Posted on Sunday 16 October 2011 by Ulster Business
Stories about the relationships between supermarkets and their suppliers are often not very positive ones.
They tend to focus on the big multiple retailers driving down prices and squeezing hard- pressed producers and processors.
But the companies that make up Northern Ireland’s successful food and drink sector are increasingly finding a route on to the shelves of Tesco, Sainsbury’s and Asda stores in the province. Some have even managed to get national supplier status and used their relationships with the multiples as a springboard to deals with other retailers in the UK and abroad.
That played a big part in the 8.3% increase in the turnover of the Northen Ireland food sector last year to a healthy £3.7bn.
While there will always be a tension between buyer and supplier when it comes to price, and many products will always be sourced from centralised locations in Great Britain, it seems clear that all of the major retailers see major benefits in using local suppliers where possible.
At its recent Taste Northern Ireland event Tesco said it had increased the value of products it sources locally to £522m from £50m in 1996, with 100 local lines introduced since the start of the year.
Sainsbury’s says currently around £250m worth of products sold in Sainsbury’s stores across the business are from here, with approximately £40m sold in Northern Ireland stores.
Asda says it invested over £60m in “island of Ireland” products in 2010 so that 20% of all food in its Northern Ireland stores is sourced from Northern Ireland and Republic of Ireland food companies.
Here we ask all three for their reasons for supporting local businesses and the challenges that come with doing so.
Michael McCallion, head of local sourcing for Asda NI & Scotland says the obvious reason for sourcing locally is because it makes business sense to do so.
“The main reason for us for buying locally is because customers want it,” he explains. “The big local brands like Tayto crisps and Club Orange, you couldn’t operate a shop without having those sorts of local offerings in there. Then, from an agricultural point of view, it makes good sense to get fresh bread, vegetables and fresh meat, never mind from a supply chain perspective.”
As well as stocking Ulster’s best known brands, all of ASDA’s meat, produce and dairy comes from local businesses. The company also has a number of small suppliers, such as a popcorn supplier from Glengormley and a sandwich supplier in Newtownards.
Some of its suppliers – for example Irwin’s Bakery and ABP meat – have supplied ASDA since before it came to Northern Ireland. Iriwn’s has just launched its Irish Batch bread into 150 shops in Great Britain, while companies such as Mash Direct also now have lines stocked in other UK stores.
“There are some very efficient businesses over here, the likes of Dale Farm, Irwin’s Bakery, Tayto Crisps – they are no less efficient than other businesses across the water so I don’t necessarily think that buying local means paying more. Asda brand milk is produced by Dale Farm and it is not any more expensive than ASDA brand milk in England,” says McCallion.
“When you come to some of the smaller, niche products, those smaller suppliers have to have in mind where they are in the supermarket – whether they are aiming at Extra Special, ASDA brand or smart priced. You have to define which tier you want to be in. If your product goes in as Extra Special it has to be of really good quality.”
Decisions on using a local supplier are made initially on whether there is customer demand for the product, followed up by accreditation visits to make sure it is safe and legal and meets quality standards. It also evaluates whether the supplier has the capability and attitude to do business with it, assessing how they could cope with issues such as increases in volume.
“The biggest challenge is around new products,” he says. “Customers like to see new products in store. A lot of sales are people wanting to try and buy new products, so we refresh our ranges constantly within the stores. The challenge for us is looking for new and innovative local products. People like Mash Direct who are making cooking very easy for people have showed innovation.
“There is always demand for new innovation. There is no point coming in with another jar of pickles or pot of jam, it has to have a unique selling point. It has to have that USP if you are really going to drive your sales.”
And as to the big question of whether ASDA’s suppliers get a good deal McCallion describes it as a balancing act.
“It is our job as buyers to be tough,” he says. “For Asda we want to give our customers low prices every day, that’s our strapline. As buyers we are challenged constantly to keep the retail prices down. But I think in the climate we are in, while it is important to keep prices down for our customers, we need our suppliers to stay in business. So it is more about collaboration. We understand the commodity markets and we know from the bigger suppliers what the markets are doing, so if a small supplier comes in and says he is struggling with prices we will listen to him, but we just move prices at every supplier’s request. It will always be challenging I think.”
Cliff Kells, Commercial Manager of Tesco in Northern Ireland says it is also important for Tesco to support local suppliers and processors from a business perspective, describing it as a “happy marriage” that helps keep customers happy.
“We know that customers want local food, but there is a competitive challenge because they don’t want it at any cost. They expect local food to be competitive as well. But there is no question that they want it. So in many of our fresh product areas, particularly because we’re in an agri-food economy, it is very important for us to have NI products,” he said.
That includes milk from Dale Farm, meats from Foyle Meats, eggs from Skea Eggs and much more. Kells says it is both a “natural and right” business decision to support them, but not to the point of skewing the market.
“Customers don’t necessarily want to pay more. I don’t actually think in the vast majority of cases it helps anyone in the long run, because you would effectively be saying to the local supplier we’ll subsidise you in relation to the other products out there. That might be good to get the product on the shelf but actually it is creating a false message,” he explains.
“In the end Northern Ireland needs to be a food exporting country, so if we’re not competitive enough to fight the battle here in Northern Ireland with products coming in, how can we possibly be competitive enough to take it out to the UK and Europe. That drive for competitiveness is important. I know it is easy for me to say that, but I think it is an honest relationship we have with our suppliers,” he adds.
