Can small players stand up to the multiples?

SUPPLIERS to supermarkets will struggle to sustain their margins as the big players in the Irish retail sector fight for market share.

Evidence of just how cutthroat the market has become in light of rising food prices surfaced recently in Britain when allegations that Asda — owned by Wal-Mart — and Tesco had threatened to blacklist suppliers if they refused to give them bigger discounts.

Suppliers in Britain claim they have been put under huge pressure to cut their prices to the big chains.

This alleged malpractice emerged during the price war between the stores as the rising cost of living forced supermarkets to slash £520 million (€763m) off prices in July to ease the pain for shoppers.

However, any gains to the consumer appear to have come about at the expense of the suppliers.

Allegations are being investigated that suppliers were subjected to abusive language and threatened with being axed if they did not make retrospective payments to the stores. This appeared to be a demand for a rebate on the agreed up-front price, in effect a further discount on what suppliers maintain was already a keenly priced deal. Both Tesco and Asda have denied the allegations.

A Tesco spokesman in Britain said the group “had nothing to hide” while Asda said “we have had a request and will help”.

As a result, up to 11 million emails, taped phone calls and letters have been handed over to the Competition Commission by the two chains.

The latest allegations in Britain serve to highlight the pressures Irish suppliers face in doing business with big chains.

Jerry henchy, chief executive of Reox Holdings, said he regarded the British market as too tough for a company of his size.

Reox is a separate group independent of Dairygold Co-op, which includes the consumer food and other non-dairy divisions, previously part of the dairy company.

After the formation of the new company the strategy for consumer foods was to develop a twin-island strategy for its consumer food division Breeo Foods to supply the British and Irish markets.

Mr Henchy’s main concern was not threatening or abusive emails by the large retailers, but the basic belief that the “small guys” really have little chance up against the might of the multiples.

Here in Ireland that in fact has been as long-running grievance of Irish suppliers to the multiples.

Dunnes Stores, for example, has for a long time had a reputation for ruthlessness in its dealings with suppliers.

A lot of this comes back to the view that the consumer is boss.

That creates the bear-pit Irish suppliers have to negotiate on a daily basis and the investigation into the behaviour of Tesco and Asda in Britain simply confirms that the nature of relationships between suppliers and multiples. It suggests that the former will always be on the back foot in that particular relationship.

Given the way the big boys are getting more powerful, one would expect a pretty bleak outlook for the food and drinks sector on this island.

However, last year’s export figures for the Irish food and drinks sector tend to belie the pressures on suppliers.

In 2006, the value of food and drinks exports rose from €7 billion to more than€8bn in what turned out to be a very good year for Irish food producers, many of which have developed niche markets that the consumer wants.

Perhaps pandering to the consumer in that way is the only winnable strategy for those who hope to stay in the game in Britain.

Looking to markets less dominated by the multiples may also prove to be a very effective way of not being trampled on by unscrupulous multiples.