The Federation of Wholesale Distributors was invited to attend at the Competition Commission in London in early September. This important meeting was held to enable the FWD to provide evidence to the CC in pursuance of its on-going inquiry into the UK grocery market.
During a good session lasting more than two hours, a high-level team from across the industry focused on the key areas of concern that wholesalers face in today’s marketplace. My colleagues at the hearing were Peter Blakemore, MD of AF Blakemore Son and chairman of Spar, Rodney Hunt, MD of The Today’s Group, Steve Parfett, MD of Parfetts and chairman of Landmark, Younus Sheikh, MD of Bestway and Booker chief executive Charles Wilson.
Key points were made in response to searching questions from an eight-strong CC team led by John Kirkpatrick, the inquiry director.
Some of the critical matters we discussed included: The differentials between what multiples pay manufacturers and what FWD members pay has increased since the last inquiry in 2000. Wholesalers believe this is greater than the 11% differential quoted in CC’s 2000 report and is now somewhere between 15% and 20%.
The CC was also told that multiple supermarkets have focused strategically on products that are very important to independent retailers, such as alcohol, confectionery and DVDs. However, they are not competing with each other in the same aggressive manner.
In considering buying, we told the CC, that this is not a like-for-like process. We pointed out that FWD members are buying as distributors, whereas the multiples are buying as retailers. Thus, wholesalers provide a route to market but do not determine which products are on the shelves. Therefore they do not have the delisting power that the supermarkets are able to exert.
We also contended that if wholesalers were able to buy at multiple prices, the consumer would get a better deal than they do today because the multiples are earning much higher gross margins than independents.
Equally, if the buying price differential was removed this would remove a major barrier to entry into the grocery market and there would be new competition for the multiples. We said this would stimulate innovation, because there is a huge amount of entrepreneurial talent among this country’s independent retailers.