Playing it hard ball

Any company who supplies the major supermarkets is left in doubt as to the considerable power and ruthlessness of these organisations. The revelations that Tesco employed a variety of strategies to reduce their purchasing costs are not recent phenomena. Be it payments for prominent display of products, changes to bar codes or retrospective rebates there is no shortage of bullying tactics which are brought to bear.

When Premier Foods tried to renegotiate prices in light of rising commodity prices Tesco responded by delisting products such as Hovis, Mr Kipling and OXO which saw Premier Foods lose £10 million over a 3 month period.

Against the current economic backdrop supermarkets facing increasing competition from the discount retailers are constantly looking for ways to boost their bottom line.

Particularly over the past year we have seen companies trying to extend their payment terms by all manner of means– some fair, some foul.

In addition to this many are revisiting “rebates” from their suppliers. Suppliers will be asked for a 0.75% rebate if their sales grow by 10%.

Earlier reports have suggested said the rebate would rise to 5.25% if sales grew by more than 50%.

Amongst suppliers there is always a battle to secure sales but there also has to been a commercial realism.

If by securing so-called “prestige” business the overall operating margin carries a disproportionate return then it becomes a question of commercial realism.

In such situations it may well be argued that such business is best left to others.