Retailer delay tactics on cost price increases are crippling for smaller suppliers

As predicted, there is no sign of let-up on rising input costs and we are in anupward spiral of price hikes. Discounter and private-label shares are comingthrough as a result, and the major mults are pushing back on justifiablesupplier cost price increases (CPI) as best they can. Unable to turn the tide,the best tool retailers have in this situation is to simply slow the flow.

That means delay: delay through published 12-week lead times for CPI‘applications’, delay though laborious paperwork barriers, delay throughrequests for more unnecessary justification and delay through clunky ornon-existent communications.

It’s now been six months since it became urgent for prices to move, and that’swhen many smaller suppliers knocked on our door at Sentinel for help, havingfailed to get increases through. Yes, they will have made mistakes, usually inspecificity of the moves and resolve to implement, but it’s evident manysuppliers simply get caught up in the delays until it all grinds to a halt. Wehave guided desperate suppliers to implement CPI on four to eight-week leadtimes, but for many, the delay tactics are crippling.

Whilst it’s great to see the GCA has frowned on the fixed lead time retailerdemands, which I exposed in The Grocer in November last year, I don’t expect tosee a move to the Australian code where this delay is prevented through anamendment.

The aftermath of this inflation will bring a different issue, as retailers willdemand reductions when commodity prices decline. Even now we prep our clientsfor the pressure they will get to reverse their CPIs. Suppliers are forced togive so much ammunition to retailers on the way up, and they have to dodgetheir own bullets on the way down. The pain of getting CPIs through leads toreluctance in managing pricing down, with suppliers preferring to leave them asfuture-proofing.

Reducing cost prices to retailers is a muscle rarely exercised among suppliersand I don’t expect to see it used this year. In the mid-noughties, I advisedmany food suppliers to do just that when the market suggested more competitivepricing would boost volumes and profits. Retailers, of course, don’t insist on12-week notifications in that scenario, nor would they need justifications.Funny that.

Government policy always puts the consumer at the heart of such issues. If it’snot in the interest of the consumer then it just won’t happen. Clearlydeflation next year would be in the interest of consumers, and if the systemenabled rapid, accurate truth in food pricing on the way up, this wouldhappen.

The main barrier in pricing to market fluctuations is unjust delays byretailers. Let’s stamp it out.

Sentinel Management Consultants deliver sales, negotiation, planning and finance training courses for our clients worldwide.