Supermarkets can be a tarnished Holy Grail for food firms

Comment Gareth Downie

For smaller manufacturers, supplying to national supermarket chains is a Holy Grail that allows them to scale up to undreamt of heights.

It is also a relatively new phenomenon, since multiples previously were not particularly attracted by minnows who, it was felt, could not supply on the mass level necessary to fill shelves across the country.

But many supermarkets are now encouraging smaller enterprises, both to bring in freshness and variety to their stores and also to meet consumer demand for localism.

Getting into bed with the retail giants, however, can come at a price for young businesses and increasing numbers of enterprises in the sector are beginning to question if the game is worth the candle. Multiples in the UK are under increasing cost pressures.

This is nothing new, but it has been exacerbated by emergent discounters such as Lidl and Aldi, who look for products or brands which are performing well and then take them under their own label.

We have some personal experience of this at West Coast Foods.

Over a lengthy relationship, we grew an initial £50,000 contract into to a position where Aldi were spending £500,000 a year with us.

This ended when we refused to go down the white label route.

To accept white label, however, means that the smaller business has to give up full rights on matters such as how they produce, why they produce, how they source ingredients and so on.

These decisions then lie with the multiple, which puts them out to tender.

If the small enterprise declines the offer, it won’t take long for the multiple to seek out another more malleable supplier. There is the alternative model for smaller business to go direct to the consumer.

Small businesses which decide to take this road remain able to control their own destinies – as well as orders, processes, tracking and, in the case of food manufacturers, quality and provenance of ingredients. It cuts out the middle man, and gives their customers much more confidence in what they are buying.