Northern's suppliers baulk at move to impose 5% price cut

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Related tags: Cost, Management

Northern's suppliers baulk at move to impose 5% price cut
Manufacturer claims that it has been absorbing costs for years

Several leading suppliers are believed to have challenged Northern Foods' plan to impose a non-negotiable 5% discount on goods ordered by it after May 31.

Last month, Northern told selected suppliers by letter that acceptance of its orders from that date would "signify acceptance of these changes, which we expect our suppliers to comply with". Northern, which is consolidating its supply base, said it might drop firms that do not fall into line.

The move reflects growing pressure from retailers such as Marks & Spencer (M&S), which wants 2.5% off the prices it pays. However, one industry source said that 5% was such a large slice, given the wafer-thin margins of many food businesses, that some of Northern's suppliers were considering their position. "These sorts of 'requests' are made all the time, but 5% is a hell of a lot. It could mean kissing goodbye to 50% or more of your profit."

Northern claimed that it had protected suppliers from cost rises and price cuts by its customers "for a number of years". The latest move was linked to last year's restructuring and its plan to give larger contracts to fewer firms.

However, a 5% cut in prices paid to suppliers would mean poorer quality food, claimed one development chef. "It's ironic when you see the M&S ads on television talking about the superior quality of their food when manufacturers are having to reformulate and use cheaper ingredients," he said.

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