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How to tackle the powerful supermarkets

Published:  18 January, 2007

Supermarket power is putting serious financial strain on UK food suppliers.

Some of the following advice may sound obvious. It probably is, but it's also surprising how many businesses of all sizes get these basics wrong:

1) Suppliers should be clear of their USP's and of how they will make a profit.

2) They should regularly conduct a customer contribution (on a total relationship cost basis including retrospective contributions, expected product launch costs, serviceability penalties, etc.) and customer cash flow analyses to know exactly what each customer is contributing and to identify future profit and cash flow issues.

3) Cash is king. It's no good having a profit if it doesn't convert into cash without which your business will fail.

4) When pricing don't just do a marginal contribution analysis, also consider pricing relative to your business' total costs to ensure that overall your business will make a profit.

5) Know when to say NO, anyone can sell at a price below cost.

6) Select your customers. If there are some you would rather avoid - then avoid them.

7) Know all your key trade terms inside out - don't get caught out.

8) Control new product development - the only way to maintain margin. Over time older products will become commoditised and supermarkets will drive the price down. Ensure you keep innovating, be it on product, packaging or style, on a cost effective basis.

9) Manage your product range. Product proliferation will hit your bottom line. Back your best sellers.

10) Plan for the unexpected. In particular, don't just rely on one or two key customers nor just one or two key suppliers; spread the risk, always have a Plan B.

Duncan Swift is head of Grant Thornton's Food and Agribusiness Recovery Group