Blog: Olly WehringUK supermarkets - Potato bung a sign of dodgy drinks practices?

Olly Wehring | 18 March 2008

The balance of power in the relationship between drinks producers and retailers has long been an issue of huge contention. On record, few suppliers are willing to criticise the supermarkets - one expects, for fear of the repercussions – but, off record, there are plenty of tales of woe and even the odd horror story about the bullying tactics of Europe’s bigger retail players.

The recent scandal at Systembolaget, the Swedish retail monopoly, where buyers and store managers were found to be taking kickbacks from producers in return for the best listings, is an example of what can occur when this relationship swings too far in favour of the retailer.

However, in defence of the rest of Europe’s supermarket chains, I have never heard, even off record, of any other illegal practices. And, whilst I would expect that the supermarkets themselves would admit they are tough negotiators, they are able to be so because of the market forces that act upon the drinks industry.

Whether this makes the system fair or not is another question. The reality is that this is the free market we operate in. Or is it?

News that broke over the weekend will have dealt the reputation of the current system and, in particular, the buyers a sizeable blow.

A buyer at Sainsbury’s, the UK’s third-largest retailer, has been arrested on suspicion of accepting some GBP3m (US$6.1m) in backhanders from a potato supplier. The news raises inevitable questions about whether such illegal payments are made elsewhere in the system and whether suppliers have to resort to those kinds of measures to gain shelf space. It also puts the spotlight – once again – on the relationship between supplier and retailer.

Whilst covering the story, the UK newspaper The Times described the country’s GBP1bn potato market as “cutthroat”, adding that there is overcapacity in the processing and packing plants that supply the supermarkets. Does that sound familiar to those of you in the drinks industry, particularly, perhaps, some of our winemaking readers?

One industry source said potato suppliers were “chasing too little business. They can’t afford to lose supermarket business.”

These comments will resonate with the suppliers of many agricultural products. The fear must be, then, that that if this sort of corruption has occurred in the potato category, then the similar pressures and circumstances faced by many drinks producers must potentially be fertile breeding ground for similar scandal.

Last month, the UK’s Competition Commission outlined a series of measures it hopes will help protect suppliers from any abuse of power from the country’s larger retailers. The Commission wants to replace the existing code of practice between retailers and suppliers with a new code. It has also mooted the establishment of an independent ombudsman to enforce the new arrangements. Some have questioned whether these measures would go far enough to regulate the buying power of supermarkets. These allegations of bungs will only add to concerns over whether an ombudsman would be strong enough.

Much, I suspect will come down to whether this is an isolated incident or merely the tip of a much bigger problem.


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