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Help Desk

This week, Julia Pascu, General Manager of Advantage UK, and Ireland discuss the impact of the crisis in these markets and the outlook for retailer-supplier relationships moving forward.

Q1 - How has the crisis affected the supplier-wholesale/convenience sector relationships in the UK and Ireland?

Relationships and collaboration during the crisis have become much closer. Critical aspects of the relationship, such as communication, have become more important even though the ways of communicating have changed. More regular communication has been vital for businesses to be agile and flexible to meet consumer needs and respond to peaks in demand. Genuine collaboration has increased between suppliers and retailers since the beginning of the crisis.

There are signs that relationships may be reset after the initial phase of the crisis, so some tough conversations may occur around commercial terms. While companies drew closer together during the crisis, some of the issues, discussions and negotiations have been put on hold. It helps to meet up to discuss these, and because of the remote ways of communication, it is tougher to approach sensitive commercial discussions virtually, so this may create some unrest within the trade.

Even as we work through the crisis, our research shows that best in class behaviours are two-way collaboration and joint partnerships. In addition, putting the consumer first, i.e. basing category and new product development decisions on what is right for the category and for the consumer, and not only focusing on margin and profit are important. Finally, store discipline/compliance, and prompt payment and resolution of invoice issues are what suppliers are looking for from the best in class retailers.

Q2 - What are the major challenges in supplier-convenience relationships in your markets?

The whole channel has undergone significant consolidation, which is predicted to continue, and this has changed the landscape of the channel. There is also the potential threat of the growth of the discounters and major multiple (largest supermarket and hypermarket chains, e.g. Tesco, Co-op and Morrisons) segments within the channel. In addition, due to the fragmented nature of the channel, supply chain complexity, staff turnover, capabilities of people and corporate culture are also presented as issues.

Q3 - What impact did product availability issues seen through the crisis have on relationships in the convenience and wholesale sector?

Supply chain is a critical factor. Even during normal times, it is the biggest factor that will either improve or lower a supplier’s ability to form strong partnerships with retailers. So, if a supplier has supply chain issues, it is likely that it will impact their commercial relationships as well.

The initial indication is that crisis times have generated greater empathy between the trading partners, as suppliers have had to manage unprecedented demand and issues such as staff absenteeism, disrupted ways of working, etc. Everyone has been through a very tough time, but we understand that the convenience retailers and wholesalers have been happy with the level of support. In a minority of cases, they have felt that the major multiples have been favoured, but in general, there has been sufficient support and stock available for convenience retailers and wholesalers.

Q4 - What has been the impact of consolidation and entrance of multiples in the UK and Ireland?

The links with major multiples has most certainly provided opportunities for growth and economies of scale, as well as expanded ranges. However, there has been a downside, and some of it is at the price of complexity. In the initial stages, this also created an added workload for suppliers because they had to align their terms and go through range harmonization. There is still a perceived confusion from suppliers regarding the remit of the roles for each party and who drives category decisions. Some of the confusion is as basic as a lack of clear communication on the strategy.

The major multiples have also been criticised for a lack of understanding of the specific issues in the convenience and wholesale channels, therefore some of the decisions (e.g. range, category decisions) may not have been the right decisions for the channel.

Finally, the difference in corporate culture – sometimes it can be smaller operators in a convenience channel who are more flexible and agile. But with a major multiple, it may slow down the overall decision-making process. In the end, this can effectively slow new product development, range reviews, etc. There is still remaining scope for businesses to consolidate further and be more joined-up.

Q5 - How has the crisis impacted range rationalization and new product development?

Regarding new product development and range rationalization – there is always the question of how do you manage the ‘product tail’? This becomes about how you manage the category overall as the goal should be to grow the category and attract consumers, rather than listing varied sizes or flavours of the same product.

New product development is still regarded as a key path to grow sales and profitability for both trading partners. However, the process is quite expensive, so it should be backed up by strong category research and trend analysis. Some customers have a ‘one in, one out’ approach, which can cause them to become quick to react. Others have a drawn-out process for launching new products, which could result in missed opportunities.

New product development, range reviews and promotions have been put on hold through the crisis, but it is expected this will reopen going forward.

Q6 - What were the challenges for convenience stores and wholesaler relationships with suppliers during the crisis?

Generally, collaboration and communication have been strong, but with some customers, there has been an issue where there was a perceived lack of understanding of the challenges faced by suppliers, which has put a strain on the relationships. In addition, ranges have had to be streamlined because of the increased demand for certain lines. The lack of face-to-face contact was an issue initially, as conversations around future plans have not been happening, and some customers have put pressure on suppliers to supply more than their fair share of stock rather than evenly spreading the stock, further causing issues around payment processes. As a result of the crisis, the relationships may have been more reactive than proactive, and some customers have been difficult to get hold of. Most convenience retailers are experiencing increased sales but have not had time to prepare and plan for it, so it has resulted in increased workload, supply chain challenges, stress, etc.

Q7 - What is the expectation for the growth of discounters within the convenience channel?

The growing threat from the discounters was specifically realized within the past year, and some of the consolidation in the convenience channel was a response to the threat of the discounters’ growth and driving prices down.

Convenience stores still have the advantage of being quite local and having strong community ties. There is a trend for convenience stores to become smaller ‘grocers,’ as there is an increased demand for top-up shopping and therefore expanded ranges. Convenience stores are retaining their point of differentiation by offering wider services to attract footfall, such as post offices, cash machine points, and a small cafe on the side. They should be able to continue to hold their ground versus the discounters, but this does not mean that they should let their guard down.