smallbusiness.co.uk: Helping your business think big

Whether it’s squeezing suppliers or pricing shops out of business, small businesses are fed-up with the bully-boy tactics of the big supermarkets.

Nigel Dowdney, owner of food retailer The Stalham Shopper, has witnessed first hand the decimation of his local high street in Norfolk at the hands of a large supermarket.

‘Tesco basically sucked the life out of the town,’ he says.

In 2002, Tesco opened its doors after a long battle with local businesses and residents, and Dowdney says that within a week, his turnover dropped by more than half, with many shops later closing down. As well as the independents, these also included the Co-op and Somerfield, which he had comfortably competed with for years.

‘The impact of Tesco devastated the high street footfall. We managed to survive by moving a lot of our stock between our two shops and by having a fighting fund in place. And when the other shops closed down, we got some of our turnover back. We’ve also been very proactive in our criticism, and that also seemed to pick up the anti-Tesco vote,’ he says.

But Dowdney is worried about the future of the high street in Stalham, as Tesco plans to expand its store even further.

‘The size is far too big for the town already. Instead of complementing the high street, they have dwarfed it. They just go for the biggest size they possibly can, and if they get turned down in their planning applications they go for the next biggest. They’re not bothered about the high street, all they are interested in is profits.’

Gill Grifffin, owner of school uniform shop Early Years has also been affected by the forceful tactics used by the supermarkets, and says over the last four to five, years they have begun to wage a price war.

‘I do believe that people should have a choice, but supermarkets are not making their prices fair. It seems that school uniforms in supermarkets are being sold as loss-leaders. They are not making a profit, it’s just something they are using as a way of getting more customers through the door.’  
 
Stephen Alambritis, chief spokesperson of the Federation of Small Businesses, agrees that supermarkets have a huge advantage because of the way they can leverage their products.

‘Below-cost pricing is illegal in France. I don’t see why that’s not something we could have here. There are a number of MPs who are trying to get supermarkets to put the cost of alcohol up, where they are selling it at a loss. But this should be something to campaign for on all products.’

However, it is not just retailers who are affected by aggressive pricing strategies. Duncan Swift, head of the food and agribusiness recovery group at Grant Thornton, says that supermarkets manage to keep their prices low at the expense of the supply chain.

He says: ‘I have seen a number of small businesses affected by unreasonable buyer behaviour on the part of the supermarkets. They often demand that contract terms be changed retrospectively and will cancel suppliers at short notice, or delist their items without warning. In some cases, these factors are a direct cause of business failures.’

Unwritten contract terms between supermarkets and suppliers are common, adds Swift. ‘It would be far easier to achieve a financial turnaround for companies in this sector if the key trade terms were known.

‘All too many businesses we deal with fall over the [supermarket] buyer’s whims, and don’t understand that a proportion of the products they will be supplying will actually be causing them a loss. For certain businesses, it would be better not to trade with them at all.’

Swift believes that the government has failed SMEs in this sector: ‘It seems there’s a reluctance on the part of the Office of Fair Trading to do anything. I’d like to see a supermarket ombudsman, but that is something which appears to be painfully slow to implement,’ he adds.

Shane Brennan, public affairs director of the Association of Convenience Stores agrees: ‘If SMEs are in a position where they are unable to compete, that’s bad news for the consumer because it means less choice. In a monopoly situation, supermarkets should be monitored – that’s why we need an ombudsman.’

A spokesperson from Tesco said: 'We depend on good and strong relationships with our suppliers, both large and small and we work hard to strike the right balance between getting the best possible price for consumers whilst ensuring that our supply base remains sustainable in the long term.

'We remain to be convinced of the case for a supermarket ombudsman, as they are usually there to protect consumers. It is also difficult to see what additional benefits an ombudsman would have over the Office of Fair Trading, which currently provides effective independent scrutiny of the industry.'
 

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