Opinion

Enduring strategic partnerships can help UK buyers achieve ultimate goal

31 March 2015

Tommy Leighton - PBUK

I have been writing about fresh produce for more than 20 years now and in that time the word ‘partnership’ – often preceded by ‘long-term’ – has never been far from the lips of the people I’ve spoken to. When you analyse it though, have supplier-buyer ‘partnerships’ ever been anything more than a one-way street?

Shortly after I began my first role as a journalist, Sainsbury’s announced its Partnership in Produce approach, which launched at a turbulent time for the chain, ostensibly as an attempt to strengthen its supplier ties. The eminent Professor David Hughes for one saw it like this at the time and while I remember a level of scepticism even then, I also recall that there were suppliers in various sectors who retained optimism that buyers at supermarket chains really could view their suppliers as partners, despite mounting evidence to the contrary.

Hughes’s “Partnership in produce”: the J Sainsbury approach to managing the fresh produce supply chain suggested that consumers were turning away from specialist retailers towards supermarkets for their fresh produce requirements, and that major retailers were starting to focus on building longer-term relationships with key suppliers.

I’m not here to argue against that, even with two decades of hindsight. I happen to believe that there have been mostly good intentions at the beginning of the vast majority of such initiatives in the interim period. Why wouldn’t there be?

The first line of the definition of ‘Partnership’ on Wikipedia reads: “A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests.”

There should be clear benefits to both parties in a successful bilateral partnership. History shows, however, that there are rarely two winners once open-book policies, value engineering and one-sided incentives are added into the supplier-buyer equation and there are very few retailers – or major foodservice companies for that matter – who would escape unscathed if someone ever dares to write the book on the way suppliers have been treated by their UK customers in the last 30 years.

Perhaps we should ask ourselves why there are so few enduring success stories and why it is so easy to fail.

My colleague Jim Prevor wrote a piece on partnerships for Produce Business before I had typed my first words about this industry. In it, he wrote: “A marketing partnership has to be based on a non-adversarial relationship. An attitude must be developed that both partners are principally concerned with building the business. This is tough to do because in most cases the differences in interests between a buyer and seller are clear. The buyer's interest would be served by paying less and the seller's by charging more. But if you can't get beyond this adversarial jousting for position, you can't have a partnership. By working together the retailer's produce business can be built and thus produce large orders for the shipper. This is a very long-term proposition.”

That was written in 1992 – I think it remains a valid and salient point, but it’s one that has been thrown to the wolves by the UK retail buying industry in the recent past. The general mistrust of supply partners that is bred into buyers at retail chains means that most of these relationships do of course become adversarial. I have been told on numerous occasions that suppliers are pulling the wool over their customers’ eyes and that the wafer thin margins mask far greater wealth. It’s true of course that individual wealth is not uncommon in the produce sector, but that’s true of any sector. It does not necessarily match up though with building a viable long-term supply structure.

Attitudinal study

The attitude that both partners are concerned with building the business does exist; but all too often the supplier’s role is to underpin their customers’ business with financial support over and beyond what, in my view, should be expected in an equitable business relationship. The take-take approach of the customer is almost guaranteed to create the adversarial jousting Jim mentioned; even the most passive of suppliers is by now dog-tired of the buyer who keeps coming to the well to draw more cash out of their tight resources, yet most see little choice but to cough up. Jim’s last line is right in principle in too – but when those large orders come with larger and increasingly onerous demands, that are based on the short-term aspirations of the typically transient buyer, they often constrain the partnership, rather than liberate each party to develop with each other’s interests at heart.

None of this is written to suggest that suppliers go into these arrangements blind to the likely eventual outcome. Nor am I saying that if you look around the industry, you won’t find examples of partnerships that have stood the test of time. Some, it could and would be argued, have even proved mutually beneficial, but they have become the exceptions rather than the rule. It would be hard to blame any supplier for having a reciprocal mistrust of their buyer. The list of broken ‘partnerships’ is long and painful and certainly, there are not many in the fresh produce industry who could now claim that they have enjoyed a partnership with their UK retail customer that has been equitable in the true sense of the word.

Not just open book policies, but massive over-riders and kickbacks, marketing and promotional assistance for spurious or non-existent activities, upfront payments to secure programmes, depots and shelf space and buyer incentives have all been commonplace, whatever anyone might like to claim. The UK’s supermarkets have continued to churn out huge profits, while their increasingly fragile supply base has survived on meagre margins and ever-thinner profits.

