Every Little Hurts...

If you like to keep up with the news and current affairs you have no doubt read about Tesco’s rather public slide into a significant pit of ordure.  Unhappily for them this latest transgression coincides with the approach of Christmas, a time when even sensible, level headed folks seem to think that we’re all in for a siege and lay in victuals as if the shops are shut until Easter.

Let us recap:  Tesco showed a £263 million profits overstatement which, unsurprisingly has triggered an investigation by the Serious Fraud Office (SFO).  Although the SFO seems to have an interest in the operations of several, if not all departments, the booze crew is what we need to focus on and our trade press is releasing some fascinating information about how the Beer, Wine & Spirits section works.

When Wines of Interest lists a bottle of wine having recognized it as a quality product to start with, we buy it at the supplier’s price, put on a modest mark-up and flog it to one of you.  That’s it.  When Tesco lists a bottle of wine, first they lean on the supplier for a better price, they charge a listing fee and a shelf space fee over and above any promotions and deals, the costs of which are also found by the supplier; they demand further, retrospective discounts, payable at the end of the period subject to sales targets being reached.  Once all of these have been agreed the suppliers should know exactly where they stand, but on top of all the foregoing Tesco have been threatening suppliers with delistings unless further, unexpected “supplier contributions” are made.  These can be huge and make significant additions to Tesco’s overall profit, while further reducing the margins of hard-pushed suppliers.  “Every little Helps”.  Yes, but who? 

To illustrate the point one highly regarded, one-time buyer for Somerfield has shared her first-hand experience of inside pressure when the former found itself in trouble.  Harpers Wine & Spirit reports, “…she made it clear that the message from on high was ‘we need to bring in more.’ ‘The pressure was on to recruit marketing monies.  I felt that my integrity as a buyer was being compromised.  You had to say (to suppliers) ‘I know we did that deal but I now need another £15,000 from you’.”  Amongst other disagreeable chores “she says she was also told to delist wines to bring in products with more marketing revenues attached.”  For those of us who love wine, having to buy crappy brands with a gun to the head is just a nightmare.

According to the chief exec. of Sentinel Management Consultants (also as reported in Harpers Wine & Spirit), “Tesco’s demands on suppliers had become ’more frequent and quite creative’….Tesco had been asking for ‘pulled forward promotional trigger and annual bonuses.’ “  You have to chew your way through the jargon there but Sentinel’s CEO explains, ‘People can argue it’s not a crime if anyone’s dumb enough to do it.  But some (of the payments) are undeniably next year’s promotions.  You cannot possibly have earned them before they have taken place.  That’s a little trickier to get past the auditors.’ “

Tesco seem to have redefined the term “business partnership” - it all looks pretty one-sided from our perspective.  While the SFO evidently think there are good grounds to question the legality of these practices and we won’t pre-judge out loud in these litigious days, our opinion of the morality is that it stinks.  Among the many questions this affair raises is the one that asks, “How different is this style of buying from that of the other multiples?”  Tesco might have been the most aggressive, but it’s hard to believe that others have not adopted at least some of these tricks.  We’ll just leave that one hanging in the air.

With the rocketing popularity of the discount stores such as Aldi and Lidl, the more familiar supermarkets do not have it all their own way anymore.  As they make ever greater inroads into the customer numbers of the supermarkets, the latter are starting to take note of the methods of the newcomers and the signs are there that they are beginning to imitate them.  Tesco have advised the Off Licence News that they are reducing the number of wines on promotion this Christmas.  They featured 280 in 2013; this year that will be 100 to 120.  Apparently this is to provide the customer with better focus.  Nothing to do with being rumbled and not in a position to bully more money out suppliers, of course.

Aldi and Lidl do what they do with relatively few core lines, Victoria Moore wrote in the Saturday Telegraph of November 11^th that these currently run at 50 and 80 respectively with additional offers flown in quarterly “coming and going around them”.  A big selection is expensive for several reasons and the discounters are prompting the big boys to reduce their own.  Victoria says, “Tesco – even before the accounting scandal hit – had already decided to reduce its wine range by about 150 lines.” She draws a couple of conclusions of which the most telling is this, “I’m also predicting a polarisation in wine-buying patterns that mirrors the way we now shop for food: small local shops for specialities, supermarkets for plonk. For years I’ve claimed that it was impossible for small outfits to compete in the £6-£9 price range because they simply don’t have the efficiencies of scale. But so many supermarket bottles at this level are now so wine-by-the-yard-lowest-and-I-mean-really-low-common-denominator dull that this is no longer the case. I’m beginning to send friends on tight budgets to independent shops and they are reporting back that they are thrilled not just with the quality and the individuality of the wines but also the click-buy-door-to-door delivery service.” 

I couldn’t have put it better myself.

What with the dodgy buying tactics, the equally dishonest, spurious £9.99 £4.99 pricing wheezes and that opinion from experienced and neutral writers, surely the time has come to buy more from the independents and less from the nationals.  Questions will continue to be asked not only by the SFO but probably in parliament in due course; shouldn’t consumers be considering their purchasing more closely too?