The announcement that discounter Lidl is expecting UK suppliers to meet the cost of any EU tariffs on products moving from the UK into Ireland as a consequence of a no-deal Brexit should act as a warning for FMCG suppliers to prepare for a new round of cost price negotiations with grocery retailers.
That’s the message from retail and FMCG specialist Bridgethorne which says that suppliers need to be ready now with a plan to value their products and to prepare to undertake negotiations rigorously when the time comes.
“If a no deal Brexit emerges, the financial pressure on suppliers from retailers is going to be significant. So suppliers need to get their arguments aligned now and know how they plan to defend their products in cost price negotiations,” explains Bridgethorne Joint managing director, Andrew Cole.
“Any discussion will ultimately be dictated by numbers and the retailers will hold the upper hand, because they control distribution and the channel to the shopper. However, that doesn’t mean suppliers cannot make tangible arguments in favour of their products by demonstrating clear category value. To do this, suppliers need to use market performance data and consequent insights to prepare to pre-empt major pressure on their margins and even potential delisting. We are advising our clients to conduct, in effect, proactive range reviews now to assess for themselves the nature of any threat over the next few months, to assess what they can do to mitigate those risks and how they can begin to protect their distribution.”
This demands not only a clear understanding of the numbers involved, not least from the retailer’s as well as their own perspective, argues Cole, but also an ability to demonstrate how the product can grow the category and guide the retailer and the supplier through any short term Brexit-related financial implication.
“Our advice is to be clear and thorough in conducting an insight-based assessment of the category in which your products function; set out clear category growth opportunities for both your own business and the retailer, and provide some quantified recommendations on range, distribution and space. This needs to be evidence-based and it needs to show that your products can continue to make a positive financial contribution to the retailer post Brexit.”
