It’s fair to say that the British Retail Consortium’s (BRC’s) director of food policy Andrew Opie isn’t overly sympathetic with the issues raised by food manufacturers as a result of the supermarket price war.
For instance, accusations from food manufacturers that retailers are squeezing their margins for rock bottom prices in a bid to combat the discounters Aldi and Lidl are unfounded, Opie says.
Crushing the profit out of your suppliers for the sake of having cheaper products is in nobody’s best interest, he says defensively. “I don’t think anybody is foolhardy enough to take a short-term gain to make a long-term loss.”
Bluntly, he also claims that the retailers have been facing the brunt of the price war, rather than the manufacturers, which is evident in the amount of restructuring the big four Tesco, Asda, Sainsbury and Morrisons have had to carry out over the past 12 months.
Not only does he deny allegations food manufacturers are being squeezed by retailers as a result of the price war, he goes as far as rejecting that there is a price war going on at all.
“I don’t know about this term ‘price war’,” he argues. “If you go back over the years, I remember figures being quoted of upwards of 40% of products on promotion in supermarkets. So, with that in mind, I’m not necessarily sure if this is a ‘price war’.”
Manufacturers will find it hard to see Opie’s point of view, especially since much of what he denies is being splashed across the pages of most of the popular press every day. But, he has been closely analysing the sector in his current role for more than a decade, he explains.
Before working at the BRC, Opie spent nine years at the other end of the food supply chain as the head of policy services for the National Farmers Union. His first step into the food industry was as a land agent for a Wiltshire-based dairy, having first trained as a chartered surveyor.
Since joining the BRC, Opie has helped attract more than 90% of the UK's grocery sector into its membership, giving him with a good barometer of what’s going on in grocery retail, he adds. Members now include Tesco, Aldi and Morrisons, to name just a few.
And, at the moment, Opie’s barometer is telling him there’s heightened competition among the major retailers, caused by food price deflation and the growth of the discounters. “It’s always been a hugely competitive market and now all of the retailers have responded [to the rise of the discounters], so this heightened competition isn’t surprising,” he adds.
But, what’s behind his claim that food manufacturers aren’t feeling the brunt of fallout from extra competition among the retailers?
GSCOP deterrent (Return to top)
According to Opie, the Groceries Supply Code of Practice (GSCOP), which has been in place since 2010, is enough of a deterrent to stop any mistreatment by supermarkets of their suppliers. “And then we’ve had the Groceries Code Adjudicator [Christine Tacon] in for the past two years to help police that,” he adds.
“Our view is that GSCOP is working well [to keep retailers in check]. Retailers know price is important, but quality and consistency from suppliers is also important,” he explains. “UK retailers want to maintain strong relationships with manufacturers to get the best of those three things.”
Flatly, he also denies that the big four’s determination to outdo the discounters would lead to Code breaches. Good GSCOP procedures are already well embedded in the structures of supermarkets, he claims.
- Marks & Spencer
- Whole Foods
“The other thing, is that GSCOP isn’t necessarily about price, but the equity around a contract and the way that negotiations are handled. There’s nothing stopping a manufacturer from selling at a lower price, if they chose to and weren’t being compelled to.”
Yet, recent figures from the GCA’s second industry survey showed that 71% of suppliers responding hadn't been trained adequately in GSCOP, despite all supermarkets being fully trained and aware of the rules. This means most manufacturers are unlikely to be aware whether they could raise a Code breach about a retailer or not.
Breaches (Return to top)
Also, Tesco recently admitted to a “number of possible breaches” of the GSCOP in the small print of its latest financial results. It said: “Regrettably, we have concluded that there have been a number of instances of probable breaches to the Code which fall short of the high standards we expect to uphold in our dealings with our suppliers.”
Although, Britain’s biggest retailer was already on Tacon’s radar, who launched an investigation into Tesco in February after evidence of suspected breaches to the GSCOP. Tacon's investigation will be completed in the autumn.
Opie refuses to talk about Tesco, as the BRC doesn’t comment on individual members, he says. However, he is willing to discuss Tacon’s role. “We were quite sceptical about it at first,” Opie admits. “We felt the Code itself was important, but didn’t believe it needed an adjudicator.”
He also says the GCA has more to do in her role and calls for more help for retailers to make GSCOP rules clearer to suppliers. “There’s still a lot of confusion out there from suppliers,” he adds.
“I think there are still some parties that don’t understand the Code and what it was set up to do. Remember, it was set up after a Competition Commission enquiry, which looked at the relationships between the retailers and their direct suppliers.”
The Code should also stick to covering the UK’s largest grocery retailers with a turnover of more than £1bn and their direct suppliers, he adds. Any talk of extending it to other parts of the supply chain would result in complaints from too many parties and would be confusing.
Tacon’s powers, too, stir up strong opinions from Opie and the BRC. “We objected to the power to fine 1% of turnover, which we felt was excessive,” he argues.
“We hope it’s a measure that won’t ever have to be used and we feel that there won’t be a significant breach leading to a fine. However, if there was, it would be up to a 1% fine and not an automatic 1% fine. It would be up to the GCA to take the proper approach in deciding how much to fine a firm.”
Power to fine (Return to top)
The BRC also disapproves of the GCA’s anonymity rule that covers suppliers complaining about retailers, he adds. Having anonymity could be a huge burden to retailers, Opie claims.
“There could be information requested about a case, but the retailer won’t know what case they will be answering.”
What Opie and the BRC would like to see instead is manufacturers approaching retailers openly, as they would about business in general, “rather than sitting back and waiting for a complaint to go through the GCA”.
Anonymity prolongs the problem and prevents it being resolved properly, he claims. While this may be true, many manufacturers have claimed to have lost contracts with retailers after raising Code breaches openly with them.
Again, this is a situation Opie denies would ever happen. “I don’t accept that point,” he argues. “The key issue here is that delisting is a major part of the GSCOP. If you ever want to take a manufacturer off your books, you have to have a really good reason to do that.
“This fear that, if you raise an issue then you’ll jeopardise a long-standing relationship with a retailer who will, out of spite delist you is, unfounded.”
Retailers would much rather know about problems and work with their suppliers to resolve them in an open and honest way, Opie claims. If a manufacturer wasn’t happy with the outcome, it would be free to raise the issue with the GCA and that would be quite understandable, he adds.
In the future, Opie and the BRC plan to focus more on food safety, including tackling the big problem of campylobacter contaminated poultry in UK supermarkets, he says.
However, while not denying there is a campylobacter problem in the UK, he vehemently refutes accusations that retailers were slow to react to it.
“The sector wasn’t slow to react at all and there are lots of good pilot projects in factories, supported by retailers, to prove that,” says Opie.
“Campylobacter in the UK is a bigger problem than anywhere else in Europe and I’m not sure why, but we’re well underway to tackling the issue, as a result of these pilot projects.”