Small manufacturers being able to keep the voracious supermarkets at bay, argues Gareth Downiem, director of West Coast Foods
For many ambitious, innovative, smaller manufacturers, supplying to national supermarket chains is something of a Holy Grail, a game-changing relationship which allows them to scale up to undreamt heights.
It is also a relatively new phenomenon, since multiples previously were not particularly attracted by minnows who, it was felt, could not supply on the mass level necessary to fill shelves across the country.
But many supermarkets are now encouraging smaller enterprises, both to bring in freshness and variety to their stores and also to meet consumer demand for localism in what, necessarily, are national retail outlets.
Getting into bed with the retail giants, however, can come at a price for go-ahead young businesses and increasing numbers of enterprises in the sector are beginning to question if the game is worth the candle.
Multiples in the UK are under increasing cost pressures. This is nothing new, but it has been exacerbated by emergent discounters such as Lidl and Aldi, who look for products or brands which are performing well and then take them under their own label.
We have some personal experience of this at West Coast Foods. Over a lengthy relationship, we grew an initial £50,000 contract into a position where Aldi were spending £500,000 a year with us. This ended when we refused to go down the white label route.
White label products are supplied to supermarkets which then sell them under their own branding. This can work for some manufacturers who are keen to build volume as part of a strategy.
To accept this plan, however, means that the smaller business has to give up full rights on matters such as how they produce, why they produce, how they source ingredients or components and so on. These decisions then lie with the multiple, which puts them out to tender.
When weighing these considerations, smaller firms are acutely aware that as far as national chains go, it is a buyer’s market. If the small enterprise declines the offer, it won’t take long for the multiple to seek out another cheaper and more malleable supplier.
Supermarkets are, essentially, finely honed and aggressively marketed middlemen – sourcing from vast numbers of manufacturers to supply tens of millions of disparate consumers.
They are there to make as much profit for their shareholders as possible. That is perfectly reasonable – but it is most commonly achieved by putting the squeeze on suppliers in order to give the end users a discount attractive enough to ensure repeat custom.
There is an alternative model for smaller business – possibly less stratospheric but much more likely to build a viable customer base which values qualities such as manufacturing to order, highest possible quality levels and an open door policy.
Small businesses which decide to take this road remain able to control their own destinies – as well as orders, processes, tracking and, in the case of food manufacturers, quality and provenance of ingredients.
Those businesses which go direct to the consumer can not only cut out the middle man but can also give their customers much more confidence in what they are buying, increase shelf life and cut costs across the board.
Supermarkets have radically altered the patterns of the way we live our lives. They have brought many benefits and many valuable changes – but we must always remember that they are not the only way.