Memorandum submitted by the Federation of Wholesale Distributors (SFS 17)

 

Re: Securing food supplies up to 2050: the challenges for the UK

 

 

This input to the above inquiry is from the Federation of Wholesale Distributors on behalf of the UK grocery wholesale industry that represents an indispensable supply channel to some 50,000 smaller retailers (mainly convenience stores) and approximately 350,000 catering and foodservice outlets. Our comments, therefore, focus on the demand side of the food industry rather than the supply side.

 

In 2007, the Institute of Grocery Distribution (IGD) valued our sector at 24.1 billion, split between cash and carry wholesalers (9.5 billion), delivered grocery wholesalers (8.3 billion) and delivered foodservice wholesalers (6.3 billion).

 

1. In a current UK food retail market that is precariously (in our view) dominated by four large supermarkets, wholesalers provide the only sizeable alternative supply channel of food and drink - and in logistical terms this reality should be appreciated as an important "strength" in the UK food system.

 

2. The wholesale mechanism, as represented by the membership of the FWD, is recognised by the principal suppliers/manufacturers of grocery products in the UK as their only effective route to the diverse independent retail and catering markets.

 

3. It is important to note that these producers no longer possess the capacity to deliver their products directly to the thousands of smaller retailers and caterers of all types themselves. Wholesalers provide this important function far more efficiently.

 

 

 

 

 

 

 

4. A serious "weakness" in the UK food system was revealed in year 2000 when fuel price protests took place that blockaded oil refineries. The disruption to the "just in time" supermarket supply chains that ensued from shortages of petrol and diesel fuel nearly brought the country to its knees, and delivered a sharp wake up call of this danger to Government.

 

5. Therefore, the FWD believes it is imperative to safeguard a robust and competitive wholesale sector that maintains the supply chain to the smaller, local and rural stores that are mainly located a short walk away from where most of our population lives.

 

6. We see the greatest potential weakness to the UK food system as the growing over-reliance on out of town superstores, together with a continuing decline in the number of local food shops.

 

7. This on going trend is perpetuated by an inequity in the buying price differentials enjoyed by the major supermarkets over grocery wholesalers.

 

8. A supermarket buying price advantage was clearly revealed by the Competition Commission in year 2000 in its Supermarkets Inquiry. Similar evidence came to light when the CC concluded its Inquiry into the UK Grocery Market last year.

 

9. Its final report published in April 2008 showed that wholesalers suffered up to a 15% buying price disadvantage, but the CC signally failed to make any critical comment on the matter. In terms of levelling the playing field for the UK's independent convenience store operators and the wholesalers who provide their supply channel, the CC delivered a resounding zero.

 

10. The FWD believes it is imperative that this imbalance is corrected - in particular, for the bulk purchasing of grocery products - in order to ensure a diverse UK grocery market in the long-term.

 

11. Wholesalers should be able to achieve parity, or near parity, on price for their largest purchases (i.e. full lorry loads of a single product). The FWD recommends therefore that the Government should take immediate action to achieve a transparently fair grocery marketplace.

 

12. In further relation to the retail situation, we endorse and commend to you the remarks and recommendations made to your Committee by the Association of Convenience Stores (ACS). That trade body represents convenience retailers that FWD members supply and therefore we very much share the concerns that they have raised.

 

13. In particular, we believe it is of prime importance to the UK's food security that a pro-active Ombudsman is quickly established to develop and enforce the Grocery Supplier Code of Practice that was recommended by the Competition Commission in April last year.

 

 

 

 

 

14. Equally, we support the view that future food security will be enhanced if access to food from shops within easy walking distance for most of the population is maintained. In this respect, the FWD believes that ensuring a fair and vibrant grocery market that does not disadvantage smaller players should be a consistent, on-going Government priority.

 

15. Five years ago, the Federation of Wholesale Distributors launched its "My Shop is Your Shop" activity. This campaign is a consumer and marketing platform that helps independent c-stores, newsagents and rural shops by emphasising their unique role in the community they serve. It promotes the genuine value to the local community that the personal interface of the owner of the local shop provides. Full details are available on the MSYS website at www.myshopisyourshop.co.uk.

 

16. One very relevant aspect of the campaign to your inquiry is that in the next few weeks MSYS will re-launch its Walk & Shop activity. This gives independents a real and positive, money-saving proposition for their communities. The two-pronged message that this campaign delivers encourages shoppers to ditch the car and shop locally, just in time for their daily grocery needs.

 

17. The cost saving aspect is simple to propose and easy to comprehend - it is, avoid wasting food by over-buying at the superstores and also save on petrol costs. Additionally, Walk & Shop gives independents a unique environmental platform through the related reduction in carbon emissions.

 

18. The foodservice and catering industry is another important customer component of the wholesale marketplace. Despite the current economic conditions, we anticipate a growing need to serve the out-of-home eating requirements of the nation. The overall trend is that we are spending less of our time eating at home and more time eating out.

 

Yours faithfully

 

John Murphy

Director General

 

January 2009