Unfair Trade - TESCO / ASDA / Sainsburys
Supermarkets are keen to portray themselves as loyal and supportive customers, nurturing suppliers in their quest for the best deal for consumers. Tesco’s annual report (2003), states that it is ‘committed to maintaining strong mutually advantageous relationships with our suppliers’, Asda asserts its ‘belief in good relationships which we work to improve all the time and Sainsbury’s says ‘we are very proud of the good relationships we have with our suppliers’.
If one puts this forward to a majority of suppliers, that supplier-friendly image which is portrayed by the supermarkets becomes pear-shaped, i.e. it’s a totally different story.
At the higher echelons of supermarket hierarchy, and especially in public forums, all the supermarket chains are fond of outlining their ‘corporate social responsibility’ strategy, which, amongst other objectives, lists treating suppliers decently. To the consumer, it all sounds comforting and reassuring. One would want to believe that the very people who produce our food are finding it profitable and worthwhile to do so, and supermarkets are never shy about grasping any opportunity to foster this positive image.
At the start of the UK foot-and-mouth epidemic in 2001, for example, they set up a compassionate fund of several million pounds to help farmers in distress. The public might have been impressed, but most farmers were not. When the Chief executive of Safeway (Carlos Criado-Perez, 2003) was interviewed as to why there was growing unrest amongst suppliers and complaints that Safeway was acting aggressively, he insisted that its relations with its 2,000 suppliers were good. But he offered an unusually forthright insight into Safeway’s current business strategy. He states ‘‘we are very keen negotiators and, increasingly, it becomes a more challenging dialogue. It’s our job to price every penny out of suppliers. Every single penny comes either from them or the customers. We try to do business ethically, but we also want to do what is best business for our shareholders’’.
If one speaks to the suppliers directly and they will tell you precisely what they make of that. The fine words of a supermarket Chief executive about their dealings with suppliers do not seem to filter down the ranks to the people who actually carry out their business and generate their profits. ‘The supermarket high-flyers are all protected by great screeds of people round about them, so much so that they don’t even meet major suppliers, that’s people who are supplying them with hundreds of millions of pounds of raw material. They work at the strategic level way up in the clouds. They say they will give farmers fantastic support. They say that they are going to do A,B, and C and then the buyers move in and just kick the suppliers to ribbons’, an experienced farmer was quoted as saying this. Another supplier confirmed this. ‘As soon as the chief executive officer walked out the room, it was business as usual. The buying team was just a bunch of thugs’. So common is this view within the grocery world that the term ‘buyer bullying’ is a well-used industry catch-phrase.
The typical supermarket buyer for a large multiple, the person who negotiates the detail of any business with suppliers, is likely to be in his or her mid to late twenties and routinely changed at short-notice, (Blythman, 2005, p. 144). One minute he or she could be in charge of ready meals, the next Christmas gifts, then fruit and vegetables or toiletries and so on. As one supplier put it, in the early 1990s, the buyers were relatively knowledgeable people with whom you could build a relationship. They might not have known that much about your category but they knew how to deal with people and products. Now, some supermarkets have made a lot of them redundant. Increasingly, the buyers are younger and also they have little knowledge of the goods that needs to be bought, there is no continuity. They’re here today and gone six months later’ the supplier said.
Even within the world of super marketing, this knowledge deficit is recognised. For example, when the small, family-owned, regional supermarket chain Booths trounced every other supermarket chain to win the title of ‘Overall Wine Merchant of the Year’ in Wine Magazine’s 2002 Oscars, it publicly attributed its success to the fact that its knowledgeable wine buyer had been in the job for four years, an uncharacteristically long tenure amongst the ever-changing personnel of supermarket procurement. ‘Many supermarkets swap buyers between departments and this often means that the frozen vegetable or lingerie buyer of today may well be the Bordeaux or Riesling buyer of tomorrow. This can easily lead to difficulties in telling claret from a carrot or a hock from a sock, remarked Booths.
