Small Talk: Supermarkets should encourage small suppliers, not bully them

The news that the grocery industry watchdog is investigating Tesco over its alleged mistreatment of suppliers is unlikely to have shocked many. Supermarkets aren’t renowned for treating their suppliers well – particularly those small businesses that don’t have the muscle to put up a fight against unfair contracts and late payments. And as margins shrink in the groceries sector, the supply chain represents an obvious target. The insolvency specialist Begbies Traynor reckons as many as 100 food and drink manufacturers could go bust this year because of the supermarket price war.

The irony is that all the evidence suggests consumers are looking for more choice in their supermarket shopping – not ever more brands of washing powder or baked beans, but new products and new product categories. The supermarkets need more innovative smaller suppliers offering artisanal products, not fewer, yet their behaviour is driving firms out of business.

Research sponsored by the online grocer Ocado underlines the point. Its poll of shoppers, conducted by YouGov, found that 38 per cent actively seek out small label products when they’re in the supermarket and that 51 per cent rely on their supermarket to introduce them to new products. A third said they were more likely to shop in a supermarket they believe is supportive of smaller businesses.

If that’s the case – and it is worth pointing out that all of us sometimes forget to practise what we preach – the big supermarkets are shooting themselves in the foot. Squeezing small suppliers might help with short-term profitability, but if it reduces the supply of new products – and earns the supermarket difficult headlines – the long-term negative effects will be much greater.

Lord Rose, the former Marks & Spencer chief executive who now chairs Ocado, thinks many supermarkets are missing out on an opportunity to cash in on the changing tastes and behaviours of consumers. “All of us now, when we go to the supermarket, want access to our staples, but we’re also looking for newness,” he argues. “There are many more interesting companies selling new and commercially viable products today, and there’s a market for those products – people’s intellectual curiosity has increased and they’re constantly looking to try new things.”

Ocado’s research was conducted in support of a competition it is launching to find “Britain’s Next Top Supplier”. The grocer is offering £20,000-worth of marketing support for the best entry, which it also promises to stock on its online platform.

It’s an interesting initiative that is now in its second year (last year’s winner, a craft honey beer caller Hiver, has seen sales shoot upwards). Ocado says 70 per cent of its products now come from smaller suppliers – and while the fact that it operates online and distributes out of a handful of centres rather than a nationwide network of stores makes it easier to operate in this way, it provides an example for rival grocers.

There is certainly room for the rest of the groceries sector to embrace small suppliers. But that will require greater honesty. There is no point in stocking more products from small and medium-sized food producers if you’re simultaneously pushing them out of business because your supply chain policies are unfair and aggressive.

Smaller businesses need to step up too. It’s clear that there is mass market demand for their products – and the supermarkets, like them or not, offer the easiest way to access that demand. “My message to food and drink entrepreneurs is ‘keep knocking on the door’,” says Lord Rose. “All of us are looking for products that have a wow factor and look as if they may be commercially viable.”

Is this a glimpse of a brighter future, where supermarkets work harder to get smaller suppliers’ products into their stores – and to keep them there – because this is what their own customers are looking for? Don’t hold your breath, but this is an operating model that makes more long-term sense than squeezing the life out of your suppliers today in order to save a few pennies.

Has the City of London Corporation taken a leaf out of the playbook of Labour and its pink “Barbie bus”? It is funding the Entrepreneur Academe programme, aimed at helping female entrepreneurs. David Pack, partnerships manager at the corporation, says it is worried by evidence suggesting that female entrepreneurs are half as likely to start a business as their male counterparts, particularly because of difficulties with access to finance.

Successful applicants to the programme get access to a range of different types of support, including introductions to potential angel investors. Women who have graduated from the initiative have already raised more than £1m from investors, says Sarah Turner, the founder of Angel Academe, which runs the scheme.

“I set up Angel Academe to encourage other women like me to become angel investors and mentors,” says Ms Turner.

More growth to report from Britain’s booming alternative lending sector: the online lending platform Borro has just raised £13m of new funding from investors, including £4m from investors who backed the business via the OurCrowd equity-based crowdfunding platform.

Borro is an unusual player in the sector. While it is not alone in offering asset-based finance to individuals and entrepreneurs looking to borrow money, its specialisation in luxury assets is unique. Borrowers can pledge anything from fine art and expensive watches to vintage wine and classic cars as collateral for their loans. So far, Borro has lent almost £120m using this model.

Paul Aitken, founder of the business, says the fundraising will enable him to accelerate Borro’s expansion. “We will continue to grow through our already successful partnership channels as well as our expansion into new product areas,” he promises.

“I founded PhD in 2006 after several years working in the sports nutrition business. Ever since leaving university I’d known this was the industry I wanted to work in and that eventually I wanted to launch my own business, but I felt I needed to learn the trade first – to serve an apprenticeship if you like. By the time I launched PhD, I knew a little bit about every aspect of the business, which was important since I was effectively on my own for the first year, doing everything from sales and marketing to packaging up the deliveries.

“I’d met my business partner, Mark Bowering, a year or so earlier, and we had similar ideas about what would work: we thought that if we came up with an honest and transparent product that didn’t make the sort of outlandish claims that some of the American brands went in for, it would appeal to the British market. We also wanted a product that looked fresh and modern, with clean and stylish packaging, and we knew it had to taste great.

“We captured people’s imagination from the beginning, but it was hard work for the first year – I spent a lot of time going round gyms to get people to try our samples, and even when we did start selling, it was real hand-to-mouth stuff; we struggled hard to manage our cashflow.

“In year two though, the business took off. Sales started coming in in a big way, particularly for a new all-in-one fitness product we devised. Today, we employ around 20 people and our sales last year were more than £15m.”