The row over lager prices at Christmas was the straw that broke the camel's back. Will wholesalers and suppliers ever see eye to eye on independents? Julian Hunt reports The same crazy deal seemed to be in supermarkets everywhere: a case of market leading Carling lager for just £12.99. Best of all, the offer started appearing in November. Great news for beer drinkers stocking up for Christmas. A great deal for those independent retailers who bought the stuff by the pallet load to stock up their shops. But a great big disaster for the wholesalers who had stocked up early in the hope they and their customers would be cashing in on the millennium party. The price slashing wasn't restricted to Carling, of course. And Bass was not the only brand owner that found itself explaining to wholesalers that the cuts were being funded by the supermarkets. But wholesalers remained unconvinced. Yes, the multiples loaded a lot of their funding into shorter, deeper bursts in the run up to Christmas. Yes, they did decide to target a few top brands and smash prices to smithereens to make as much impact as possible. But cash and carry folk argue that that does not explain away everything they saw. How on earth, they ask, could we have bought a case of product in a supermarket for less than we could buying trunk loads direct from the supplier? The answer, claim wholesalers, lies partly in the fact suppliers are offering better terms to the multiples, c-store chains and symbol groups on the grounds they can offer the benefits of retail discipline. The result? Wholesalers claim much of their business was "slaughtered" this Christmas, while the grey market boomed as product was sold via the back door of the big chains. Much of the evidence to support this is anecdotal, but highly compelling. Take the Landmark cash and carry buying group, which can offer plenty of examples where its members or their customers bought cut price product from the supermarkets. One Landmark cash and carry was offered 2,000 cases of a branded beer by three out of the four multiples operating in its town. What price retail discipline for that brand owner? It wasn't just small operators who were affected by the supermarkets' pricing activity, either. Industry giant Booker which enjoyed an overall 3.4% sales boost this Christmas admits "the situation was disadvantageous to independent retailers and the people who serve them". Marketing director Steve Sharp says: "We ended up at the point where we could not do anything about it. Beer sold cheaper than we could buy it. All we could do was sideline them and promote other products where we could offer our customers a competitive proposition." So Christmas was bad. So what? Isn't this merely another case of wholesalers whingeing, yet again, about what a poor deal they get from their nasty old suppliers? In short, no. There's no denying things did get out of hand. But the implications of what happened at Christmas go far beyond a bitter row over who did what to whom on trading terms over one festive period. Instead, it has opened up a fierce debate that goes right to the heart of the business. Wholesalers are asking whether many suppliers really understand the independent sector. And they wonder whether some suppliers actually care about the long-term future of non-affiliated independents. That's why plenty of cash and carry firms are now talking quite openly about the need to "discriminate positively" in favour of those who support their sector, while telling retailers all about those who do not. As one leading wholesaler says: "Those who work closely with the independent sector find it a useful and profitable route, and those who ignore us do so at their peril. They will be the losers in the long run because we and our customers will find alternatives." The fallout from Christmas has also led Landmark md Mike McGee to talk about his fears for the future competitiveness of the sector, and why he thinks the festive period could prove to be the straw that broke the camel's back unless some recalcitrant manufacturers change the way they do business. A frustrated McGee says: "Suppliers seem to be deliberately distorting the market to either force independents to sell their stores to the multiples, join symbol groups or simply go out of business." He adds: "The gap between retail and wholesale terms, however one justifies it, is getting wider and the only current outcomes are increasing disputes and threats to the very future of the sector. We believe sincerely and wholeheartedly in partnership, but not with those who shake hands with a razor blade in the palm." He may be more pessimistic than most, but McGee is not alone in being frustrated, perhaps with good reason. While every supplier will publicly pay lipservice to the idea of supporting independents to the hilt, only a few Ferrero, Whitbread and Kellogg among them are said to be operating in an even-handed way. Others will instead quietly spell out the grim realities of the market in which they are now forced to operate. "I'm fed up with being told how useless I am by wholesalers and having them demand the same investment as the multiples. They don't have the same scale and they don't have the same discipline," says one senior sales director. "Wholesalers are one step up the supply chain. If you do a deal with a multiple you know the money goes direct to offering the end consumer good value. If you do a deal with a cash and carry or a buying group, the money you invest sometimes goes to the wholesaler or the retailer and does not get passed on to consumers. "The supermarkets are bloody good operators and can translate buying power into very good deals. Little wonder independents suffer. The answer is to stop whingeing and get better. But wholesalers just beat up suppliers." This is not the view of an idiot salesman in his first job out of college, either. It is the considered opinion of a well respected figure with