Much has been said over the last few days about Tesco’s demands from their suppliers to help support their EDLP strategy with allegations that they are going back to their old practices when it comes to how they manage their suppliers.
Tesco is adamant that this is not the case and this is just a continuation of the last 6 years of strategy that suppliers are more than familiar with – even though Dave Lewis even went on record in the Sunday Times to explain why they are doing this now. As ever, there is likely more to this than meets the eye.
The Sunday Times business section was the two ends of the negotiation strategy being played out to the masses. Tesco was saying they’re not asking for anything different than these suppliers are offering his peers – specifically the discounters – and anyway he’s just asking for back-margin to be moved into COGS. The suppliers meanwhile are playing on Tesco’s reputation and calling foul on the ask and the delivery mechanism but are seemingly aware of the reality and that this is a big volume they are putting at risk. GSCOP compliance has been raised.
What I took from it, reading between the lines, is this is not an unreasonable request from Tesco, but more than how this has been done has been poor – coupled with the speed that they are making the suppliers respond. If this is indeed a negotiation position, and Tesco is willing to give concessions in order to receive, or if behind the NDAs / demands there is a more constructive, almost collaborative conversation going on, then it makes sense.
Switching lump sum spend, often a promotional investment, into EDLP is not something that is easy for the suppliers to do from a liquidity point of view. Given that cash is tight for everyone during COVID times then it may be even harder for the smaller suppliers out there. That said, it’s not impossible and Tesco knows that. If this is just the start of the transition, and Tesco invests the cash in the short term, what is not to like about the intent? If Tesco is just using their power to maintain their margins, and to not invest upfront, which is much higher than those of the discounters, whilst still expecting the suppliers to fund their price war, then that is not reasonable. The main concern from suppliers is the pressure they are under to deliver fundamental changes to their annual investment plans very quickly. These plans have taken months of negotiation to agree yet are being unpicked in weeks. GSCOP provides the suppliers with protection suggesting that changes are to be agreed mutually and with reasonable notice. I suspect that suppliers would be more accommodating of Tesco’s requests if more time were given to facilitate an outcome where both parties are comfortable with the outcome.
Aldi and Lidl are the targets of this ask. The suppliers are caught in-between. We have to give Tesco’s a lot of credit for how they changed their approach to suppliers and the way their Fresh supply chains held up during the start of the lockdown, from the outside, looks testament to more collaboration and short, more localised, longer-term commitments. It worked for everyone but if this blunt demand to the suppliers is not supported by realistic conversations behind the scenes then this could indeed to a return to the bad old days and with Christine Tacon leaving her role this year (she will stay to manage the impact of Covid19), is this timing down to that or Dave Lewis’s departure to give Ken Murphy a clear conscience when he arrives in October?
Let’s hope this is all a structured commercial conversation and Tesco is realistic around the concessions required to get what they want. If so, the UK consumer, Tesco, and the Supply Base could all gain here!