Plough through the 2000 Competition Commission report into the sector and there was little evidence that Asda's US parentage was securing it a better deal on a packet of biscuits, while Tesco's global sourcing efforts were initially focused on non-food items.
If general merchandise items were the first to get globally sourced, however, the biscuits would come next, warned analysts, and manufacturers had better have a well rehearsed answer for when Tesco came knocking on the door expecting world wide pricing parity.
Indeed, the pressure on suppliers to defend local pricing strategies was brought into sharp focus recently when Tesco attempted to iron out discrepancies between terms suppliers were offering Tesco Poland, its new Polish subsidiary, HIT, and its UK business. As one supplier observes: "They've already cut costs everywhere else, and they have been thoughtful and innovative. Now, they are just getting bloody minded. Things are a bit fraught at the moment."
Interestingly, Procter & Gamble, one of the first suppliers to bite the bullet and develop both pan-European and global accounts teams to deal with the multinational supermarkets, claims there is evidence to suggest that retailers are losing a little of their initial enthusiasm for global sourcing.
A spokesman says: "We have seen the reverse trend, with some retailers passing control back from the globe or regions to local again." Nevertheless, global deals on food are creeping in.
"Fresh is likely to stay dominated by national arrangements. But packaged and tinned products will be subject to international sourcing and are already subject to some cross border shipping.
"Retailers will look to get leverage in any way they can, but there has to be some scale or cost reason for making regional deals or it just becomes a transfer of value between both parties, which is both unjustified and unsustainable."
Global handshake
Cadbury Trebor Bassett, says buying of its products remains resolutely national. Customer relations director Chris Morgan says: "No one is discussing Euro sourcing with us, possibly because brands and packs in our portfolio differ to such an extent in each country. By and large, the grocery multiples do understand that cost bases differ and that one rate cannot apply across different countries."
However, a glance over the lists of products put up for auction last year on exchanges such as GNX and WWRE, shows that members such as Carrefour, Tesco and Ahold are now cutting global deals on a vast array of food products which, according to WWRE senior product director for e-procurement and sourcing, Sylvie Weeks, is not in the least surprising.
"Ultimately, both retailers and manufacturers are aiming to maximise profits and will therefore move to the region or source of supply that provides the best cost structure, while still maintaining the quality of the product," she says.
Indeed, one of the major draws to the exchange has been the assistance it can offer members to find the right partners for global sourcing. WWRE's Asian sourcing programme puts Tesco and co in touch with a raft of potential new global suppliers, while its landed cost analyser tool helps retailers tot up the cost of getting goods from overseas into a port, depot or store, including tariffs and other on-costs, so that suppliers can be easily compared.
WWRE member Ahold is probably the most adept at leveraging its global scale to secure more favourable terms, both as a member of the buying alliance AMS and through its in-house global sourcing department, Ahold Global Sourcing (AGS). And while the initial focus was on items not for resale, like store fittings, AGS has now turned its attention to food. A significant volume of mangoes, for example, are now purchased centrally for several of Ahold's operating companies, along with fresh fruit, flowers, meat, and several own label packaged groceries for all of its US stores.
Asda is also making progress on joint sourcing of Smart Price own label groceries with Wal-Mart Germany, along with branded soft drinks, personal care items, poultry, beers, wines and spirits. Spar International is also buying significant quantities of beer, soft drinks, wines, biscuits, part-baked bread and frozen food on a global basis.
Spar operates in over 30 countries, 14 of which actively support its International Spar own label range, says MD Dr Gordon Campbell. "This has presented suppliers such as Moy Park and Cott Beverages with some big opportunities."
Place your bids
Several UK retailers have started using online auctions to source groceries. However, in an environment where food safety and traceability is paramount, retailers have got to proceed with caution, says Cap Gemini Ernst & Young head of retail Richard Hull.
Auctioning off a raft of contracts to cheap, remote, and often less sophisticated overseas suppliers, for example, can be a risky enterprise: "You inevitably lose some control, you haven't seen the factory, or met the people. I think we will move towards the situation where retailers will source the difficult' products locally and then get the basics from the cheapest possible source."
Deloitte Consulting's head of consumer business practice Lawrence Hutter adds: "Retailers want to source locally but from a trusted supplier. For example, we are seeing the multinational brewers buy local companies across central and eastern Europe and China, while there has been a general migration of manufacturing capacity eastwards. I would also expect to see a major acquisition of a Thai or Brazilian poultry producer soon."
Suppliers meanwhile, will have to develop what Hutter calls "pricing corridors", whereby prices they charge customers in, say, Poland, may be cheaper than in the UK, but not so much so that it would be worth Tesco shipping goods over from Warsaw.
A myriad of factors, from industry consolidation and the advent of the single currency, to global branding and factory gate pricing, have all contributed to a rise in global sourcing, says Accenture's Ian Lomas. And while practical considerations might make an overseas supplier less responsive than one down the road, we could in future move to a situation whereby retailers will source bulk orders from overseas, and then use local suppliers as back-up to cope with fluctuating demand.
Instead of seeing global sourcing as a threat, says CGEY's Hull, savvy suppliers can exploit the information retailers are now able to give them about demand on a pan-European or global scale, and invest in their manufacturing bases more astutely.
