Monday 27 October 2014

New era for supermarkets

When Tesco reported a 92% fall in profits last week this was not only a massive shock to its shareholders but I think it will herald a new era of in the world of supermarkets which could have serious ramifications for suppliers.

My concern is heightened by the rhetoric coming from retail analyst, Clive Black, following a meeting with Dave Lewis, the CEO of Tesco where Mr Black said, “Tesco will have to invest in price” and “considerable cost reductions will lead to more responsibility for suppliers”.

This seems to be “marketing speak” for Tesco reducing their prices at the cost of their suppliers, many of whom in the world of agriculture, are struggling at present with farm commodity prices at a low ebb. One only has to look at the impact that the supermarket price war on milk has had on the dairy industry in recent months to understand the difficulties this will create for the wider food and farming industry if similar price pressure is brought to bear on all products.

It is appreciated the recent fall in milk price has not been entirely driven by the downward pressure on the milk price in supermarkets but this has surely contributed to the malaise that currently afflicts the diary industry.

So, with Tesco in trouble and most other supermarkets all chasing prices down this is a worry for farmers and the wider food processing industry, which plays a significant role in our local economy.

However, Tesco is certainly going to have to do something radical because it does seem to have lost the trust of its customer base. This must be a big concern and although providing cheaper food is obviously going to be an important aspect of its recovery plan, I do also wonder how impressed customers will be if Tesco’s “investment in price” turns out to be at the cost of its suppliers rather than its shareholders and the senior management team who have done very well for many years.

Farmers and supermarkets often have a fractious relationship and it seems to me this relationship is likely to be more rather than less strained while the supermarkets vie for supremacy in an ever more price sensitive market place.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk

No comments: