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The OFT’s recent referral of all grocery bids for Safeway to the Competition Commission not only demonstrates why politicians should leave shops to shopkeepers but also effectively sounds the death-knell for Safeway…. A five-month delay in allowing bids from the major players will subject Safeway to a price-based onslaught from the competition aimed at driving down its market value. Coupled with this will be a further lowering of morale, a loss of good people, followed by the customers….

Meanwhile, the field is now open to a possible takeover by an entrepreneurial retailer with no grocery experience, and for whom the big issue will be pitching a price that is low enough to secure the deal, but not so low that it attracts a bid from a non-retail takeover specialist. Either way, the new owner will find it difficult to compete effectively in the current UK grocery environment, leading to increasing pressure to re-sell the business before the loss of share becomes terminal.

Monopolies legislation will then prevent a solus-sale to a grocery player, resulting in break-up and sale in a way that will attempt to maintain existing competitive balance in the market. This effectively means a series of deals based upon offering a 20% share of the estate to each of 4 players, and retaining a 20% ‘tail’ to stay in the game (luckily, the Government study of grocery competition at postcode level will help to simplify the selection of stores and facilitate the disposal process!).

Because of the degree of unprecedented change in the market this year, coupled with military uncertainties overseas, it is tempting for suppliers to ‘wait and see’ rather than anticipate the inevitable and take appropriate action, now. For suppliers, this means further concentration of trade power, more financial demands to help fund store acquisitions and requests for help in dealing with competitive pressure from other retailers. This will obviously affect the routes to consumer and will require appropriate adjustments in channel strategy, and reclassification of customers in terms of invest, maintain and divest.

It is hopefully obvious that Safeway needs to be sidelined in the process. Short-term this means that all requests for upfront monies should be refused, support minimised and where existing contractual obligations exist, full compliance should be a key condition. However, dealing with the new customer-mix will be the real challenge, with trade funds as the primary medium of exchange. The Ahold issue will challenge the rationale/validity/ transparency/defensibility of all upfront monies and trade inducements over the coming months. The growing political sensitivity of the issue, coupled with the increased risk of yielding to trade power, makes it imperative that suppliers now attempt to switch the focus to payment by results.

Essentially, this means working out what trade intervention does for the brand within a realistic category context, and developing a remuneration strategy with key trade partners which recognises the value added in the demand-supply chain, from green fields to the hand of the consumer. However, if this new concentration represents an unacceptable increase in risk, then the development of convenience, wholesale, and alternative channels may provide a possible means of diluting trade power…

Alternatively, why not practice bending over backwards in readiness for the next Government attempt to simplify the issues by lowering the bar…

By Brian Moore, Global retail consultant and CEO EMR-NAMNEWS, mailbox@namnews.com

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Date article published: 25/03/2003

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