It’s Time – Katherine Rich

"It’s been a tumultuous year for grocery suppliers, and that’s not just because of the curveball thrown by COVID-19. The supply chain somehow miraculously flexed to deal with the extreme surges in consumer demand brought about by decisions made pre-lockdown to close all grocery retailers other than supermarkets and convenience stores.

The impact on Food & Grocery Council members has been mixed, but for once, for those who face a lack of diversity in terms of retail customers, supplying only supermarkets was good luck. Unfortunately, those companies exposed to food service, tourism, and hospitality faced big drops in sales that weren’t always made up by increased demand elsewhere.

An additional pressure during all the coronavirus brought was the rollout out of Foodstuffs North Island’s buying model, Project Leaf, which aims to be a “customer driven” and “data driven” approach for New Worlds and Four Squares.

While big suppliers approached FSNI’s demands like any other negotiation, for many small-to-medium-size suppliers there was little opportunity for discussion. Some reported being sent the documents and being told it was simply a matter of sign or don’t sign. Failure to sign risked viability for many. As one member told me, “I had no choice but to sign. I couldn’t risk the business”.

Most contracts signed in good faith on the promise of the plan for a superior approach to retailing were one-sided, requiring suppliers to do more and pay more. While discussions about the new model were positive, upbeat, and promised a better and smarter way of managing displays, most contracts did not lay out clear responsibilities, accountabilities, or penalties for non-delivery for the retailer or stores.

To date, some suppliers have embraced the new way, but others are reporting they’re paying more and enjoying fewer displays. Despite the new model being about getting efficiencies for stores and encouraging them to work more as a team, getting stores to execute the same thing at the same time can still be hit or miss. The new system for allocating displays is surprising some suppliers too, with store allocations that don’t seem to make any sense, even with data.

FGC has already expressed concern about the potential for double-dipping – that is, paying head office for displays and facing additional demands instore, but FSNI has confirmed this has not happened and will not. If demands are made at store for services intended to be covered by Leaf, suppliers can be confident of reminding stores this is unacceptable. If this doesn’t work, it’s important to inform FSNI head office and also FGC.

The same goes for demands outside the limited number of arrangements for seasonal displays and seasonal co-op. FGC has had confirmed this exclusion relates to arrangements made before Leaf came into effect, and doesn’t relate to seasonal arrangements going forward, which will fall under Leaf payments.

It will come as no surprise FGC is suggesting member companies keep a watchful eye on all additional demands at store level during the next few months so expectations about what isn’t covered by Leaf do not morph into a longer list of claims or demands, such as members experienced with the rollout of the Minor Damage Allowance.

From here, there are high expectations about what Leaf will deliver for suppliers’ investments, so the rest of this year remains critical to proving the success of the model to ensure continued support – otherwise limited trade spend will gravitate to activities with a calculable return from guaranteed execution.

With all these changes being made to ensure New Worlds and Four Squares are more “customer driven”, many suppliers have been perplexed by the latest FSNI procurement project to reduce the number of brands in the oils, fats, noodles and pasta categories, while in many cases doubling the trading margin expected. This could leave customers with only two or three non-home brands to choose from. Some smaller New Zealand-owned suppliers tell me this will potentially devastate them.

This isn’t the first category for the chop, with the frozen berries review resulting in the deletion from New Worlds of the No. 1 in the category, Orchard Gold, thereby gifting Countdown stores an exclusive range by default. I’m told Countdown couldn’t believe their luck and promptly dedicated more facings to the product.

The tender process is another set of demands from suppliers, with expected minimum trading margins up to 38% - double the margin for products today. On top of the pressures this year for many companies, this project lays bare some of the unrealistic expectations on manufacturers and suppliers that could be set only in a country with the highest market concentration in the world, and allows such demonstrations of immense buyer power. This could be the straw that broke the camel’s back.

In this column in September, I posed the question about whether it’s time to introduce a Grocery Code of Conduct in New Zealand. I think it is, and one similar to that in Australia which has set strict ground rules. I also think it’s time for a market study, and I think it’s time to pass Minister Faafoi’s bill, which is before Parliament, to introduce unconscionable conduct provisions. It’s time."