2022’s Big 30: the inflation battle facing Britain’s biggest wholesalers
Wholesalers have battled the challenges of Covid and Brexit with aplomb. But they now find themselves in the eye of another storm with rampant inflation… and patchy availability
Let’s start with the positives: the doomsday scenario that the pandemic would kill off scores of wholesale businesses has not materialised. It is a testament to the resilience of the sector that despite a Federation of Wholesale Distributors survey in May 2020 finding over half of British wholesalers feared they would not last the year without significant government help, none of its members have since collapsed. That is particularly impressive considering much of the hard-won support funding from government to wholesalers in England is only just beginning to come through now.
That is not to say everything in the wholesale garden is rosy – far from it. While those serving the convenience grocery sector have enjoyed strong sales in the past two years, as our Big 30 ranking shows, the sector made a loss (albeit without Booker’s numbers), with foodservice specialists suffering huge sales declines after numerous lockdowns and hospitality restrictions, with Brakes in particular slumping to a £235m loss. Even those focused on grocery have not been without troubles, as soaring sales were undermined by pandemic-related costs and the supply chain chaos of 2021.
We now appear to be emerging from the worst of the pandemic and moving to a stage where we learn to live with the virus. As such, shopper behaviour is returning to 2019 patterns with hospitality demand rising again after its Omicron-shaped blip in Christmas trading. Yet unfortunately, this does not mean the sector’s troubles are over and 2022 is shaping up to be as tough a year as any. The reason? Simply put, it is down to rising costs.
The problem is not exclusive to wholesale, but operators this year are facing unprecedented inflationary pressures. These include rising food prices, soaring fuel and energy bills, and wage increases across the board, on top of hikes to the national living wage and National Insurance. Even the amount wholesalers are being billed for their customers’ credit card transactions has doubled in the past year, according to Bestway. Ally this with the expected return of availability and supply chain problems from Easter onwards and it’s easy to see why FWD CEO James Bielby claims we are in “the calm before the storm”.
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Booker remains on top
Delivery levies
The breeze certainly appears to be stiffening already. Since the new year, Booker and Nisa have already imposed levies on deliveries to symbol retailers in response to their rising costs. The moves have sparked anger among retailers and are a clear illustration of the challenges faced by wholesalers in terms of managing these inflationary pressures. Reacting to the Booker delivery charges, Premier retailers told The Grocer they were considering removing price-marked packs (PMPs) or offering fewer promotions in order to mitigate the squeeze on their margins.
Booker admits inflation is its biggest challenge this year. “As cost pressure increases in some areas of the supply chain, it’s our job to mitigate as much of this pressure as possible, and ensure that our customers can find great value,” says Booker CEO Andrew Yaxley.
“As cost pressure increases in some areas of the supply chain, it’s our job to mitigate as much of it as possible”
It seems inevitable that other delivered wholesalers will follow suit, but Bestway Wholesale MD Dawood Pervez for one says it has no plans to impose extra delivery fees, though it does not rule out the tactic entirely. Instead, he prefers to look at the shared margin between suppliers, wholesalers and retailers as the key lever to pull at this stage.
Since last year, several wholesalers have been publicly calling on suppliers to hike the rsps featured on price-marked packs as rising costs erode their margin. Unitas, for example, said in September that major suppliers were offering it margins of around 20%, far below the 30% they claim to need to mitigate the widespread jumps in costs. “Suppliers need to understand the market shift that has taken place in the last couple of years and really think about the route to market,” says Pervez. “Some suppliers are more willing to look at this than others but some just don’t seem to know what they should be doing.”
The Wing Yip is this year’s only new entrant to the list
Perhaps, Pervez suggests, it is because suppliers have spent the past two years fighting fires in terms of production and supply chain issues. “I wonder if some are unable to connect the whole commercial picture.”
Bielby at FWD agrees. “The shared margin issue never really goes away, but it needs to be addressed.”
But the necessary collaboration wholesalers want goes much further than just increasing prices for PMPs or reducing pack sizes to keep prices stable. Wholesalers want suppliers to work more collaboratively as a whole with the sector as all parties face into the inflationary storm. “For suppliers that have got an inappropriate shared margin or are pitching their price marks at the wrong price point, take the opportunity to talk to us first as to what those margins should be and what those prices should be,” says Unitas Wholesale MD John Kinney. “Come and get feedback from us first before you tell us the deal has been done and this is it.”
As Bielby says, the question of shared margins between wholesalers and suppliers is a long-standing sore spot for the sector and there is little faith things will change. It boils down to a general strain in relations between the two parties, an issue that stretches back to long before the pandemic and seems to have only been antagonised by it.
“The biggest issue in our industry is the lack of care and desire to sell,” argues Time Wholesale Services MD Sony Bihal. “It is now acceptable for suppliers to have bad service. We must bring back care and working in partnership values. The increase in conference calls and lack of supplier presence in depot has left a gap in these partnerships.”
