Morrisions orders supplier savings of ‘half a million pounds’ each

By Anne Bruce and Mike Stones

- Last updated on GMT

More reasons to save at Morrisons: Its suppliers have been told to deliver savings of half a million pounds each
More reasons to save at Morrisons: Its suppliers have been told to deliver savings of half a million pounds each

Related tags Morrisons Vertical integration

Morrisons has admitted that hundreds of suppliers were called in and ordered to drop their prices in a series of briefings on June 18.

However, a spokesman would not be drawn on the scale of the discounts demanded, reported by suppliers to to be “half a million pound slugs​” apiece.

The Morrisons spokesman explained that the supermarket “does not discuss commercial arrangements, even at a macro level”.

“A couple of hundred bigger suppliers”​ had been called in for a regular “supplier update day” ​at the supermarket’s headquarters in Bradford, he said.

In three briefing sessions it was explained that Morrisons was seeking to source greater volumes from fewer suppliers, to increase efficiency.

‘Seeking economies’

He commented: “It​’s not the case that our suppliers were told that we want better terms. It​’s very strategic. We are seeking economies through increasing volumes across the majority of categories. It​’s about driving volume and getting efficiencies.”

This did not mean that Morrisons would delist small and niche suppliers, he added. Those with “great products”​ might be encouraged by the trading team to increase output, for example.

Following the update day, Morrisons’ buyers were now meeting individual suppliers in turn to hammer out new deals and drive “volume growth”,​ he added.

Suppliers had told that the supermarket had summoned 200–300 suppliers and “read them the riot act”,​ demanding £0.5M savings each, at the meetings earlier this month.

One commented: “It is an unusual level of aggression from a business that has usually been honourable.

“They demanded very heavy discounts on top of what already may have been agreed. I am sure others will be suffering similar pain to ourselves. You’re talking half a million pound slugs. I don’t think that’s tenable but if they ask for 10 they get five.”

Last month, Morrisons posted a 1% fall in first quarter sales and announced the departure of its group finance director Richard Pennycook.

‘Unwelcome news’

City analyst Shore Capital described the announcement as “more unwelcome news for Morrisons”.​ Shore Capital analyst Darren Shirley said: “Mr Pennycook’s announcement comes at a time when the company is not trading particularly well, in relative or absolute terms.

“His departure is not at the heart of Morrisons’ problems at present,”​ said Shirley. “Although these problems may be acting as a push factor to Mr Pennycook, so accentuating the pull factor of new challenges.”

The supermarket’s commitment to food manufacturing also drew criticism last month.

Julian Wild, food group director of legal firm Rollits, told last month: “The Morrisons strategy of vertical integration is pretty hard to understand. It is not employed by any of the other major retailers, there is already over-capacity in food manufacturing, why would a major retailer want to be involved?”

But Dave McCarthy of Investec added: “Morrisons’ management clearly thinks vertical integration is the thing to do, it allows Morrisons to be differentiated and react quicker, and it is not paying someone else a margin.”

To read the full story, click here​.

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