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Working With Wal-Mart
May Not Be As Bad As You Think —
Tesco Could Be Tougher!

Jim Prevor’s Perishable Pundit, June 15, 2007

All our focus on changes in Wal-Mart’s buying practices has highlighted how unhappy many vendors are with Wal-Mart, to the point that they have strategic initiatives established to diversify their business away from Wal-Mart.

This, in fact, is what has made many U.S. vendors so excited about Tesco’s arrival in America, as it opens up the possibility of a new client that will be large, rapidly growing and financially responsible.

At the same time, U.S. produce vendors who have been selected by Tesco as suppliers report that they are already exasperated with the company. Several report having walked in on their boss and — only half jokingly — asked permission to give the Tesco account to their biggest competitor. The reason? The incessant demands of Tesco employees will bankrupt their competitors, especially considering that, so far, Tesco hasn’t spent a dime on produce.

Tesco’s method of selecting vendors has been mysterious. After wooing a British partner — Wild Rocket Foods — over to the US, they traveled around the country trying to get produce companies to invest millions with them. Most laughed. A deal was ultimately struck at unknown terms with Bonipak.

Other vendors reported receiving Fedex packages anointing them as vendors — complete with the opportunity to buy a ticket to a vendor meeting.

Yet other perfectly reputable producers are irate. They report calling the U.K., leaving many messages and no one even giving them the courtesy of a response. Reputable people call the receptionist at the Tesco US headquarters, and she is very nice, offers to accept literature etc., but she won’t tell perfectly reputable people the name of a person to contact. Not surprisingly, many are disgusted with the company.

Perhaps Tesco doesn’t care; it assumes that in the end it will get the suppliers it needs. But in the U.K., a whole industry has sprung up with web sites like Tescopoly: An Alliance of organizations concerned with the negative impacts of supermarket power. They focus on getting the government involved in getting a better deal for farmers:

Farmers have to bear the burden of unfair trading practices imposed by supermarkets.

In 2001, Tony Blair claimed that British supermarkets had farmers in an ‘armlock’. Supermarkets control nearly 80% of the British grocery market and as the most powerful players along most food supply chains are able to dictate terms, conditions and prices to suppliers. If suppliers complain, supermarkets can simply move their business elsewhere, and their dominance of the food retail sector is such that there may simply be no one else for farmers to sell their produce to.

In 2000, the UK Competition Commission (CC) reported on many of the supermarkets’ unfair practices, which were considered anti-competitive. It found 52 kinds of abusive trading practicies (See the CC report). The response by the Office of Fair Trading (OFT) was to introduce a voluntary code of practice, to be entered into by the large four supermarkets. Many of the 12 original provisions recommended by the Competition Commission were weakened. A later review by the OFT revealed that many practices identified in 2000 were still occurring, and a survey of farmers conducted by Friends of the Earth in 2003 showed that many farmers were ‘being asked to pay a rebate on an agreed price, waiting over 30 days for an invoice to be paid, incurring additional transport or packaging costs due to changes in supermarket specifications and meeting the costs of unsold or wasted products where quality of the product was not an issue’.

Actually, despite the half-hearted complaints from people already doing business with them and the whole-hearted complaints from people who are left in the cold, Tesco is being unusually cooperative. Here in the US, they are choosing most suppliers without asking who else they sell. In fact, since they want top producers, they actually favor vendors who supply leading retailers.

Yet this is almost certainly just a question of scale. In the U.K., if you sell Tesco, you probably are not selling its competitors. Tesco wouldn’t stand for it. One wonders how understanding they will be of US vendors selling to — say — Wal-Mart once they have the scale to start making those types of demands.

Vendors may yet yearn to deal again with Wal-Mart.

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