As last month’s BBC 1’s Panorama programme revealed, the complex business model that Tesco has historically operated, relied heavily on promotional payments from numerous suppliers to boost its profits through sales to consumers.
Such complex promotions proved to be totally opaque and confusing for shoppers, who have voted with their feet in droves by shopping for some items at the hard discounters. Discounter pricing is clear – everyday low prices – something which probably only Asda among the big four has made core to its business model.
These issues were discussed at length by the senior executives present at last month’s Food Manufacture Group Business Leaders’ Forum.
Threats and opportunities
They identified big potential opportunities in this brave new world. But also threats for failure to respond adequately. Some delegates even hinted at a changing balance of power for those manufacturers that proved themselves indispensable in helping supermarkets to adapt.
However, although branded manufacturers needed to differentiate themselves to retain their listings on supermarket shelves as retailers such as Tesco and Morrisons strived to simplify their offerings, expect margins also to come under pressure.
But if, as a supplier, you are pinning your hopes on doing a lot more business with the discounters: be warned. According to one delegate at the forum who works with them, the relationship can be short-term.