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Is inflation destroying relationships between buyers and suppliers?

The row between Tesco and suppliers has highlighted how inflation is straining relationships in the procurement profession, according to experts.

Cost disputes between supermarkets and suppliers are stifling innovation and could lead to cost increases for customers, they warned.

The comments come after John Allan, chairman of Tesco, claimed suppliers were taking advantage of inflationary environments to unnecessarily increase costs.

Darren Smith, CEO of procurement training company Making Business Matter, told Supply Management Allan’s comments were “inflammatory” and risked stifling the collaboration needed to overcome negotiation deadlocks.

Smith said: “We are in unprecedented times in terms of cost inflation and the majority of suppliers are just trying to make back what they’re paying. There is no doubt some suppliers will be doing it, but the majority are doing things the right way and not profiteering.

“It’s just inflammatory at a time when we need to just come together and collaborate.”

Suppliers and buyers are “battle weary” he said after months of cost pressures, which is hindering their ability to find an effective solution to supply chain cost inflation.

“It means relationships are very strained. They're not as innovative. They're not brainstorming. They're not thinking as much about the shopper as they should, because they're all focused on their bottom line and recovering their margin. So we're going to see innovation slow down.”

He said buyers and suppliers could explore longer contracts and payment terms to overcome cost disputes, but said “none of that's possible when they’re battle weary and not willing to see what's possible. And they just want to win the fight.”

Buyers are “sacrificing the short term for the long term” he added, which could lead to suppliers pulling products from supermarkets because they felt “shafted” by during price conflicts.

The losers of battles between suppliers and buyers, he said, ultimately will be customers.

“[Supermarkets and suppliers] do have a way out of this, which is to charge more,” he said. “It's not like they've got to take all the cost increases and pass none onto you and I. They will pass it onto you and I. And ultimately we're the ones who will suffer.”

Ged Futter, a former buyer for Asda and director at consultancy the Retail Mind, told the Daily Mail: “Some suppliers are profiteering but, at the same time, we also know that some retailers are putting up their prices higher than the inflation they are receiving. I would say it is quite disingenuous to be talking about suppliers profiteering.

“He [Allan] also seems to forget that the price on shelves is the responsibility of the retailer, not the supplier.

“The supplier is responsible for looking after their costs to make sure they survive. After that however much [the price] goes up it is the retailer.”

He pointed out that Tesco is on course to unveil big profits for the past year.

A spokesperson for the UK groceries code adjudicator (GCA), which regulates relations between supermarkets and suppliers, recognised relationships are “strained”.

A spokesperson told SM: “The GCA recognises that the number of cost price increase requests are straining relationships between retailers and suppliers. The retailers that the GCA regulates must treat their suppliers fairly when responding to cost price increase requests.

“Any suppliers with concerns about how retailers are handling their requests can contact the GCA confidentially or respond to the GCA annual survey.”

Minette Batters, president of the National Farmers' Union, told SM it is in conversation with retailers “to ensure that they understand the unprecedented challenges farmers and growers continue to face” following soaring energy costs and workforce shortages.

“Retailers have an important role to play in helping the industry through this crisis, working with suppliers to continually evolve contracts so they are fit for purpose. Producers must have the confidence they need, working within a fair and transparent supply chain, ensuring fair returns, so they can do what they do best; meeting demand from shoppers for quality, affordable home-grown food.”

Food inflation hit 24% in December year on year according to NielsenIQ and Prestige Purchasing, marking 11 months of double digit food inflation.

All 10 food categories analysed saw at least inflation of 10%, with over half of categories topping 20. Oils and fats noted a “spectacular” high of 47%.

James Ashurst, client director at CGA by NielsenIQ, said: “Businesses up and down the foodservice supply chain were besieged by inflation in 2022, and as we enter 2023 there is little respite in sight.

“Alongside the cost of living crisis for consumers, soaring food and drink prices are piling enormous pressures on hospitality, and sustained government support is needed to protect businesses and jobs in this vital sector of the UK economy.”

Shaun Allen, CEO of Prestige Purchasing, said he expects inflation to begin easing in the coming months, however he warned “we are likely to experience an extended period where prices continue to go up, but just more slowly.”

He continued: “These market conditions provide an opportunity for some suppliers to increase prices ahead of market, and buyers should seek hard data to verify and benchmark any increases during 2023.”


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