Discounters’ growth comes at a cost to manufacturers

By James Ridler contact

- Last updated on GMT

Thie rise of discount retailers like Lidl could increase costs for manufacturers and supply chain operators
Thie rise of discount retailers like Lidl could increase costs for manufacturers and supply chain operators
The growth of discounters and convenience stores could come at a cost to food suppliers and manufacturers, according to a supply chain and logistics consultancy.

Research by Scala found that traditional major retailers’ share of product volumes had declined in recent years, with volumes down nearly 5% since 2015. In contrast, discount retailers were expected to see their value increase 49.8% over the next five years, due to demands for affordable convenience, it claimed.

Scala director Dave Howorth said that, while the increased competition was positive for consumers, there would be serious implications for the logistics sector.

‘Cost to suppliers’

“Ultimately, more stores, growing networks and greater convenience comes at a cost to suppliers and the logistics businesses powering the supply chain,”​ he said.

The big four supermarkets were now looking to what the discounters do well and have initiated processes to rationalise product ranges and simplify their businesses to better manage their costs, added Howorth.

“The recent Sainsbury’s/Asda merger and the tie-up between Tesco and Carrefour highlights this innovative approach to making cost reductions, but the resulting impact to manufacturers could be detrimental.

Added cost

“It may well help suppliers reduce logistics costs for supplying to major retailers, through larger loads and fewer delivery points. However, with retailers now requesting more bespoke products and pack sizes, the knock-on effect for manufacturers is added complexity – and therefore cost.”

Howorth warned that the growing costs, as well as products disappearing from retailers’ shelves, could mean the end for suppliers that become viewed as redundant in the near future. 

Earlier this year, Shore Capital head of research Clive Black claimed the merger between Sainsbury’s and Asda would create a “duopoly” ​that would seriously harm the interests of manufacturers and consumers.

He said the deal was “not in the national interest” ​and should not go through and was effectively an attack on branded manufacturers.

Related topics: Business News, Supply Chain

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