Blythman (2005, p. 144)) states several suppliers explained difficulties when trying to present products to inexperienced and uninterested buyers. For example, a supplier argued that ‘you find yourself in this cubicle deep in the chains HQ. One is talking away passionately about your product, waxing lyrical to a 26 year old and one can almost see the cartoon bubble coming out her head saying ‘yawn’ or ‘bored’. All the buyer wants to know about is getting the maximum sales from each square metre and the only way she knows how to do that is by reducing wastage, increasing sales by price cutting and increasing margins’. A famous wine writer by the name of Tim Atkin stated that ‘‘Tesco buying managers have reputation for securing the hardest bargains. One of them was given a new wine to taste and was asked for his reaction. He sniffed the contents of his glass, tasted it and replied ‘Not enough margin’. This would be funny if it weren’t so alarming’’.
Supermarket buying is rapidly turning into a know-nothing, profit-obsessed occupation. To get a job as a supermarket buyer, no substantive knowledge of the product category is required and it is questionable if it is even seen as a benefit. In the words of a recruitment consultant, ‘all the buyer needs to know about is profit margins and doing deals. Buying is just a job requiring the same set of negotiating skills for each product category. One product is just like the other. What this means is that inexperienced newcomers, buyers around, supermarkets can ensure that they do not become too reliant on regular suppliers, which might blunt their desire to get the best deal. As one supplier told the Competition Commission (2000): ‘Multiples switch their buyers around every six to twelve months in order that relationships and loyalty to suppliers can be avoided. The new buyer is given the utmost authority to de-list suppliers, who are frequently treated with complete contempt’.All buyers must realise that any supplier can be replaced and it is up to them to make the supplier fully aware of that too. Some buyers keep a supplier store-card and supplier financial performance card, benchmarking suppliers against targets to remind them who calls the shots, Blythman, (2005, p. 145).
With typically only twelve to eighteen months in the job, buyers have to get results within that time and their whole approach is necessarily short-term. The attitude is I have to make this much savings in less than eighteen months to make my mark. Some of the buyers resort to clumsy threats of delisting and so on. They are not going to be around long enough to worry about the effects of their decisions on the long-term health of the category as stated by a supplier in the ‘Grocer magazine’.
Blythman, (2005, p. 146), gives an example by an inside source from one of the big supermarkets stated that on one occasion a big Spanish company wanted to sell to a UK supermarket chain. They will invite the buyer out for a weekend, ostensibly to view the produce. He will be taken out on the most expensive golf course and told that there is a villa down the road if he wants to stay on another week or two. The company will say, ‘This won’t affect our business of course, but there is a villa there, if you want to stay. You could bring your wife and family too’. The company will take him out to a restaurant. It is sickening what goes on. It’s a case of what’s the most expensive dish on the menu? We’ll have that. What’s the most expensive wine? We’ll have that too. One meal I was in Spain, the bill came to £1000 for six people. All just to impress the new young buyer.
Another UK supplier not financially equipped to compete with this sort of buyer appeasement stated to the Competition Commission (2000) that on an occasion a buyer had previously been in charge of paper goods and had been in the vegetable job for only two weeks when he came to visit the supplier. ‘‘He told us how he had worked in the paper department. When he came into the job, he told us, the chain was paying £13 a thousand for this particular product. By the time he’d been there two months it was paying 75p a thousand, he had kicked out all the main suppliers and moved the chain’s margin up from 20 percent to 50 percent. He told us that he intended to do the same thing with vegetables’’.
Failure to go along with a buyer’s requests can be disastrous. One supplier went so far as to express his feelings to the Competition Commission (2000) in a particularly heartfelt way: ‘On the whole, supermarket buyers and store managers are blackmailers, they are not fair and always have their own way, hence the reason why their business is no longer trading. Thanking the Competition Commission for giving people (suppliers, farmers) the chance to express themselves and show supermarkets for what they really are.
So far we have heard the plight of suppliers (farmers) with regard to the atrocious behaviour of the supermarket buyers. However, there is the other side of the coin. Most buyers do not intentionally bully their suppliers. The buyers themselves are constantly looking over their shoulders at their superiors further up the supermarket sourcing chain. These superiors in turn will be in the firing line of the remorseless profit-driven supermarket machine if they don’t get results. ‘Senior managers are under almost unbearable pressure to perform’ stated an inside supermarket source.
