Dawood Pervez: Wholesale needs supplier support to survive and thrive
While the financial forecast for 2023 appears to have been overtly pessimistic, wholesale still needs supplier support to survive and thrive, says FWD chair
We’re now several months into 2023 and the predictions of a post-Christmas recession are proving to be increasingly wide of the mark, in the wholesale sector at least. The expected crisis in consumer discretionary spend doesn’t appear to have dented the public’s enthusiasm for eating out, and daily images of empty shelves in supermarket aisles help to prompt shoppers towards ‘little and often,’ which favours local stores.
It has been an extraordinary 12 months; research commissioned by FWD and carried out by TWC shows that even by the summer of last year, wholesalers had seen on average an 89% increase in utility bills over the previous year, and a 38% increase in vehicle fuel costs. The survey reported an average 13% increase in the cost of doing business, with fuel and utilities representing nearly 10% of wholesalers’ costs. These figures are from before inflation reached its peak, and those costs continued to rise throughout the second half of the year.
As has been demonstrated time and time again in recent years, resilient wholesalers have the ability to dig deep and find ways to keep their offer competitive, and support customers who are facing the same inflationary pressure. Some FWD members on fixed-term energy contracts were able to avoid the worst impact. The Grocer’s Big 30 Wholesalers Report, published
in February, suggests that some protected their customers from those cost rises by temporarily sacrificing their own margin. It calculates that the average wholesaler profit margin fell to just 0.8%, half of what was reported a year earlier, and below the rule-of-thumb ‘penny in the pound’ that has always sustained wholesale distributors through both good times and bad.
Those customers need our help because they have their own mounting costs to bear, as do their customer base. It is alarming to see the Association of Convenience Stores’ estimate that 7,000 independent c-stores could be under threat of closure due to a quadruple increase in fuel costs after having to take out fixed-term contracts at the height of the crisis. That’s a potential 46,000 jobs on the line, and a devastating loss of service to the communities those shops support.
WHAT CAN WE DO?
Wholesalers are playing their part to ensure those stores prosper and that we retain the convenience, community focus and choice that comes from a diverse and competitive food retail market.
So what can we do to keep shoppers coming into the stores we supply? The FWD research tells us that 39% of shoppers are looking for more promotions, and also that they see price-marked packs as a key promotional offer in the independent channel. A significant 85% said PMPs demonstrate good value for money, which in turn ensures their loyalty. The report suggests that PMPs are just as good as supermarket club cards for attracting and retaining shoppers, which has to be of interest to suppliers deciding where to place their investments.
PMPs only work for suppliers if the margin is right for both wholesalers and retailers. Wholesalers reported that the shared margin had increased in 23% of cases, and stayed the same in 73%. It would be great to see those numbers swap around.
Of course, cost increases are only half the equation, and in some ways they are the easier to solve. Costs can be absorbed, mitigated against or passed on. Margin can be sacrificed, temporarily, to keep the wheels rolling. The one thing that brings the supply chain to a shuddering, catastrophic halt is lack of product because we can’t sell what we can’t buy. When you look at the slim margins that some FWD members are working on in order to support their customers, you can see how crucial a regular and reliable supply is to this channel. So as much as we need to work together to manage costs through the supply chain, it’s that fair and equitable allocation that needs our full attention as the UK navigates its way towards economic recovery.Dawood Pervez FWD FWD column PMPs retailers suppliers supply chain TWC