David Gilroy is the managing director of Store Excel
The city break market is booming. And why not? Cities are great places to visit. Culture, hospitality, social events and the buzz. Cities are for the most part safe and civilised, but those old city walls and ramparts were built for a reason. Size, scale and security. In times gone by, they were anything but great places to visit. Yuval Noah Harari’s seminal work, Sapiens: A Brief History of Humankind, provides a compelling narrative that traces the human journey, the Cognitive Revolution, the Agricultural Revolution, and culminating in the modern era of urbanisation and globalisation.
Until around 10,000 years ago, humans were foragers living in egalitarian bands. Then came farming and the domestication of plants and animals. Trade networks were set up, and law, money and politics developed. This is when human settlements came to the fore. The advent of the industrial revolution from the 18th century supercharged technical innovation, ambitious transport and global trade. Cities grew exponentially. Size, economic power and security were prime. When it comes to trade, size and scale really matters.
Market overview
The UK grocery market is estimated to be worth £240bn in value. Supermarkets are dominant at around £192bn turnover. Tesco is the market leader with sales of £62bn, of which Booker Wholesale accounts for £9bn. The wholesale food and drinks market is worth £37bn – 15% of the total market. The top 30 wholesalers account for £32bn of turnover, which equates to 85% of the total wholesale market. Number 30 in the list turns over £113m per annum. Equivalent to one large multiple superstore. And there is a long tail of wholesalers selling way below this level. Tiny in comparison to the total market, and tiny in comparison when lined up against the top suppliers such as Coca-Cola, Diageo and Unilever.
When it comes to buying power even some of the top 30 wholesalers lack scale. Enter buying groups (BGs). They represent around £18bn of annual turnover. That word ‘represent’ is carefully chosen. A search through their accounts reveals a gulf between the turnover they represent and the value of stock they actually buy. In other words, the BGs don’t buy anything like billions of pounds of stock. What purpose do they serve?
What do they offer?
The wholesale sector is a delicately balanced ecosystem comprising suppliers, wholesalers and their customers. Relationships are the lubrication that makes this work effectively and BGs operate inside this set-up, offering size, scale and security to the smaller wholesalers. They also offer considerable efficiencies for suppliers, routes to market to a plethora of wholesalers, one point of communication, one promotion programme (rather than many), and a conduit to share brand planning and the vision.
The term ‘buying group’ is misleading and would probably be better labelled a ‘purchasing consortium’. An organisation that works collaboratively to leverage collective purchasing power. Potential BG members should be asking, ‘How will joining this group help make my business develop sales, operate more efficiently, be more sustainable and more profitable?’
BGs negotiate terms, deals and promotions with suppliers on behalf of their wholesaler members. Most tend to put this first on their list of selling points. They underpin it with ‘collaboration’ and ‘relationships’. This is important because they are service providers. They also offer a range of added-value services that small resource-constrained wholesalers would not be able to access.
Read more: QSR-focused UniCo buying group formed
The list is long and impressive, including access to hundreds of suppliers, promotional programmes, new product development, ranging and category expertise, marketing collateral materials, product file maintenance support, invoicing efficiencies, goods not for resale pricing, utilities and services pricing, and sharing of best practices.
All the above form a baseline standard and should be the minimum provided. What marks out the great from the good? The supplier portfolio is number one. How many active suppliers does the BG have trading relationships with, how effective are they and is there open access to suppliers for members? What do the range, brand plans, promotional programmes and trading terms look like? This sits right at the centre of trading profitability. Minimum order quantities (MOQs) are a real problem for smaller wholesalers and are often a barrier to trade. Suppliers are understandably working hard on supply-chain efficiencies and imposing MOQs is one way of securing improvements.
MOQs can effectively rule out stocking for wholesalers, putting them at a disadvantage. BGs that offer solutions to resolve MOQs add serious value. A credible own-label range is very important in today’s trading landscape. Particularly with the emphasis on value for money, differentiation and innovation. The range must be backed up with verifiable quality control and resonate with business customers and consumers. Chilled food, obviously a strength of the supermarkets and the discounters, is highly important to hospitality outlets, making the fresh-food assortment a key ingredient. A reliable chilled-food solution that includes regular deliveries of short- and longer-life goods is vital to the range.
How good is the BG’s technology? The need for efficient, frictionless and reliable systems cannot be overstated. Can the BG’s technology integrate effectively and painlessly with the wholesalers? Can it facilitate an accurate, smooth back-end operation without excessive management intervention, providing management reports and good visibility of the relevant business metrics? Does the BG offer an electronic and digital marketing capability? Online, email, app, WhatsApp and social media coverage define excellence. In a rapidly changing world, does the BG provide any market intelligence, analysis tools, insight and trend support? These are the kind of resources that small cash-constrained wholesalers are often unable to access, yet are important to help stay up to date with the market and to predict future outcomes. And does the BG offer updates on the many (and increasing) legal requirements that the trade needs to activate?
Challenges
Despite their numerous benefits, BGs face challenges that can hinder their effectiveness. Balancing the varying requirements and priorities of their members can be complex. Maintaining transparency in pricing, decision-making and operations is essential to building trust among members. Managing a large and diverse membership base requires significant administrative resources and coordination efforts. Some suppliers may be reluctant to work with BGs due to concerns about reduced margins or loss of direct relationships with customers. Despite aggregated scale, the BGs sometimes struggle with negotiating manageable MOQs.
There is also an ongoing industry issue with price-marked packs (PMPs). Suppliers are squeezing PMP margins, and the BGs seem to be powerless to deal with this. Small retailers are demanding straight packs, but this is not the solution. BGs should be ensuring that suppliers are offering fair margins for all parties. A key challenge for BGs is that of execution and activation.
The basic premise of buying from manufacturers is quid pro quo. Suppliers need to know that agreements and monies invested will manifest in the designated outlets and that the negotiated plan is being executed. This is why they like dealing with supermarkets and edge-to-edge operators. The relationships between BGs and their members are predicated on cooperation. The BGs are not in a position to instruct wholesalers to implement activations. This puts them in a weaker position than competitors and can be a bone of contention internally.
On balance, buying groups play an important role in the wholesale industry by empowering all parties to compete effectively in a dynamic and competitive marketplace where size and scale can dominate. Through cost savings, enhanced competitiveness, access to resources and risk mitigation, these groups contribute to the sustainability and growth of their members. While challenges exist, the benefits of buying groups far outweigh their drawbacks, making them an indispensable component of the wholesale industry.
