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The letter offers a valuable insight into the stranglehold retail chains can gain over a market, and how little power suppliers have. For independent retailers the whole business is a confirmation that they are at a massive disadvantage.
The main element that has upset suppliers include a ‘request’ for a 5% cost reduction across the supplier’s product range, as well as requiring additional commitments from them to pay towards advertising costs. A further source anger is the suggestion that suppliers should enter into 120 day payment term agreements. One company has been paying after 90 days, which itself was raised from 30 in 2003. Increasingly suppliers have had to struggle, waiting for payments for periods that some say is endangering their businesses.
While this way of doing business is a fairly recent development in the UK it comes as no surprise that American companies have led the way Many people claim that these mega-stores have destroyed town centres by drawing customers to out-of-town sheds and by using their market dominance to deliberately undercut their competition, originally extended the payment periods from 30 days to 90 in 2003.
“The new payment terms will endanger businesses and will cause job losses,” claims one supplier He added: “The government must help small businesses and stop these new payment terms being imposed on us without any negotiation. Furthermore there needs to be a code of practice in our sector protecting us from this appalling abuse of dominance.”
That anonymous supplier was talking through the Forum for Private Business (FPB) and that it was felt necessary to speak in this way highlights both the problems suppliers face and one of the possible ways forward. The problem being that companies feel they can’t object to the terms that large retailers are insisting on because if they do they will just loose the contract anyway.
So it is bodies such as the FPB and also the British Hardware and Housewares Manufacturers Association that offer the best chance for suppliers to stand up to big chains.
The FPB represents 25,000 small businesses and has written on their behalf to the Trade and Industry Secretary. FPB chief executive Nick Goulding says the government must take action.
For the suppliers who spoke to the FPB the message seemed clear enough though, and who would risk turning down major retailers’ requests when they could loose crucial business.
The lessons for both suppliers and independent retailers are similar: The best hope of succeeding against major players is to match might with might, making maximum use of trade associations and by applying pressure on politicians.
Meanwhile the FPB continues to campaign on behalf of suppliers, pushing for the government to extend the supplier code of practice, which covers the supermarket’s relations with food suppliers, to the non-food sector of retail. It is also pushing for companies to adopt the Better Payment Practice Group’s Code of Practice.
“This is supremely arrogant behaviour from an organisation that owes much of its success to the standard and quality of goods produced by its suppliers,” says Nick Goulding. “It is a kick in the teeth to those suppliers to see a giant company crow about its multi million pound profits yet still want to squeeze money out of small firms balancing tight profit margins.”
Article By Roland Ravenhill
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Airstream Business Communications Ltd