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Thursday, 18 November, 1999, 16:00 GMT
The hidden shopping bills
Competition for shoppers' choices forces down prices

Last time you succumbed to that two-for-the-price-of-one offer on drinking chocolate or muesli, you probably realised you were playing your part in the marketing game.

But the chances are that you failed to realise the supermarket was probably being paid to display the goods to be in that very spot on that date.

The relationship between big supermarkets and suppliers is often compared to that of a master and slave, in which the supermarkets hold the power and manufacturers must comply with their demands, under threat of losing their contract.

Well-known brands have to compete with stores' own brands
Safeway's plan to charge its suppliers 20,000 for each item promoted in a new 24-hour-availability drive has highlighted the might the big stores can carry.

Everyone knows the stores pay food manufacturers for their products. But not many people realise that money other than payment for the goods changes hands.

It is common for suppliers to pay supermarkets for special promotions and new product launches.

They also pay extra for anything which will encourage shoppers to pick their goods up and put them in the shopping basket.

High-price spots

A biscuit manufacturer, for example, who wants a new range to be displayed at eye level, on the end of aisles or near the checkout is likely to pay a premium. Even the left hand side can be more costly, as research shows most of us turn to the left when we enter a supermarket.

Store strategists and their suppliers regularly negotiate behind the scenes over these charges, as part of their routine liaisons over issues such as sales forecasts.

The charges vary markedly depending on the brand, the type of product, the supermarket, type and length of promotion and size of sales. Floor promotions, banners and tastings all mean more income for supermarkets.

Sunny Delight, the sugar-and-fruit juice drink, is kept in chiller cabinets in stores, even though it contains preservatives and has a shelf life of three months - in order to make it more appealing.

Makers Procter and Gamble have been delighted with the tactic - and the drink's success.

In the case of Safeway, however, suppliers are angry because they say store chiefs should be ensuring availability in any case.

Julian Hunt, deputy editor of The Grocer magazine, said: "This is a really unusual case because the retailer is trying to get money from the supplier to focus on availability, but suppliers say it's the retailer's job to ensure goods are there all the time."

Meeting standards

But just as there's no such thing as a job for life any more, so suppliers cannot take their contracts for granted.

They have to remain competitive to keep their contracts by meeting supermarkets' stringent demands on quantity supplies, quality control and hygiene standards in the factory.

Big stores such as Tesco insist suppliers have no monopoly
As well as the supermarket's own hygiene inspections, independent checks are made and even window cracks or curling carpets can result in a contract being ended. After all, poor hygiene could land a big retailer in court, doing untold damage to its sales and reputation.

So tried and trusted food manufacturers tend to have the edge and it can be an uphill struggle for newcomers to muscle in on the market.

But supermarket chiefs will have no qualms about ditching a supplier who fails to come up to scratch, or who shows insufficient flexibility or imagination.

And with intense competition, retailers are constantly scrutinising ranges to see whether they can be expanded or changed.

But supermarkets deny abusing their dominant position. With an average of about 1,800 suppliers and about 25,000 lines, they insist the market is open to competition.

No cosy picture

Ann Grain of the British Retail Consortium says: "There are examples of where a retailer has really wanted a product, but the supplier couldn't meet demand or standards, so the supermarket has worked with the supplier to get them up to scratch.

"But it's not a cosy picture of retailers and suppliers.

People ask why isn't there room for smaller suppliers - well, if they can supply the volumes, fine, but nothing irritates shoppers more than expecting something only to find it's not there."

Meanwhile, food manufacturers complain that they are forced to underwrite all special offers seen on supermarket shelves, while being told to cut costs to help fund the intensifying price war.

And livestock farmers grumble about the low prices they are paid for carcasses, while meat prices on store shelves remain high.

Figures show that UK supermarket profit margins, which average 6%, are three times the levels achieved by their European rivals, while UK shoppers are charged an average 40% more than those in the US and on the Continent.

Traditionally, stores blame food manufacturers, and suppliers blame the stores for high prices.

The whole business of supermarket charges - in-store prices and costs paid to suppliers - is coming under scrutiny by the Competition Commission.

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See also:
18 Nov 99 |  Business
Safeway faces cash demand probe

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