“It is tough at times, and particularly tough when there are a combination of factors at play, but it is best to try and stick to that principle… to be in there in the store and in the game on the same basis as every other supplier. Then you know you are on the shelves by right, by merit and that is a powerful thing to help you take it outside (Northern Ireland).”
Kells says he is encouraged by the improving number of Northern Irish suppliers stocked by Tesco around the UK, but thinks there is a long way to go.
“There is a huge opportunity because we’re only really still scratching at the surface of what’s possible. I think out suppliers do a wonderful job with products and we do a good job of getting those products on sale at our stores at home. Across the water there is a lot of opportunity – but of course you are in competition so it has to be good enough to get on the board,” he said.
“I always knew we had good products but a few years ago I wasn’t sure we had any really great products. I think we now have some really great products and if we can get a lot more and take it forward with that Northern Ireland combination of good sense, practical ability and ambition – maybe that’s the bit we need to harness more of – then I am very optimistic.”
Nigel Macaulay, Regional Operations Manager for Sainsbury’s Northern Ireland, similarly says it sources produce locally mainly because it is important to the company’s customers.
All of its fresh beef and lamb is sourced locally in Northern Ireland while a large proportion of its fresh pork, milk, eggs and dairy are also sourced here. It also works with fruit and vegetable suppliers, other dairy, ready meals and alcohol producers, while several of its local suppliers also supply Sainsbury’s own brand products – among them Fivemiletown Creamery.
He says that despite the downturn it is clear local food is still important to people.
“People are switching and saving, buying basics own brand vegetables alongside items that might be more premium such as a cut of local beef. People do want to save money but they still want to support the local economy and be able to trace their food back to a local farm or producer,” he notes.
“As we are very conscious of the demands on our shoppers’ budget we work with our suppliers to ensure local produce is as cost effective as possible so customers shouldn’t really be paying more buying local. There is, however, evidence to suggest that shoppers would be prepared to pay a little more for certain locally sourced items.”
Macaulay says Sainsbury’s works with its suppliers to ensure that their operation is as cost effective as possible. For example its local milk suppliers are part of Sainsbury’s Dairy Development Group (SDDG), who’s role it is to support the farm through training, IT, and on the ground assistance.
The firm’s buying criteria priortises quality products for which there is demand and which can be bought and sold to consumers for a fair price.
“The biggest issue is supply and demand,” he adds. “We need to ensure that if we list a product the supplier has the ability to meet the demand. As an example this is the situation we currently face in Northern Ireland with regard to a fresh fish supplier. We would love to source a local fish supplier who can meet our demand but equally we need to address what might happen if demand does not meet expectation.
“There are many other challenges including branding and development. For example a jam or chutney maker who is producing fabulous food in their kitchen and hand writing the ingredients on a label is not a format which is going to be suitable for the mass market.”
Like his counterparts at rival retailers, Macaulay is confident that Sainsbury’s local suppliers are treated fairly.
“We have seen a number of local businesses significantly grow their operation because of contracts won from Sainsbury’s right across the business including Doherty & Gray Meats, Fivemiletown Creameries and Mash Direct,” he said. “It is in our interest to ensure our suppliers here get a good deal but equally we are a business so we have a strict set of criteria which suppliers must continue to meet.”
By Kevin McManus, Sales Manager
Our relationships with all retailers are crucial for our business. They are enabling us to expand our reach and overall presence particularly in markets such as Great Britain and the Republic that we’ve targeted for faster growth.
Back in 2005, we embarked on a strategy to add value to our products. We were then trading mainly in bulk cheddar and, whilst the speciality cheeses were developed, a strategy had to be formulated on how we could market these.
We pinpointed markets where could we position ourselves for growth.
We then approached targeted retailers and began to build relationships by listening and understanding their businesses. More importantly we set out to understand the needs of their customers.
The brand and the quality products we developed were of a standard that led them to give us an opportunity. This proved extremely successful. We continue to talk to them regularly especially about new products and have developed cheeses that meet their specific requirements.
We were confident that we had solid foundations upon which to build. Our heritage as a farmers’ co-operative was a strong point. This gave us a key selling point with the supermarkets – the provenance of our cheese from milk from our own farmers.
We were also able to show them that our incredibly low staff turnover meant that we offered exceptional product knowledge, which underpinned our consistent quality. We knew we had all the right ingredients; it was simply a case of developing a vision and an attractive brand, marketing support materials and merchandising which would encapsulate these.
Listings with our retail partners help support our local farming community. They also support the wider rural community in terms of local expenditure on salaries, wages, for services and supplies, and in employment opportunities.
Our branded business within the last 12 months is showing strong growth. We have also ventured into Private Label products for retailers, which has also been successful.
More volume from retailers equals higher throughput and thus helps to create employment. More throughput of cheese equals a higher demand for locally sourced milk, which, in turn, supports our farmers.
Do we get a good deal from our retail partners? Yes. However, the current economic climate presents challenges. Margins are under constant pressure. Rising input costs place significant strain on end prices, and at the other end, consumers are trading down and seeking greater value for money.
The challenge for us is that we will never compromise on quality. Milk cost, which is 90% of our costs, is rising and thus needs to be reflected.
However, we find the retailers immensely supportive. They provide us an extensive platform on which to sell our products.