Manufacturers must work hard to avoid being part of a supermarket sweep
YORKSHIRE boasts the largest concentration of food and drinks businesses in the UK with the sector frequently championed as one of the likely major growth areas for the regional economy.
Viv Parry, founder of Leeds-based Exquisite Handmade Cakes, says: “Yorkshire is a huge food manufacturing region and we should perhaps be considering providing more funded bespoke food production facilities.
“Very often, manufacturers – due to lease costs – are forced to operate from less than ideal premises, such as Victorian mill buildings as was the case for Exquisite.”
“There are still many businesses starting-up so demand for support is strong,” adds Richard Wigley, senior technical manager at the Food and Drink Forum – an industry led, not-for-profit organisation set up in 1998 to drive positive change within the food and drink industry.
Yet the government funded Business Growth Service, which included the popular Manufacturing Advisory Service (MAS) and the Growth Accelerator programme was suddenly axed without notice by the Department for Business Skills and Innovation, following the government’s Autumn Statement.
It is now no longer able to help any further businesses and is winding down its support of those companies it already works with until March 2016.
The abolition of the service, which was available for any business with up to 250 employees in the UK, a turnover of up to £40m, means there is now no government funded support for UK businesses.
David Caddle was regional director for the Business Growth Service in Yorkshire. He says the SME manufacturers it was working with across Yorkshire tend to start out supplying to smaller regional retailers, which are easier to access and not subject to the stringent pricing of the larger supermarket chains, and then build up from there.
“Success for our clients tends to lie in the ability to successfully manage their supply chain, allowing them to be able to say exactly where their produce came from, and to capitalise on their local roots.
“Higher margins will always lie in the smaller retailers, where the bigger volume orders will undoubtedly deliver less return per unit and come with higher risk of price squeezing,” says Caddle.
Food and beverage manufacturers often face major downward pressure from the large retailers when it comes to pricing but also around ‘grey areas’ such as in-store offers or contributing to retailers’ marketing promotions, and the running of in-store campaigns.It is because of this that a code of practice has been in place since 2009, to guide the way retailers deal with their suppliers. On top of this, in 2013 Christine Tacon was brought in as Groceries Code Adjudicator.
Matthew Duncombe, partner at law firm DLA Piper in Leeds, says: “There are ways around it as with any legal contract and there are a lot of grey areas. But it is having an impact – the adjudicator is investigating some of the leading retailers to look at their practices and has started to assert its influence. But I haven’t seen anything massive that’s come out of it yet.”
In recognition of the ongoing pressures faced by suppliers, in March this year, parliament went further still and approved legislation giving the Groceries Code Adjudicator the power to fine UK supermarkets that had breached the Groceries Supply Code of Practice (GSCOP) with penalties for large supermarkets of up to 1% of their total annual UK turnover.
The new powers will only apply to breaches of GSCOP that occurred after 5 April 2015 and will not apply to the adjudicator’s current ongoing investigation into Tesco.
One of the biggest issues food and beverage suppliers face is the power of retailers to delist them.
“That is the supplier’s main concern,” says Duncombe. “GSCOP covers the issue and says suppliers should not be delisted or significantly reduce purchase volumes without reasonable notice and only for genuine commercial reasons.
But there is no legal terminology – what is a reasonable period and what is significant?”
It is incumbent on suppliers to get to know their rights, as things stand the retailers know what they can do within the guidelines but the suppliers are far less clued up – there is a power imbalance.
“I have seen first hand the issues where a supplier is getting downward pressure. They may broadly know of GSCOP but not necessarily know what their rights are and/or be concerned about the commercial repercussions of challenging the customer who is usually their largest customer. They have the right to go to the senior buyer and they do have recourse to argue their case,” says Duncombe.
