The increasing number of online auctions for supermarket contracts “compromises” the retailers’ desire to get closer to the grower, suppliers have claimed.
A number of high profile citrus and salad contracts are up for tender online this month, with suppliers fighting it out for potentially lucrative deals.
But one large supplier told FPJ the phenomenon - which is still growing in produce and operates using an anonymous “eBay style” system - flies in the face of supermarket tactics and PR to gain closer links with growers.
He said: “It does compromise the retailers’ desire to get closer to the grower. How can you get closer to the grower when they say ‘you’d better bid or you do not get the business?’”
The major multiples are embroiled in a price war that has affected a number of key fresh produce commodities. Asda is running a two for £2 deal on bags of 2.5kg white potatoes, Tesco has numerous top-fruit and citrus deals as part of its Big Price Drop and Sainsbury’s is promoting lines across the fresh produce aisles at a £1 price point.
Steve Ellwood, chairman of European Food and Farming Partnerships (EFFP), told FPJ the practice has grown on commodity unbranded items including cheese, meat and fresh produce and is “going to squeeze the cash out of the system” and stifle innovation.
“From a consumer point of view they will benefit from potentially lower prices but there will be few nods to provenance or innovation,” he said. “The worrying thing is that retailers are trying to position themselves as low price in an attempt to increase sales and it’s a scary scenario if it does not work.”
One insider told FPJ: “A retailer will destroy a business by pushing so hard on price and then when it finally does go belly up, it will tell the suppliers which packer it wants them to supply through, or have an e-auction for that remaining business.”
Some multiples also run e-auctions on a more regular basis for smaller chunks of business. “Buyers keep playing games and e-auctions are just one of the games retailers play. They switch from one supplier to another and try to get them cutting each other’s throats, then they will maybe put an order for 5,000 trays up for e-auction and invite their regular suppliers each to bid for it in addition to their regular order and often add in a wildcard - a different supplier, just to test them out. They then all place their sealed bids and find out the next day if they have won the order or not. You have to fulfil their criteria - have the right balance on your books, be insured for £2 million or whatever it is. You have to remember the buyers just sit at their desks with no feelings for how many people they are crucifying.”
But Martin Hingley, professor of strategic marketing at Lincoln Business School, said that e-auctions will never become a primary source of business. “You cannot replace the extensive long-term relationships that retailers have with preferred suppliers... There’s not a huge turnover of suppliers; retailers tend to stick with their existing suppliers and suppliers have more power than tends to be admitted or realised.”
Hingley added that the reduced paperwork and transaction costs of supermarket contracts justified the risk of having a small customer base.
The British Retail Consortium said the use of online auctions for contracts is not widespread and the major supermarkets are looking to build “long-term, ongoing relationships”.
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