Exclusive: Wholesalers strive to build loyalty as retailers hunt for better-margins

As most grocery wholesalers turn to promo weeks and price-locks to build loyalty, independent retailers are “shopping around more” to hunt for best-margin products to keep their businesses sustainable amid cost-of-living crisis.

The year-long inflation in the UK, along with rising costs and utility bills, is now seeping into the supply chain of grocery business on every level.

Today, independent retailers have plenty of things keeping them awake at night, most noticeably is the impact of cost-of-living crisis on their shoppers (87 per cent are worried about this), the rising cost of running their store (80 per cent) and the margins they make on the products (67 per cent), according to a recent survey by TWC.

TWC’s recent research based on 200 independent retailers highlighted that more than one in five are “shopping around more” to get better deals, a broader range, and in some cases to find stock, Sarah Coleman, Director of Communication at TWC, told Asian Trader.

Shift in retailers’ buying behaviour was further highlighted in another recently-released report namely Lumina Intelligence Wholesale Market. It states that “19 per cent of independents retailers is visiting their depot or cash and carry more frequently to avoid paying for delivery”. Main shop mission has become more popular among retailers, states the report.

Food and convenience retail industry guru Scott Annan shines light on these findings when he says that change in a retailer’s buying behaviour depends on his size.

"Quartile one (Q1) retailers (such as David’s Kitchen, Jempson’s, Warner’s Supermarkets) do not procure from Cash and Carry depots. Q1 supply chain deliveries remain strong as they have negotiated best COGS and terms. Store sales are heavy on proprietary foodservice which provides store margin and that all important consumer value proposition,” says Annan.

It is the "Q2 to Q4 retailers” who are buying lesser, more frequently and going for own-label grocery items, he told Asian Trader.

Parfetts’ trading director Gurms Athwal too expressed similar thoughts. He told Asian Trader that the wholesaler expects to see “retailers shop around even more than ever” as inflation touches record figures.

Anticipating a whole host of changes, Kathryn Hague, Marketing Manager at Hancocks, also stated that retailers are now “even more deal and value conscious”.

They are potentially “buying less volume of stock” to ensure cash flow and shopping more frequently looking for end value for their customers, she told Asian Trader.

Game of Margins

To keep their business sustainable, retailers are adapting and adjusting to the needs to the time. Some are also sticking to their current suppliers but are definitely tweaking the product line to squeeze out more.

Retailer Imtiyaz Mamode of Premier store in Gosport, Hampshire told Asian Trader that his buying pattern is more or less the same- five deliveries per week, three from Booker and two from Londis. The only change he pointed out he has been buying lesser cigarettes and more disposable vapes- both due to consumer demand and “far-better margins”.

Asian Trader award-winning retailer Pete Patel, who runs five Costcutter stores in addition to a Bargain Booze outlet, expressed similar thoughts. He told Asian Trader that there have been no major changes in his buying pattern except that he now procures more lines of own-label goods- both due to better margins and demand from consumers looking for cheaper alternatives.

Own-label goods are increasingly proving to be a win-win solution for everyone- wholesalers, retailers as well as shoppers.

In fact, Parfetts’ own-label range, ‘Go-Local,’ is growing faster than branded ranges, and the same is expected to continue in early 2023.

“We are supporting this growth by targeting classic store cupboard ranges for own-label NPD to provide retailers with a higher margin alternative to the brands and consumers with a high-quality product at a value price,” said Athwal from Parfetts.

Parfetts’ trading director Gurms Athwal

Parfetts is also calling on brands to offer more margins on price marked pack (PMPs).

“Parfetts is also working closely with our partners at UNITAS to drive the message to branded suppliers that they need to offer retailers more margin on their PMPs,” he told Asian Trader.

Coleman from TWC also feels that fairly priced PMPs that provide sufficient margin to all parties, is need of the hour as almost 60 per cent of shoppers prefer them.

Discounts and offers

On the wholesalers’ side, increased cost, higher energy bills and fluctuating availability are posing as a challenge.

To drive footfall and build loyalty among retailers, wholesalers are seen running initiatives like promo weeks, special discounts and price-lock schemes

Parfetts is one such wholesaler that organized multiple “week of deals” in 2022.

Parfest 2022was undertaken in July to highlight the best of cash and carry and convenience, built around better deals on over 600 lines. It delivered a record week of sales of over £14million.

Another of its tradeshow, which ran from Nov 20 to Dec 18, was organized to help retailers maximise margins during FIFA World Cup which was predicted to bring-in record sales of beers, wines and spirits through local shops.

Athwal from Parfetts told Asian Trader how such initiatives proved to be a good decision as it brought an influx of retailers.

“In recent months, we have seen new records set by our promotions, such as Parfest, and it’s indicative of wider trends where retailers are buying promotions at a greater level and shopping smaller and more regularly to ensure that their cash flow is maximised,” he said.

On similar lines, Booker announced that it will lock prices on popular products such as premium frozen chips from 5 October until 3 January.

Hancocks, a wholesaler for bulk confectionery, is also planning a similar initiative.

“We are really excited to be launching a brand-new promotional offer at the end of January which we believe will be the key for bulk discount, range and choice – details will be shared in the next few weeks,” Hague told Asian Trader.

Price-cuts and promo weeks may seem to be popular. However, they may not be the best of solutions as such discounts are now cutting into wholesalers’ books as well.

United Wholesale Grocers recently reported an increase in its turnover for the 2021 fiscal, but the business has seen a decline in its profits owing to price cuts and promotions. Its turnover saw a modest increase of 2.45 per cent but the gross profit declined by 11.7 per cent.

Retail expert Annan too feels that such discounts and offers are not the solution.

“This will be short-term for most as its unaffordable and it often pairs with retailers reducing prices and store margin. This can only end in basic survival or likely failure,” warned Annan.

Further Rise

Grocery price inflation in the UK currently stands at 14.4 per cent, down slightly from 14.6 per cent in November. Despite the marginal slip of second month in a row, it is still a painfully high figure at the current rate.

Federation of Wholesaler Distributors (FWD) forecasts further rise in prices.

“We expect the rate of inflation to drop but prices will continue to rise,” James Bielby, FWD President, told Asian Trader.

Bielby stated that wholesalers have seen their energy bills increase by up to “400 per cent” over the last year and while they have had some help from the government’s Energy Bill Relief Scheme, it may come to an end in March.

“We’re working very hard to ensure there is further support for wholesalers after that date, because without it we are likely to see further price increases being passed through to retailers,” Bielby said.

iStock imageWholesale online ordering soared during the pandemic and has largely been retained due to its convenience and timesaving benefits. TWC recommends wholesalers to continue offering reliable and trusted online services as once converted retailers tend to buy a large proportion of their stock this way.

Data can also be the key. TWC is set to come up with SmartView Retail, that will allow users to seamlessly track performance through the supply chain, enabling the most progressive operators to educate their retailers on what is driving performance in their stores. The imminent launch of TWC’s SmartView Convenience will allow operators to understand the true ‘top sellers’ and gaps in product range.

Annan feels that it is time that independent retailers turn to local relevant products and thereby build a unique image.

“I have believed ‘forever’ that convenience retailers should offer locally relevant, proprietary foodservice to build a unique value proposition and deliver profitable margins.

“Our symbol wholesale friends and trade associations should have retail foodservice as a top three ‘member survival strategy,” Annan said, warning that political lobbying and “monthly chocolate, crisps and pop promotions” are not fit for purpose for retailers against today’s threats.