Tuesday 18 October 2011

Waitrose & Co-op demand price-cuts from suppliers

The retailers’ recent demands for up to 5% reduction on future payments has major implications for suppliers’ profitability following years of absorbing energy and ingredient cost increases.
A supplier with sales of £1m to a customer, on a net profit of 7.5% needs incremental sales of £666k to fund the reduction….
i.e. 5% of £1m = £50k = 7.5% of the incremental sales required to generate £50k. i.e 50k/7.5 x 100 = £667k
A retailer on 4% net profit receives a benefit equivalent to incremental sales of £1250k i.e. £50/4 x100.
It can therefore be seen why they do it, and why it will be difficult to insist upon fair share negotiation.
The numbers may help…

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