So here I am again sitting outside of U ward with my elderly mother waiting to see if they can free up a bed. Maybe this will be third time lucky. When you are 76 years old it really is an incredibly stressful experience to be treated like an inconvenience in the smooth running of their rather shabby hospital. This is to take nothing away from the staff that are as frustrated as we are but who are also trapped in the system.
I can't help comparing this with the rise and rise of Tesco whose results have been plastered across the press after another successful Christmas. It does make you wonder whether Terry Leahy and his team could have made something of the NHS given the time and money that's been ploughed in over the last 10 years. In that time Tesco has roughly doubled market share, quadrupled profits, added 1,000 stores and produced a dominance that seems almost unassailable.
Perhaps the NHS consumer experience would indeed have been fundamentally improved. You can bet that government (like shareholders) would be happy. The other safe bet is that suppliers of goods and services would themselves be radically better off, or would have disappeared. Ultimately, non-inflationary growth and the improvements in efficiency have a cost - less people doing more.
In the supply to retail, and particularly in the food chain, the drive for major supplier rationalisation and consolidation is, frighteningly, going to increase in this year and beyond. To make sense of what is going on there is a need to really understand what is driving it.
To give you an example of how endemic this process is, I recently attended a meeting in another sector where B&Q was presenting its strategic plans. This £3.5 billion-turnover retailer stated clearly that it was now moving beyond the “cost price reduction” plan into “strategic supplier relationships”. B&Q plans to significantly reduce its base of 700 suppliers. The room contained roughly 75 suppliers, many of whom had a vital trading relationship with B&Q. However, at the end not a single question was forthcoming. You could conclude from this that they all understood what was going on and had planned accordingly. You would of course be wrong; in discussions afterwards most had faith that the great relationship they had with the retailer would enable them to come up with something.
This somewhat missed the point that B&Q already had many deals either in place or under negotiation. The B&Q team were quite open; they expected to reduce the supply base over time by two thirds. They really were trying to get the message across in a professional way.
It reminded me of similar presentations nearly 10 years ago from Sainsbury’s, Asda, Tesco and Safeway. No surprise therefore that B&Q management was strengthened and reorganised in 2004 with people headhunted from FMCG retailers.
The market for fresh produce is uniquely vulnerable in this continuing consolidation process. The scale and front-of-store nature of the fresh produce offer are true indicators, for consumers, of the quality of the store they are entering. Look, feel, smell and of course price all combine and really are an accurate indicator of just how good the big stores are.
Ambient, frozen etc.. are easy in comparison. The market is virtually unbranded with some varietal differentiation, low consumer concerns about source and a relatively high number of perceived KVIs (known value items). Add to this the very low levels of consumer marketing and the whole sector is now firmly entrenched in the EDLP(every day low pricing)/commodity mire. Even in comparison to meat or dairy, the fresh produce sector really has different supply parameters.
In considering the position of retailers and what they need from suppliers it is worth remembering the difficult position that they are in. Fresh produce is characterised by having a huge number of suppliers relative to any other sector.
For many years, retailers’ profits were driven by controlled inflation and this control was exercised by large suppliers able to co-ordinate a price move upwards across a whole marketplace. This was the prerogative of the large brand and own-label suppliers who still have authority in many key sectors. This was never the position in fresh produce, which meant that the impetus for upward price movements and cost recovery depended on the retailer leading.
There is virtually no chance of this happening now, except in extremis. Hence the fresh produce sector languishes in the position where prices are still virtually the same as they were 20 years ago.
The whole point of this is that retailers need the leanest most efficient supply structures to combat the commodity nature of the fresh produce sector. They also need these suppliers to be actively acquiring scale, to both reduce cost and exert authority on their behalf in controlling the market.
To put it in context, a £100 million-turnover supplier would be seen as small in the sector. To be fair to the big retailers they have generally waited for the suppliers in fresh produce to do the consolidation job themselves. We all know of many deals the retailers have been the catalyst for.
However, I believe that unless managements now urgently reassess the need for proactive scaling up of their businesses, the retailers will have no choice but to do the job for them. Remember every senior retail manager has a target for growth so why should your business be the one that gets to carry on regardless?
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