Power lies with supermarkets, not suppliers

Here’s a telling thought. A consultant who advises suppliers how to deal with the big four supermarkets – Tesco, Asda, Sainsbury’s and Morrisons – told me today that one supplier said he would rather torch his factory than tell the watchdog about his shoddy treatment at the hands of one of them.

One of them, note, because he too couldn’t over his dead body tell me which one it was. So great is the fear of being caught out and losing their contract that suppliers would rather be bullied and squeezed for all their worth than blow the whistle.

Which brings me to the main problem with today’s announcement from the grocery adjudicator. She’s asking for suppliers to come forward, and Vince Cable is practically urging them to do so, but is the reality that few will for fear of reprisals.

Remember she only got this information in the first place thanks to Tesco’s own internal investigation after discovering that £263 million of supplier revenue had been incorrectly booked as profit. The suppliers themselves did not come forward. And even if they do, what can the watchdog do? In the case of Tesco, very little.

She can’t even impose a fine because the legislation is not yet in place to allow her to do so. And even if it was, in Tesco’s case she would not be able to apply it because fines can not be applied retrospectively. So for Tesco all she can do – after what her office estimates will be a 9 month investigation – is recommend Tesco change the way it treats suppliers.

Which guess what? Tesco says it’s done that already, having ditched the controversial “back margins” which allowed it to offer promotions and discounts and change the price of the original supplier deal with – or perhaps without – their consent.

So is this a case of too little too late? Well, in Tesco’s case it would appear it probably is. But if in the case of listening to any brave suppliers that do come forward, the watchdog hears that other supermarkets are up to the same shenanigans, then she does have the power to do something. And perhaps knowing that might just make the other supermarkets take a good, long look at how they treat their suppliers and make sure they can’t be accused of the same mistreatment.

The consultant, David Sables, that I spoke to today, says the behavior is rife but is of course much worse at Tesco because it is the dominant player. you can’t help but think what this industry needs is a root and branch forensic look at the way supplier contracts are written and adhered to.

Clearly in a vicious cut-throat pricing environment, like the one we’re in now, all the power incorrectly lies with the supermarket and it’s the suppliers who get abused. That has to change.

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