Holland & Barrett has told suppliers it is going ahead with cost reductions of at least 5% with or without their consent.
The health food and supplements retailer upset many of its suppliers in January via a letter from CEO Peter Aldis, in which he demanded the cost reduction in order that suppliers would be “contributing proportionally to the growth of the business”.
Now in a second letter sent this week, the retailer has warned those suppliers who have yet to contact it in relation to the original demands that it would view the non-response as a tacit acceptance.
The letter, from Holland & Barrett head of sales and procurement Emma Cockerill, said the company was “delighted” by the response of a large number of suppliers who had been “very proactive in developing plans that drive their businesses in conjunction with our expansion, both in the UK and overseas.
“However, despite the request in January to contact us, there is a small group of suppliers who have decided not to respond.”
She went on to state: “Given that we have had hundreds of negotiations with our suppliers to reach mutually satisfactory conclusions, we are unable to allow this small group to purely ignore the letter. We therefore have to conclude that a non-response means acceptance of the changes we are proposing.
“As such, we will be amending the cost price on our system as of 1 June 2016 and in line with our National promotional funding, we will charge all retrospective funding on the BOGOHP promotions at a rate of 25%.”
As well as looking for funding for its expansion plans, the original letter also explained that suppliers would have to cover the £3m cost of security tagging and CCTV Holland & Barrett was introducing in stores to cut theft, which was nearly 2% of sales.
“Our suppliers will have to cover this cost in the form of invoice adjustments and/or free stock,” the letter said.
Aldis told suppliers they should “formulate proposals” and “meet with the commercial team at the earliest opportunity”.
The basis of the demand for price cutting, which was to follow a freeze on cost increases, was Holland & Barrett’s £91m spend on internal investment and new initiatives, which had driven an 11.7% increase in turnover and 26 quarters of consecutive growth.
At the time, Aldis’ letter led to an angry response from suppliers, who branded the company “greedy” and “dictatorial”.
One senior director of a supplier to the company told The Grocer: “With some of the worst trading terms in the country for suppliers, the highest margins of any retailer, awful trading terms of 90 days, with large settlement discounts for paying somewhere close to a normal timescale and ridiculous promos that the supplier is meant to fund, this request from Peter Aldis is beyond audacious and is both morally and financially reprehensible.”
A spokesman for Holland & Barrett said: ”Our relationship with suppliers is a mutually beneficial one – if we grow they grow. But to drive that growth we need to continue to invest, and as our partners, suppliers should expect to share in this responsibility. Holland & Barrett International grew each year throughout the recession and has just recorded its 28th consecutive quarter of like-for-like growth. Our suppliers have clearly benefitted from this.
Our ambition is to continue to outperform the market so that we and our suppliers can together continue to enjoy the benefits of this growth.”
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