 August timing of the imposition is also interesting. That’s the second half of Tesco’s financial year, with a further review possible in three months.
It also opens the door for suppliers to negotiate with retailers too. Until now, buyers have simply buried their heads in the sand, refusing to acknowledge inflation, and pointing to CPI, ONS and other trade figures, which ignore the impact that the return of cancelled promotions is having.
That the price increase was imposed by Tesco’s distribution team seems to have come as a surprise to buyers, judging by their reactions in conversations with suppliers. Tesco’s decision not to provide the distribution team with GSCOP training may also come back to bite it, given the short notice.
Nor has Tesco provided an itemised breakdown of the cost increases, something its buyers would certainly demand of any supplier asking for a 14% price increase. Having said that, any supplier facing that level of increase should be grateful they’re not forking out for the near tenfold increase in shipping costs (from $2,500 to $20,000 per container). Meanwhile, packaging, fuel and food commodities are at historic highs.
So it’s inevitable prices will go up. A question of when not if. And there may even be a first-mover advantage in engaging with suppliers. Not only to help buyers hit their numbers as sales continue to normalise/decline. At some point prices will go down. So there’s a game of chess to be played in which buyers and their suppliers work to mutual advantage.
If retailers aren’t prepared to engage, on the other hand, they have to be prepared for empty shelves. Money talks, as they say – as does a retailer’s willingness to work with suppliers to make deliveries quick and simple. And some, we hear, simply aren’t.
No comments yet