A spat or the start of a fightback by brands feeling the squeeze? Liz Hamson reports on the Andrex-Sainsbury price dispute
A fortnight ago, Kimberly-Clark was getting ready to pop the champagne corks. Its marketing team, headed by Joe Bromilow, had successfully agreed a price increase for its top selling toilet tissue brand Andrex with the buyers at three of the big four supermarkets and, after six months of tense negotiations, was just waiting to sign off an agreement with Sainsbury. It was supposed to be a done deal.
Then, 48 hours before it was due to sign, Sainsbury unexpectedly refused to agree to the new price. The supplier promptly pulled the brand from the retailer's shelves and the Mexican stand-off commenced. But who would back down first?
On Tuesday, after a week of strangely empty shelves in scores of Sainsbury stores, we had the answer. Kimberly-Clark announced that it was resuming supply of Andrex to Sainsbury. For now, it would be listed at the same price as before the dispute. And Kimberly-Clark would not be drawn on whether the price rise had been agreed, but with its agreements with other retailers thrown into doubt otherwise, most analysts concur that for the first time a retailer had capitulated to a supplier's demands rather than vice versa. The question was: would other disgruntled suppliers do the same?
An element of brinkmanship is par for the course in listing negotiations and there is nothing particularly unusual in listing negotiations breaking down. But it is usually the retailer that does the delisting not the supplier.
Kimberly-Clark was clearly surprised when Sainsbury's vetoed the price rise at the eleventh hour. A source close to the negotiations says: I understand that it was totally out of the blue. As far as the supplier was concerned this was an important price adjustment to the supply costs through the system that had been agreed by the other retailers who are not mugs.''
The decision took both retailer and supplier into uncharted waters. Desperate to save face, there was a good deal of mutual posturing. Cap Gemini Ernst & Young analyst Richard Hull says: "Both parties were thumping their shields loudly. It was a very highly charged situation and in my view the first sign that the relationship between retailers and their suppliers is really beginning to creak.''
The spat is likely to be the first of many, he adds ominously. "There will be more of this. Most retailers must be asking for hard deals with zero or negative [price] inflation. Yet most manufacturers are increasingly taking the view that they cannot go on like that."
Both retailers and suppliers are under mounting pressure to keep costs down and maximise returns, the retailers to remain competitive and the suppliers to survive in an environment of increasing supply chain and production costs.
Why Sainsbury thought it would win
Until now, the retailers have largely had the upper hand. They have been the ones doing the delisting and, according to one analyst who asked not to be named, the ones pursuing deliberate strategies of temporarily delisting products until the supplier capitulates on price, meanwhile promoting own label products or sourcing from the grey market.
This may explain why Sainsbury thought it would win the stand-off. But in some ways it was an odd move. For one, it could not have come at worse time for the retailer, which had just unveiled a less than sparkling trading figures. Also, Andrex is a known value item controlling 26% to 30% of the toilet tissue market not the sort of brand retailers like to lose from their shelves.
Sainsbury refused to comment on the dispute. But one analyst argues that it may have been an issue of supply rather than price: Sainsbury trying to rein in supply of a product it had overstocked. Others suggest it could well have been a "horrible" miscalculation. "My best guess is that it is a mistake by someone who's been promoted on the back of squeezing brands,'' says one analyst. "They probably thought it was a clever eleventh-hour wheeze to force the supplier to accept its terms.''
Either way, Kimberly-Clark's response raises the prospect of more disputes between retailers and their suppliers as market conditions get tougher with the big suppliers just as prepared to play hardball as the retailers. Indeed, in many ways Kimberly-Clark's defiance is no different from the sort of tough bargaining stance that the retailers habitually deploy.
Amanda Aldridge, head of retail at KPMG, argues: This might be about big brands flexing their muscle but they're flexing it because the retailers are playing hardball. As things get harder for retailers, we'll see more stand-offs.''
The big question, she says, is whether brands like Andrex really are untouchable so important that they, and not the retailers, call the shots when it comes to pricing negotiations?
There is a long way to go before that becomes a reality, but the retailers have certainly had their wake up call. As one consultant puts it: "Supermarkets have got into the habit of behaving this way and getting away with it. They've grown used to exercising incredible power, but not with a product like Andrex. They've forgotten they need big brands too.''
And it will not just be the KVIs throwing their weight around, he says. "By exposing this I think big brands can give a platform to smaller brands to voice their concerns too.''
Suppliers beware, however: squaring up to a retailer could cost. As Hull says: "Any brand can do it. It depends how big they want to be and whether they're prepared to ruin their relationship with the retailer and let's not forget the other retailers will be watching closely.''