years of experience under his belt. And he is not alone in expressing such views. Clearly, there is a big job to be done if wholesalers are to persuade such suppliers about the value of re-investing in the wholesale route to market. But Rodney Hunt, md of the Today's buying group, believes it can be done particularly as more companies wake up to the fact there is a viable alternative to putting all their eggs into the supermarket basket. The trick, as Hunt readily accepts, is meeting supplier demands for more information and more discipline, hence his group's work in building electronic links with wholesalers and its VIT scheme for retailers. "I believe every penny has to be justified; we must justify an increased level of investment. As long as we can put those reasons in front of them, we have a better chance to get that money. The single, most important factor in all of this is ensuring suppliers' investment gets to the consumer and that they know it's going to the consumer. So long as suppliers can see that, they will put in their money." Landmark's McGee agrees with the idea that wholesalers need to develop their information systems and discipline at depot level. He also highlights the constructive debate that is happening in areas such as logistical savings and promotional effectiveness, as wholesalers "open their minds to issues other than price" and start developing more effective partnerships with suppliers. Nevertheless, McGee and his rival in Scunthorpe both believe they still need to get across to many companies the idea that wholesaling remains the cheapest route to the independent sector. Hunt says: "Overall, the manufacturer has got to understand better the needs and requirements of our sector in terms of the cost of getting product to the retailer, sometimes under quite difficult circumstances. Manufacturers must reward the sector with sufficient margin so it can continue to offer this service.They must also understand we need to offer a price that will not to be seen as an insult by consumers." Aah yes, insult pricing. Independents clearly believe they are being priced out of the market, and the reason is simple: brand owners are quite happy to see their products carry a premium in corner shops. The marketers may argue this premium reflects the true costs of doing business with the independent sector; the wholesaler would argue the marketer is living in cloud cuckoo land. The problem is that all the while suppliers offer wholesalers a "reasonable margin" that allows product to be sold by retailers for a "reasonable price", the supermarkets continue pressing suppliers for more support, take a hit on their cash margin, cut their prices even further and extend the distance between them and the independents. As Hunt says: "Some suppliers can live with their product attracting a 10% premium to the high street multiple. That's the realm of insult pricing. But it's amazing how many suppliers think that is a fitting premium. They miss the point that this is completely unreasonable." Suppliers would be right to argue the independent sector is an expensive place in which to operate. It is almost impossible for any newcomer to understand; they have to recruit loads of people to navigate through the various buying layers; they need a maths degree to work out the different trading terms thrown at them; and all the while their returns from any investment continue to diminish. But nothing is ever as it seems. Take field sales forces. Brand owners argue they spend huge sums sending out teams to educate retailers and so build sales. "That must show we are friends of the independent sector," they cry. Landmark's McGee is not impressed: "Leaving aside the issue of who asked for this, and the fact their advice is often contradictory, the main problem is that these costs are charged to our sector and thus high prices are justified. "Nobody would disagree with the principle of improving standards. However, improved standards and well informed independents are somewhat academic if nobody will shop there [because the prices are too high]." As if to add insult to injury, says McGee, you then get some manufacturers launching pricemarked packs with lower cash margins to put an end to what they see as the problem of premium pricing. He explains: "For a company such as Mars, which gives dramatically better terms to the multiples and symbol groups, to complain about premium pricing in independents, to justify pricemarks that limit margins...they really should get out into the real world more." Back in the real world, it's also clear there are still too many issues that need resolving by wholesalers and suppliers. Sure, more partnerships are being forged between the two camps, and there are signs that both sides are working together to ensure there is a healthy independent sector. But it's also becoming apparent that feelings are running high among those wholesalers who think they are being shafted by certain suppliers and who are working out strategies for dealing with them. The problem is that competition in the sector can only intensify and the biggest retailers are going to continue piling on the pressure. But there is only so much money in the pot. So suppliers now face a stark choice: which horse is going to win the race, and by how much should I back it? Time is running out for wholesalers to persuade suppliers that the independent sector is a horse or should that be camel worth backing. As our yet-to-be-convinced sales director puts it: "Manufacturers are going to have to stop making investment in certain areas. We will only put money where we can get the best returns. Those people who demand this listing fee and that promotional cash without giving anything back will lose out. And that's when you start a self-fulfilling prophesy where the weak get weaker and the strong continue to get stronger." n {{COVER FEATURE }}

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