{{ANALYSIS }}
If general merchandise items were the first to get globally sourced, however, the biscuits would come next, warned analysts, and manufacturers had better have a well rehearsed answer for when Tesco came knocking on the door expecting world wide pricing parity.
Indeed, the pressure on suppliers to defend local pricing strategies was brought into sharp focus recently when Tesco attempted to iron out discrepancies between terms suppliers were offering Tesco Poland, its new Polish subsidiary, HIT, and its UK business. As one supplier observes: "They've already cut costs everywhere else, and they have been thoughtful and innovative. Now, they are just getting bloody minded. Things are a bit fraught at the moment."
Interestingly, Procter & Gamble, one of the first suppliers to bite the bullet and develop both pan-European and global accounts teams to deal with the multinational supermarkets, claims there is evidence to suggest that retailers are losing a little of their initial enthusiasm for global sourcing.
A spokesman says: "We have seen the reverse trend, with some retailers passing control back from the globe or regions to local again." Nevertheless, global deals on food are creeping in.
"Fresh is likely to stay dominated by national arrangements. But packaged and tinned products will be subject to international sourcing and are already subject to some cross border shipping.
"Retailers will look to get leverage in any way they can, but there has to be some scale or cost reason for making regional deals or it just becomes a transfer of value between both parties, which is both unjustified and unsustainable."
Global handshake
Cadbury Trebor Bassett, says buying of its products remains resolutely national. Customer relations director Chris Morgan says: "No one is discussing Euro sourcing with us, possibly because brands and packs in our portfolio differ to such an extent in each country. By and large, the grocery multiples do understand that cost bases differ and that one rate cannot apply across different countries."
However, a glance over the lists of products put up for auction last year on exchanges such as GNX and WWRE, shows that members such as Carrefour, Tesco and Ahold are now cutting global deals on a vast array of food products which, according to WWRE senior product director for e-procurement and sourcing, Sylvie Weeks, is not in the least surprising.
"Ultimately, both retailers and manufacturers are aiming to maximise profits and will therefore move to the region or source of supply that provides the best cost structure, while still maintaining the quality of the product," she says.
Indeed, one of the major draws to the exchange has been the assistance it can offer members to find the right partners for global sourcing. WWRE's Asian sourcing programme puts Tesco and co in touch with a raft of potential new global suppliers, while its landed cost analyser tool helps retailers tot up the cost of getting goods from overseas into a port, depot or store, including tariffs and other on-costs, so that suppliers can be easily compared.
WWRE member Ahold is probably the most adept at leveraging its global scale to secure more favourable terms, both as a member of the buying alliance AMS and through its in-house global sourcing department, Ahold Global Sourcing (AGS). And while the initial focus was on items not for resale, like store fittings, AGS has now turned its attention to food. A significant volume of mangoes, for example, are now purchased centrally for several of Ahold's operating companies, along with fresh fruit, flowers, meat, and several own label packaged groceries for all of its US stores.
Asda is also making progress on joint sourcing of Smart Price own label groceries with Wal-Mart Germany, along with branded soft drinks, personal care items, poultry, beers, wines and spirits. Spar International is also buying significant quantities of beer, soft drinks, wines, biscuits, part-baked bread and frozen food on a global basis.
Spar operates in over 30 countries, 14 of which actively support its International Spar own label range, says MD Dr Gordon Campbell. "This has presented suppliers such as Moy Park and Cott Beverages with some big opportunities."
Place your bids
Several UK retailers have started using online auctions to source groceries. However, in an environment where food safety and traceability is paramount, retailers have got to proceed with caution, says Cap Gemini Ernst & Young head of retail Richard Hull.
Auctioning off a raft of contracts to cheap, remote, and often less sophisticated overseas suppliers, for example, can be a risky enterprise: "You inevitably lose some control, you haven't seen the factory, or met the people. I think we will move towards the situation where retailers will source the difficult' products locally and then get the basics from the cheapest possible source."
Deloitte Consulting's head of consumer business practice Lawrence Hutter adds: "Retailers want to source locally but from a trusted supplier. For example, we are seeing the multinational brewers buy local companies across central and eastern Europe and China, while there has been a general migration of manufacturing capacity eastwards. I would also expect to see a major acquisition of a Thai or Brazilian poultry producer soon."
Suppliers meanwhile, will have to develop what Hutter calls "pricing corridors", whereby prices they charge customers in, say, Poland, may be cheaper than in the UK, but not so much so that it would be worth Tesco shipping goods over from Warsaw.
A myriad of factors, from industry consolidation and the advent of the single currency, to global branding and factory gate pricing, have all contributed to a rise in global sourcing, says Accenture's Ian Lomas. And while practical considerations might make an overseas supplier less responsive than one down the road, we could in future move to a situation whereby retailers will source bulk orders from overseas, and then use local suppliers as back-up to cope with fluctuating demand.
Instead of seeing global sourcing as a threat, says CGEY's Hull, savvy suppliers can exploit the information retailers are now able to give them about demand on a pan-European or global scale, and invest in their manufacturing bases more astutely.
{{ANALYSIS }}
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