Just this week, Tesco’s CEO Dave Lewis outlined plans to cut the number of ways in which it charges suppliers from 24 to just three. He wasn’t being particularly triumphalist, but shouldn’t retailers as a group cringe at the absurdity that as many as 24 ways to take cash out of suppliers’ pockets had been devised in the first place?

It’s the one-track approach to partnerships that lies at the heart of situations such as the one that has placed Tesco in hot water right now, and got Lewis his job in the first place. While Tesco might be in the spotlight, I happen to believe that, just as the News of the World has taken so much of the flak to date in the phone-hacking scandal, so Tesco as the biggest player is bearing the brunt for its retail counterparts who have almost certainly all at some point indulged in practices with supply ‘partners’ that would interest grocery adjudicator Christine Tacon, if she was inclined or obliged to listen.

Supermarket chains are of course working for their shareholders first and foremost, so, as in the cut-throat world of publishing, it would defy logic if Tesco’s competitors didn’t use similar tactics to maintain a competitive offer. But, stepping back from the short-term demands of the City, why does no-one seriously question the logic of taking a supply partner – initially selected for their ability to support the expansion of your business – then systematically squeezing them to the point that their own sustainability as a company is questionable at best?

Volume vs margin

The importance of volume was drummed into the industry by the retail sector as the only way forward for years. It’s pretty well proven and documented now, however, the ability to supply volume to a UK retailer is not a happy bedfellow with the capacity to maintain a decent margin. It must be galling to be the big volume player and watch smaller more agile firms bite off chunks of business and build lower volume, higher value offers of their own, while your ability to respond is hamstrung by your inflexible ties with a large customer.

There is growing recognition within that supply chain that somewhere along the line it needs to make more money to remain sustainable enough to keep up the supply of quality food to the buyers of this country. Now perhaps more than ever, the industry must be asking itself whether strategic alliances, within and without the fresh produce sector, are the answer to securing their longevity as businesses.

Stubbins Food Partnerships thinks so. My interview here with managing director Peter Turone explains why this 50-year-old salad firm has refocused and restructured to search for partnerships across the food industry to expand its own business and help others enhance their own business with the UK. The fact that Turone is looking beyond the firm’s traditional fresh produce boundaries illustrates a belief that to expand the business financially, a half century’s worth of experience and expertise in fresh produce production, procurement, packing and distribution isn’t enough. But it is a fantastic base from which to expand the portfolio, to widen the horizons and target areas of business where supplier margins aren’t such dirty words. There must be many suppliers in the UK who could look at their core USPs and try to do something similar.

The signs are beginning to emerge that suppliers have stopped hoping for a significant change in the behaviour of their customers and started taking greater control of their own destinies again.

This can only help buyers in the medium to long term. You need a sustainable supply network to keep your shelves filled, or to feed the booming out-of-home foodservice market. The fact that overseas shippers have serious alternatives to the UK has made it more difficult to source high-quality produce for the demanding British consumer in the last few years. Surely the way to alter that is by approaching the supply chain with the attitude that by growing the buyer’s business, the supplier’s business can also become independently successful. Otherwise, the steady tide of people who have turned their backs is unlikely to turn.

Total Produce’s Denis Punter said this on Produce Business UK last month. "To be frank, we need to change some of our ways. In some respects we've become a market that is seen to be too hard and too difficult. Our requirements are tough. The cost burden on growers is tough."

As someone, like Denis, who spends a fair amount of time talking to people overseas about the UK market, I couldn’t agree more. For most of my 20 years in and around the industry, I have been waiting for the tipping point where retail meets reality and recognises that it needs sustainable supply sources more than the world needs UK retail customers. One head of produce at Tesco, who shall remain nameless, assured me a few years back that suppliers would never turn their back on his company. “Of course they won’t, we’re Tesco” were his exact words. Some of the stories emanating from the same retailer in recent months would suggest that level of self-belief, some might call it arrogance, hasn’t yet been shaken off.

In my opinion, direct sourcing, in whatever package each retailer decides to wrap it up, is largely just another smokescreen for retailers to rip more ‘value’ out of the supply chain for their own bottom line. I think it’s time for both suppliers and buyers to draw a line in the sand and look at what really can be done to build the types of partnerships that endure and provide value to the people who, ultimately, really are the key part of the equation – the consumers.

If the industry keeps short-changing them by battling within its own ranks, the future really would look bleak. If, however, buying and selling strategies become more holistic, the opportunities for the ‘win-win’ relationships we hear so much about, yet rarely see still exist in abundance.

The major winner from that approach would still be the UK buying sector.

Produce Business UK welcomes letters to the editor and other input from the industry. If you wish to respond to an article on Produce Business UK or join the conversation on any industry issue, please send your thoughts to [email protected]

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