{{ANALYSIS }}
A fortnight ago, Kimberly-Clark was getting ready to pop the champagne corks. Its marketing team, headed by Joe Bromilow, had successfully agreed a price increase for its top selling toilet tissue brand Andrex with the buyers at three of the big four supermarkets and, after six months of tense negotiations, was just waiting to sign off an agreement with Sainsbury. It was supposed to be a done deal.
Then, 48 hours before it was due to sign, Sainsbury unexpectedly refused to agree to the new price. The supplier promptly pulled the brand from the retailer's shelves and the Mexican stand-off commenced. But who would back down first?
On Tuesday, after a week of strangely empty shelves in scores of Sainsbury stores, we had the answer. Kimberly-Clark announced that it was resuming supply of Andrex to Sainsbury. For now, it would be listed at the same price as before the dispute. And Kimberly-Clark would not be drawn on whether the price rise had been agreed, but with its agreements with other retailers thrown into doubt otherwise, most analysts concur that for the first time a retailer had capitulated to a supplier's demands rather than vice versa. The question was: would other disgruntled suppliers do the same?
An element of brinkmanship is par for the course in listing negotiations and there is nothing particularly unusual in listing negotiations breaking down. But it is usually the retailer that does the delisting not the supplier.
Kimberly-Clark was clearly surprised when Sainsbury's vetoed the price rise at the eleventh hour. A source close to the negotiations says: I understand that it was totally out of the blue. As far as the supplier was concerned this was an important price adjustment to the supply costs through the system that had been agreed by the other retailers who are not mugs.''
The decision took both retailer and supplier into uncharted waters. Desperate to save face, there was a good deal of mutual posturing. Cap Gemini Ernst & Young analyst Richard Hull says: "Both parties were thumping their shields loudly. It was a very highly charged situation and in my view the first sign that the relationship between retailers and their suppliers is really beginning to creak.''
The spat is likely to be the first of many, he adds ominously. "There will be more of this. Most retailers must be asking for hard deals with zero or negative [price] inflation. Yet most manufacturers are increasingly taking the view that they cannot go on like that."
Both retailers and suppliers are under mounting pressure to keep costs down and maximise returns, the retailers to remain competitive and the suppliers to survive in an environment of increasing supply chain and production costs.
Why Sainsbury thought it would win
Until now, the retailers have largely had the upper hand. They have been the ones doing the delisting and, according to one analyst who asked not to be named, the ones pursuing deliberate strategies of temporarily delisting products until the supplier capitulates on price, meanwhile promoting own label products or sourcing from the grey market.
This may explain why Sainsbury thought it would win the stand-off. But in some ways it was an odd move. For one, it could not have come at worse time for the retailer, which had just unveiled a less than sparkling trading figures. Also, Andrex is a known value item controlling 26% to 30% of the toilet tissue market not the sort of brand retailers like to lose from their shelves.
Sainsbury refused to comment on the dispute. But one analyst argues that it may have been an issue of supply rather than price: Sainsbury trying to rein in supply of a product it had overstocked. Others suggest it could well have been a "horrible" miscalculation. "My best guess is that it is a mistake by someone who's been promoted on the back of squeezing brands,'' says one analyst. "They probably thought it was a clever eleventh-hour wheeze to force the supplier to accept its terms.''
Either way, Kimberly-Clark's response raises the prospect of more disputes between retailers and their suppliers as market conditions get tougher with the big suppliers just as prepared to play hardball as the retailers. Indeed, in many ways Kimberly-Clark's defiance is no different from the sort of tough bargaining stance that the retailers habitually deploy.
Amanda Aldridge, head of retail at KPMG, argues: This might be about big brands flexing their muscle but they're flexing it because the retailers are playing hardball. As things get harder for retailers, we'll see more stand-offs.''
The big question, she says, is whether brands like Andrex really are untouchable so important that they, and not the retailers, call the shots when it comes to pricing negotiations?
There is a long way to go before that becomes a reality, but the retailers have certainly had their wake up call. As one consultant puts it: "Supermarkets have got into the habit of behaving this way and getting away with it. They've grown used to exercising incredible power, but not with a product like Andrex. They've forgotten they need big brands too.''
And it will not just be the KVIs throwing their weight around, he says. "By exposing this I think big brands can give a platform to smaller brands to voice their concerns too.''
Suppliers beware, however: squaring up to a retailer could cost. As Hull says: "Any brand can do it. It depends how big they want to be and whether they're prepared to ruin their relationship with the retailer and let's not forget the other retailers will be watching closely.''
{{ANALYSIS }}
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