Tesco is the latest big retailer to rattle its sabre in the battle to sweep away local pricing strategies in pursuit of global goals.
Tesco’s decision to tackle head on the discrepancies in terms it is receiving in the different markets in which it operates (see news story, page 5) has highlighted an issue that is right at the heart of the drive by retailers towards building a global presence.
The British multiple is incensed that it can get better terms for some products in emerging markets such as Poland than it can in this country where it is the biggest retailer by far and where the bulk of its revenues are generated.
For retailers such as Tesco the issue is pretty clear cut: as we raise our global presence, we want to be treated in a similar manner by our pan-national suppliers, wherever we operate. For some manufacturers life is not quite that simple.
They point out that they have completely different cost structures in the different markets in which they operate. They say the fact that wage bills, taxes, marketing and product formulations can vary dramatically within regions is the reason for the apparent anomalies. As one account manager - who was at the Tesco event - points out: “You can’t say the same costs are involved in making and supplying product in the UK as in Thailand.”
However, such arguments are proving difficult to sustain within Europe, particularly since the Euro was introduced. Longer term, this week’s news that the European Union is to start expanding Eastwards will only add to the pressure for greater price transparency across the region.
Efforts by suppliers to defend their local pricing strategies are also undermined by customer initiatives undertaken by the likes of Procter & Gamble.
Retailers more prepared to act
At the IGD Global Retailing Conference held in May, P&G’s John Molter said his company had set up teams to work closely with global players such as Tesco.
Molter said this was “hard work” but vital because the balance of power was shifting towards retailers. And he added: “Unless suppliers are willing to evolve in all they do there will be some big sticks being used [by retailers].”
Certainly the omens for those pan-national suppliers keen to maintain the status quo are not great - retailers, it seems, are more prepared than ever to flex their muscles when they do not get what they want.
For instance: Ahold’s Dutch supermarket subsidiary Albert Heijn has just called off its extraordinary boycott of 30 products made by compatriot company Unilever.
Albert Heijn stopped renewing supplies of products such as washing powder and soap once they were sold out and replaced them with own label goods - all in a bid to get better terms. A spokesman insists the boycott was not typical Ahold policy but that it had been the right move in this case. “We didn’t see eye to eye on price. It just goes to show that even prominent players will look to manage their margins as efficiently as possible.”
Spar Germany is another example. It had a protracted battle with suppliers a couple of years ago and took brands such as Kellogg’s and Coca-Cola off the shelves after they refused to lower prices.
Sure, the issues in both boycotts were related more to local in-market wrangling than any global or regional disagreement. But they offer some evidence of just how far the balance of power has shifted.
It is not so long ago that retailers were smaller than many of their suppliers. But as consolidation within countries and within regions has accelerated, that no longer holds true. And retailers - as P&G’s Molter warns - are starting to wield their big sticks.
Product boycotts are not the only big stick being wielded. Retailers are also proving increasingly adept at sourcing brands on the grey market to benefit from better European prices. And, of course, the long term goal is to move towards global arrangements with pan-national suppliers.
For now, even though everyone harks on about global sourcing, there is relatively little happening on this front in grocery.
As Peter Freedman, McKinsey’s head of European consumer goods, says we are only just seeing the beginning of real buying power being leveraged across countries.
“Most manufacturers recognise that the big differences in consumer prices and trade prices across Europe, particularly within the enlarged EU, are unsustainable, however much they try to justify them on economic grounds,” he says.
Tesco clearly agrees. And some of its biggest suppliers are now facing a new, and very uncomfortable, round of tussling.
Reporting by Julian Hunt, Helen Gregory and Elaine Watson
Tesco’s decision to tackle head on the discrepancies in terms it is receiving in the different markets in which it operates (see news story, page 5) has highlighted an issue that is right at the heart of the drive by retailers towards building a global presence.
The British multiple is incensed that it can get better terms for some products in emerging markets such as Poland than it can in this country where it is the biggest retailer by far and where the bulk of its revenues are generated.
For retailers such as Tesco the issue is pretty clear cut: as we raise our global presence, we want to be treated in a similar manner by our pan-national suppliers, wherever we operate. For some manufacturers life is not quite that simple.
They point out that they have completely different cost structures in the different markets in which they operate. They say the fact that wage bills, taxes, marketing and product formulations can vary dramatically within regions is the reason for the apparent anomalies. As one account manager - who was at the Tesco event - points out: “You can’t say the same costs are involved in making and supplying product in the UK as in Thailand.”
However, such arguments are proving difficult to sustain within Europe, particularly since the Euro was introduced. Longer term, this week’s news that the European Union is to start expanding Eastwards will only add to the pressure for greater price transparency across the region.
Efforts by suppliers to defend their local pricing strategies are also undermined by customer initiatives undertaken by the likes of Procter & Gamble.
Retailers more prepared to act
At the IGD Global Retailing Conference held in May, P&G’s John Molter said his company had set up teams to work closely with global players such as Tesco.
Molter said this was “hard work” but vital because the balance of power was shifting towards retailers. And he added: “Unless suppliers are willing to evolve in all they do there will be some big sticks being used [by retailers].”
Certainly the omens for those pan-national suppliers keen to maintain the status quo are not great - retailers, it seems, are more prepared than ever to flex their muscles when they do not get what they want.
For instance: Ahold’s Dutch supermarket subsidiary Albert Heijn has just called off its extraordinary boycott of 30 products made by compatriot company Unilever.
Albert Heijn stopped renewing supplies of products such as washing powder and soap once they were sold out and replaced them with own label goods - all in a bid to get better terms. A spokesman insists the boycott was not typical Ahold policy but that it had been the right move in this case. “We didn’t see eye to eye on price. It just goes to show that even prominent players will look to manage their margins as efficiently as possible.”
Spar Germany is another example. It had a protracted battle with suppliers a couple of years ago and took brands such as Kellogg’s and Coca-Cola off the shelves after they refused to lower prices.
Sure, the issues in both boycotts were related more to local in-market wrangling than any global or regional disagreement. But they offer some evidence of just how far the balance of power has shifted.
It is not so long ago that retailers were smaller than many of their suppliers. But as consolidation within countries and within regions has accelerated, that no longer holds true. And retailers - as P&G’s Molter warns - are starting to wield their big sticks.
Product boycotts are not the only big stick being wielded. Retailers are also proving increasingly adept at sourcing brands on the grey market to benefit from better European prices. And, of course, the long term goal is to move towards global arrangements with pan-national suppliers.
For now, even though everyone harks on about global sourcing, there is relatively little happening on this front in grocery.
As Peter Freedman, McKinsey’s head of European consumer goods, says we are only just seeing the beginning of real buying power being leveraged across countries.
“Most manufacturers recognise that the big differences in consumer prices and trade prices across Europe, particularly within the enlarged EU, are unsustainable, however much they try to justify them on economic grounds,” he says.
Tesco clearly agrees. And some of its biggest suppliers are now facing a new, and very uncomfortable, round of tussling.
Reporting by Julian Hunt, Helen Gregory and Elaine Watson
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