Katherine Rich: A matter of balance

1/2/2014

Over the past few weeks our sector has been in the spotlight and has had more media attention than many within our membership can recall.

The national discussion on television, radio, and online has served to highlight the current power imbalance between suppliers and retailers. As members are well aware, New Zealand has the most concentrated grocery retail market in the world. When two players control such a huge chunk of the market (around 95%), those selling to them are at more of a disadvantage than, say, if there were three or four players, where they would have at least a little more leverage during negotiations.  

But New Zealand has just two, and so this dominant position held by both requires retailers to be mindful of how suppliers are treated. It makes sense that in any negotiation where one party seems to hold most of the key cards, special care should be taken not to engage in behaviour that could be construed as abuse or bullying.

FGC has always held the view that discussions between members and retailers should be robust, fair, and allow for an exchange of ideas between parties. No one within FGC’s membership expects grocery negotiations to be a walk in the park, but we do expect fair treatment for our members, and for there to be a genuine negotiation and an exchange of ideas. Until recently there was a delicate balance in our market, where suppliers might grumble from time to time but generally where most understood that the sector was a tough one and so they just got on and focused on supplying groceries.

There was a definite change in the tone and style of some negotiations last year, and for some grocery suppliers it was classic case of the straw breaking the camel’s back. Some forget that in a small country of just four million people the FMCG world is even smaller. Brutal negotiation tactics such as “cliffing”, which are common in other countries, don’t work in the medium to long term in New Zealand because of the smallness of our community. Such tactics generally rely on not seeing the vanquished again, but in New Zealand that doesn’t happen, with the chances quite high of the would-be oppressor continually (and rather awkwardly) running into the would-be oppressed on the sidelines of school events, at the pub, or in other community spots.

Of course, some might not care two hoots, but generally this means to a certain degree that New Zealand’s business community is more self-regulating than others. The grocery sector is not an easy market by any means, but proximity does knock some of the edges off.  There’s also the unintended consequence of poor treatment, and that is to push suppliers to do more deals with a competitor where they believe they have a more constructive relationship.

FGC continually looks at how it might support member companies in dealing with these changing times. This month we are pleased to be announcing a new resource for members on negotiations, entitled “Negotiation Trading Terms in the Face of Retail Use of Power” and penned by Charles Wilson of AdvisorBase. It covers negotiation fundamentals and a few excellent tips. Members interested in receiving a copy are welcome to contact the FGC office.

There’s likely to be something in there to perhaps knock off a few more of the edges and restore a little of the balance.