Fall out from the impending “Living Wage” has already caused widespread consternation from SME’s concerned about the challenges they will face in managing an expanding wage bill. Several large corporations have also raised a few concerns. Whitbread have already announced that the impact will be passed on through high prices to customers directly, but what of the big grocery retailers?
With large numbers of lower paid and part-time staff, the big four are some of the UK’s largest employers and whilst Sainsbury’s have committed to raising pay levels for staff’s this extra cost will need to be re-cooped somewhere. It is unlikely that Tesco or their competitors will allow further destruction of their net margins and whilst they sit right in the middle of the toughest price war they have faced and the continued loss of market share to the likes of Aldi and Lidl, they remain very unlikely to follow the Whitbread price hike lead. Given the raft of staff cuts at Head Office they are also unlikely to find further significant savings from scaling back their. They could make direct cuts at store level but many have already done this in previous years and leaving staff stretched and stores under-managed will lead to a loss in execution and standards. Something they can ill afford to do. This implies that cost recovery will need to come from reduced buying costs and/or high promotional and space fees.
This of course would impact on suppliers who have already been squeezed by the retailers in recent months as the drive for lower prices has continued. With many probably asking what else can we give? Where is the growth in volume to off-set the decline in value coming from? There in lies the impending issue – Suppliers who have previously been reliant on the big 4 grocers need to address a fundamental issue in their business model – Diversification!
Two many branded and Private label suppliers have become reliant on the big grocers and have neglected to develop a wider route to market through convenience, discounters, online and independents. They have become dependent on the large volume growth the Big 4 have always been able to deliver. As a result their fate (and profits) are directly linked to that of the supermarkets as the UK grocer market re-aligns.
If your business falls into this category don’t panic we don’t see a terminal decline for Tesco’s and the like on the horizon but we do envisage a rocky road for their suppliers for the short to medium term. There will continue to be opportunities within them through online or convenience we suggest you need to do more than that and take strategic action now. Target new route to markets where your products can work seek out the key retailers, wholesalers within that channel and start building a contact strategy and make those calls! If your products don’t fit other RTM’s look at what adjustments/solutions you can make.