Most supermarket buyers, in common with colleagues in other divisions, are paid a basic salary with a performance-related bonus. In most chains the margins obtained by buyers are directly reflected in their pay packages, so they have a personal financial incentive to get the best deal from suppliers. If they don’t reach target, both buyers and category directors have to worry about losing their jobs or being downgraded. As David Smith (2003), Head of the National Association of Master Bakers stated: ‘They (Buyers) are going to get promoted by screwing the suppliers. Saying ‘‘I’m going to sustain my suppliers’’ isn’t going to play well with their bosses’. Graphs and maps may be put up on office walls, which are common in most sales orientated organisations, to chart daily progress on targets and indirectly humiliate anyone who is not meeting them. Everyone has to work to an appraisal system and regularly demonstrate their performance against targets, usually assessed on the basis of a simplistic good/bad list.
The demands put on them are so high up at regular intervals and competition and rivalry for internal empires is encouraged. The worse the company’s financial result, the more intense is the pressure heaped on buyers to justify their existence by extracting extra margin or financial support from suppliers. Head office is streamlining is a constant headache. For example in 2003, Sainsbury’s axed 200 HQ positions as part of its ongoing business review. In the fallout around 100 buyers, which is one out of every four buyers were sacked. These cuts were followed later in the year by another wave of job cuts, this time in the technical division. In the same year, Tesco, whose profits looked fine and healthy at the time, had slashed 100 executive positions from the intermediate ranks of managers mainly responsible for buyers in different product categories. A Tesco buying consultant stated that the job cuts made in 2003 in some of our leading supermarket chains typically represent anything from one quarter to one third of key divisions and that no rank is protected.
As supermarket competition gets more intense, and buyers are laid off, those that remain have increasing workloads and are put under even more pressure to get results. As a seasoned negotiating buyer for one of the supermarket chains says: ‘Being a supermarket buyer for one of the big multiples must be the worst job on earth unless you are someone who loves the power you can exercise over people. These people are youthful and inexperienced, but suddenly it’s all up to them. They find themselves handling multi-million transactions. They have to screw the guy that they are dealing with as hard as they can, but not so hard that he goes out of business. On some occasions they do squeeze too hard, and the supplier does go out of business. I’ve seen a supplier, a grown man, come out in tears after a meeting with a supermarket buyer’, Blythman, (2003, p. 148).
Putting things into perspective, to succeed these days in the world of supermarket buying you have to be starving hungry to get on and keen as a whistle to submit to life as a company clone, with a corporate message chip inserted in you brain, Blythman, (2005, p. 149). You are expected to believe that your chain is fantastic, uncritically parroting its virtues at every possible opportunity. You must become thoroughly steeped in its culture and positively belligerent in your assertion of its virtues over other competitors. Suppliers are expected to feel tinged with glory just because they have the privilege of doing business with your chain and grateful too. Their powerlessness makes you feel ever more important. A supplier stated how its marketing team was insufficiently humble during a meeting with one influential supermarket buyer. They were consequently blacklisted by that retailer as the buyer moved up that chain’s management ladder.
In the high stakes atmosphere of supermarket sourcing, buyers have to be psyched up for doing their jobs like soldiers going into battle. Though rewards, in the form of bonuses, can be high, the penalties for failure are too. There are cascade sessions when senior directors make rousing speeches to their staff, weekend retreats or in-house training courses where team leaders play out war games, practising negotiating with suppliers or out-manoeuvring competitors. ‘The appraisal system becomes a machine. You have to conform to it. There’s no master architect, just an all-pervasiveness. Individuals either cannot grasp the wide-ranging consequences of decisions being made or have gone into denial, maybe as a way to survive or keep their own positions’, a manager explained. It is an environment where the toughest and most ruthless flourish.
Tags: Asda, competitors, supermarkets, suppliers, Tesco, UK market
