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 For many years now it has seemed that the delivered operators have held all the cards in the UK wholesaling sector, while the boom times of cash & carry appear to have passed.
With their ability to develop and support ‘modern’ ranges in chilled and fresh, as well as meet the service needs of forward-looking customers, wholesalers providing full service delivery have been well placed to tap into strong market growth in convenience and foodservice. Thus the likes of P&H McLane have thrived on the growth of convenience retailing, and Brakes and 3663 on the expansion of eating out.
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P&H has thrived on convenience growth |
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There have been fewer opportunities for cash & carry wholesalers such as Booker, due to the decline of their core customer base - independent traders - and the success that delivered operators have had in up-weighting the spend of their own customers, restricting secondary spending available for cash & carry and increasing pressure on an already struggling market. However, 2008 was an exceptional year for UK wholesaling because many prevailing trends and patterns of development were thrown into question, owing to the changing priorities of wholesalers and their customers.
While current economic challenges have impacted all types of wholesalers, the group most severely affected in many ways has been the delivered operators, whose business models have been put under the kind of pressure not seen for many years. In contrast, the year provided cash & carry players with clear opportunities to create strategic benefits from their distinct market positioning.
Key factors driving this change during the year were:
- High levels of selling price inflation and rapidly rising fuel costs
- The marked downturn in consumer spending
- Growing difficulties faced by the UK pub sector
Inflation and fuel costs
Operators have had to raise prices substantially across a significant range of categories due to manufacturer and producer price inflation and consequently, rising buying prices for wholesalers.
As in the retail sector, the high levels and proliferation of price rises across many categories affected the buying behaviour of wholesale customers, leading to a higher emphasis on buying for value, and a tendency to trade down both in terms of product format and quality.
For delivered wholesalers this trend was exacerbated by substantial increases in fuel costs, requiring them either to further raise prices or impose delivery surcharges in order to remain profitable.
Faced with these circumstances, many delivered wholesale customers have been prompted to reappraise their purchasing channels, with price as the key driver.
Cash & carry has always been able to provide lower cost prices than delivered operators, due to their inherently lower costs. Therefore, 2008 was a significant opportunity for cash & carry wholesalers to demonstrate clear price leadership over their competitors and act as the ‘discounters’ to the sector.
The consumer downturn
As the prospects for the looming recession began to unfold, the growth of UK consumer spending began to slow significantly in 2008 - especially during the second half.
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Cash & Carry is still resilient |
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Eating out has born the brunt of the recession. Much of the consumer spend in this market is ‘discretionary’ and it is one of the first things consumers cut back on when times are hard.
Clearly, the most vulnerable wholesalers are in the delivered foodservice segment, where customer bases include notable elements from the higher end of the leisure sector, and where spend has a significant discretionary element. Nevertheless, these businesses usually service significant areas of more resilient spend in fast food and public sector catering too.
In comparison, cash & carry with a mix of retail and catering business in its customer base has been a notably resilient segment. With its pattern of small scale, habitual purchasing of daily staples, the independent and convenience retailing sector is relatively unaffected by the consumer downturn, while the catering customers are clustered at the lower end of the market which appears to benefit from a switch of spending from more expensive outlets.
A permanent change in fortunes?
In 2008, things clearly swung in favour of cash & carry, and against delivered, but it remains to be seen whether the pendulum will swing back again in 2009.
The significant fall back in the price of fuel seen at the end of 2008, among other factors, should favour delivered operators. With the pressure on their costs eased once more, delivered wholesalers should find more latitude to restore some of the competitive edge to their offer, sharpening their value.
Whether the cash & carry sector can now retain the new business won during the year, and continue to build on it, may depend substantially on whether the improvements these wholesalers have made in range, price and service are enough to convince the customers that their version of the value equation is the one that can keep them profitable in the recession and provide the full range of opportunities for growth when the upswing comes.
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