Retail News Newsletter - 10th May 2005

The subject of supermarket-supplier relationships has been dominating the business headlines this month. Suppliers, it is alleged, have been trying to put up prices beyond what is reasonable.

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By  David Ingham Published  May 9, 2005

It's good to talk|~||~||~|The subject of supermarket-supplier relationships has been dominating the business headlines this month, with Union Co-Op getting particularly annoyed at the prospect of suppliers trying to put up prices. Management at the Dubai-based co-operative has pledged to freeze shelf prices for the foreseeable future and has even threatened to delist suppliers that mention the words ‘raise’ and ‘prices’ in the same sentence. The background to all this is the UAE government’s recent decision to bump up public sector salaries, by 25% for nationals and 15% for non-nationals. Suppliers, it is alleged, have attempted to take advantage of this by putting up the prices they charge supermarkets for their products. It is not the purpose of this article to argue the rights and wrongs of the increase in government salaries. However, any rise of the level described above is going to pump an awful lot of money into the economy, and that inevitably leads to price inflation. Might it not therefore be reasonable for suppliers to ask supermarkets for a small increase in prices? Suppliers, remember, don’t exactly have it easy: The costs both of living and of doing business are shooting up. Business and residential rents have been rising by as much as 40% this year, high transport costs are making it more expensive to import products and worsening congestion is driving up suppliers’ logistics bills. At the same time, there is the increasingly demanding nature of supermarkets, which want constant promotions, generous credit terms and faster delivery times, whilst insisting on lower and lower prices from suppliers. On top of this is the constant competitive pressure to do more advertising and the need to pay supermarkets more and more money to get a decent place on the shelf. Even before the current argument over price rises, relations between suppliers and supermarkets were becoming strained. This latest dispute is yet another reminder that the two sides need to be in constant touch, communicating their challenges and points of view to the other. It may well be that suppliers need to put up prices simply to cover the rising cost of doing business. If that is the case, supermarkets should be prepared to listen and be accommodating if necessary: After all, without suppliers there would be no supermarkets. Only by talking and trying to understand the other’s needs can the two sides ultimately achieve their shared goals of making a profit and keeping customers happy.||**||

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