UpClear Awarded Five Best-in-Class Category Distinctions by POI
UpClear has been awarded five “Best-in-Class” category distinctions by the Prom...
The Tesco and Carrefour ‘strategic alliance’ is apparently positioned to make “the most of [their] collective product expertise and sourcing capability” but is essentially two of the world’s biggest retailers pooling their buying power to secure ‘better’ prices with suppliers, both local and global. This news comes weeks after Asda, the UK arm of Walmart, announced it was merging with J Sainsbury’s. This, in turn, followed the Tesco agreement in January to buy Booker, the UK’s largest wholesaler.
For the retailers, these tie-ups make perfect sense. Globally, Tesco and Carrefour are not direct competitors as their estates have little market overlap, but they will consolidate own-label offerings and deal jointly with branded suppliers. Tesco particularly will have one eye on Brexit. Tesco’s previous move into wholesale further blurs RTM channel boundaries, while strengthening their buying power, against which in part the Asda and Sainsbury’s merger is meant to balance. Underlying all this in the UK is the growing strength of the discounters Aldi and Lidl, plus the ever-looming threat of Amazon.
For manufacturers and distributors, though, these announcements present potentially huge risks as former competitors open their books to each other, comparing prices, historical levels of trade spend, and investment. Customers that were rivals will begin to cherry-pick terms, by SKU, from each rate card for the future, but also possibly claim historical differences retrospectively.
Suppliers who have not made ‘price’ a priority will be at the greatest risk, particularly those that do not have a “defensible pricing” framework, i.e. a clear, structured, and documented explanation of why one customer is invoiced a different amount to another. For example, calling the discount between the ‘list price’ and the ‘invoice’ amount “Unconditional” is not enough. Rather, suppliers need a comprehensive strategy and pack price ladder that captures all areas of value leakage, including long-term rebates, annual terms, COGs, etc. right down the P&L based on tools, insights, and conditionality.
Codifying these differences between customers not only enables profitability insights, but creates a defensible pricing policy to explain between retailers why Asda is invoiced ‘X’ and Sainsbury’s ‘Y’, or as with Tesco and Booker, across channels. Then, with the increasing consolidation of multi-national customers, as unlikely as it appears, it will help justify why a wholesaler in Kansas or retailer in Montana are being invoiced differently from customers in Kosovo or Malaysia. This is critical for global brands.
Building this “defensibility” is not simple but the consequences for not doing so are potentially extremely costly. Carrefour’s revenue last year was £78bn, with Tesco turning over £57bn. That is a lot of buying power to come asking why one is being charged less than the other. Without a defensible pricing framework, the question may possibly be followed by a very large ‘balancing’ invoice.
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