Tesco in supply base cull
Tesco is making drastic cuts to its wine supply base in what it says is a bid to improve producers' profitability and encourage brand owners to increase consumer loyalty.
The decision to reduce the number of suppliers follows an 18-month review by the retailer and has been prompted by increasingly difficult conditions which mean the wine market is now in decline.
The move is the second phase of its wine strategy analysis, which resulted in it introducing 150 new wines last year.
Claire Lorains, wine category manager at Tesco, said: “Last year the focus was on setting out how we sell wine in-store and online. This year we have taken a look at the supply base and supply chain and how best we can source them. The market is in decline and tax absorbs almost all the value.
“Customers say there are too many products on shelf and the main way to differentiate them becomes by price. A lot of wines don’t have a true consumer franchise, so they are not selling through, and therefore not delivering growth for suppliers who need to invest in their brand to drive customer awareness.
“The only way we can deliver growth in the market is by working with fewer suppliers to give better sales.”
Lorains said she had spent the past fortnight meeting the supermarket’s “top 70 suppliers” to outline “what they can expect their whole year with Tesco to look like”.
She confirmed the changes would not affect the amount of shelf space given to wine, adding: “We are really happy with our category review and with the space. Now we are working on what each individual wine does.
“I wanted to make sure suppliers had a face-to-face conversation with me, though every supplier has the opportunity to come to see me or BWS category manager Dan Jago, if they haven’t already. The feedback from suppliers has been ‘we thought you would have done this some time ago’.”
A leading branded and own-label supplier told OLN: “I think it’s the way forward. Half the problem is that there are too many suppliers and retailers are beginning to realise it. Foreign exchange is hideous, we’ve got another Budget and consumers aren’t in a good place.
“Tesco is waking up to the fact that the way it trades requires an easier supply chain and fewer suppliers who it can work with in bigger quantities. It is cutting back and trading with us aggressively, but it is taking a leading position.”
Another supplier, who has lost his listing, was equally pragmatic. He said: “It’s a logical commercial decision when you look at taxes and exchange rates. As a buyer, if I were going to delist, I’d opt to buy from the suppliers I could negotiate hardest with. We were a peripheral supplier and the way I view it is that we had the listing for a while, now it’s gone. But these things go in cycles, so it may well come back in the future.”
However, one agent warned it would exacerbate conditions for companies already feeling squeezed.
He said: “This will put a lot more pressure on suppliers and agents who are finding it a very difficult time. When you go to these wine shows and tastings there are too many sellers compared with those there to buy – it’s disproportionate. Tesco has made the commercial decision it thinks is right. But it will be tough for some agents – there are a lot just hanging on by their finger nails.”