But this cannot all be put solely on the back of supplier negligence, says Pricecheck joint MD Mark Lythe. If wholesalers wish to maintain good relationships with their suppliers, keeping the lines of communication open is crucial. After all, suppliers too have been hit hard by labour shortages – both HGV drivers and disruption caused by covid absences – as well as changes in shopper behaviour as grocery demand soared in the absence of hospitality.
“Service was challenging in 2020 and we saw the same in 2021,” he says. “Suppliers are often the brunt of a lot of frustration, but we don’t subscribe to the blame game when we can see efforts are made in communication and account management. There are some good examples of this, but equally some poor communication examples and it’s where basic communication falls down that criticism is fair, not the challenging circumstances that have been faced by us all.”
Morrisons would have ranked 11th on this list, check out out our analysis of how it achieved the feat at the bottom of the page
Even wholesalers that have prospered in the past two years know things could have been better if supplier service levels had been higher. “Supplier availability has been the biggest challenge across the sector and 2021 feels like a year of missed sales opportunity as a result of that,” says JW Filshill MD Simon Hannah. “We have had to source a wide variety of new suppliers to ensure our customers have alternative brand options to fulfil shopper demand,” he adds. “We have worked incredibly hard with our suppliers on forecasting, focused ranges/promotions and data sharing whilst being as flexible as we can to accommodate variables in in-bound delivery.”
Hannah says supply chain disruption (and the shared margin being squeezed on PMPs) is the biggest threat to his business in 2022, though his outlook is certainly not universal. The FWD’s James Bielby says supply into both grocery wholesale and foodservice channels is better than it has been for about 12 months, and Bidfood CEO Andrew Selley agrees. While at times during the pandemic inbound availability fell to about 78% compared with pre-pandemic averages of 98%-99%, Selley says, the situation has improved recently with levels now back at around 91%.
“We would like to see the government continue to address the staff shortages that have caused so much pressure”
There are certainly not the same number of disgruntled retailers piling on to social media over shorted or missing deliveries as we saw in the second half of 2021. The severity during the peak of the supply chain issues and following the fuel crisis last year, even led the government to draft in former Tesco CEO Dave Lewis as the prime minister’s supply chains advisor. Lewis was tasked with finding ways to ease the pressure in the short-term and look at ways of making the supply chain more robust in the longer term.
Last month, in an answer from the then paymaster general Michael Ellis to a parliamentary question, it emerged Lewis was doing so on an unpaid basis. Ellis said: “Sir Dave Lewis worked across government and with industry to help resolve a number of acute, short-term issues” adding this included both immediate improvements as well as potential long-term changes to UK supply chains. “Work on supply chains continues to be a focus for the government,” said Ellis.
Reynolds fell from 18th place in 2021 to 29th this year
Post-Christmas lull
What these “longer-term solutions” are is still somewhat up in the air, but there is a clear sense from most operators that the current stability represents a post-Christmas lull and that supply chains are set to start feeling the strain again in the next month or two.
“Dave Lewis worked across government and with industry to help resolve a number of acute, short-term issues”
The first signs of trouble this year are likely to come at Easter on seasonal goods and confectionery, warns Bestway’s Pervez. This is then expected to spread to categories such as soft drinks and beers, wines and spirits as we head through spring and towards summer, before affecting efforts to ramp up preparedness for Christmas.
“At the end of the day, while there has been some improvement in the HGV crisis with extra driving tests and skills boot camps, we are still around 80,000 drivers short,” warns Bielby. “The government has done what it can in terms of getting the low-hanging fruit but ultimately not a lot has changed on that and of course we are yet to see the full impact of Brexit when the physical border checks come in fully in the summer.”
Wholesalers in general are still hoping for but not expecting government to act to ease the pressure around labour. Lewis’s work in the Cabinet Office is now complete, and the sector awaits to see his impact.
“We would like to see government continue to address the staff shortages that have caused so much pressure on the food supply chain in recent months,” adds Bidfood’s Selley. “Specifically, with a larger number of and longer visas for HGV drivers, greater capacity at HGV driver testing centres, and through close consultation with businesses and industry bodies to identify ways of reducing risks to supply as demand fluctuates.”
Brakes communications director Matt Stewart sums up the sector’s concerns: “Operationally, it is incredibly difficult, with Covid, personnel availability, Brexit and inflation all impacting our ability to do business. It is a perfect storm.”
Renewed supply chain pressures and soaring inflation does not sound terribly appetising for wholesalers but this is an industry filled to the brim with battle-hardened stalwarts who over the past two years have time and again demonstrated their resilience, flexibility and business acumen to keep on keeping on in the most challenging of circumstances. It is unlikely that they will be any different in the coming year.
Big 30 Wholesalers 2022
| Rank 2022 | Rank 2021 | Name | Buying group | Offer | Depots | Staff | Turnover (£m) | Turnover change % | Profits (£m) | Profits change % | Margin (%) | Year to |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Figures for Kitwave, Pricecheck and Time have been annualised due to extended accounting periods
Source: The Grocer, 18th February 2022
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