Suppliers warm to global trading relationships

By Anita Awbi

- Last updated on GMT

Related tags Trade Tesco Retailing

The last 24 months have seen more of the world's leading food
manufacturers switch to a new type of global supply contract with
international supermarkets, encouraged by clear financial gains.

Last year, food and drink think tank IGD polled major food producers to find 72 per cent are positive about the benefits of international supply deals, compared with only 21 per cent in 2003.

Suppliers have started to cotton onto the perks of global agreements, using the merger of supply and retail strategy to reinforce brands in the taxing economic climate.

They are pushing retailers for tangible benefits of data sharing, global promotions and supply chain initiatives to ease the pressure of diminishing margins - changing the notion of the global deal in the process.

IGD, which advocates international trading relationships, is urging manufacturers to work 'soft' benefits into the deal early on, as it is a clear way to gain competitive advantage.

"For the majority of suppliers, the key to a successful global trading relationship is ensuring that it includes collaborative elements. This enables both parties to improve their market share and grow their size of the cake," said an IGD Global Trading Relationships report.

More than 41 per cent of manufacturers were able to work agreed international pricing tiers into the deal in 2005, compared to only 13 per cent a year before, as producers focus on negotiating favourable trading terms on a large scale.

And both retailers and manufacturers are now acknowledging the value of their relationships by organising product launches across countries simultaneously, setting international promotions and sharing local market knowledge.

"Retailers who are struggling to compete in the European markets are realising that they need the support of their best suppliers to succeed…providing tangible benefits and true collaboration is therefore becoming key to developing a global trading relationship," a senior global supplier executive told IGD.

Since the late 1990s, global-minded food retailers have exploited the benefits of cross-continent global strategy, establishing a presence in new markets and constructing vast distribution networks.

But the reluctance of suppliers, sometimes even manufacturing giants with a global presence, to cooperate on this level was hindering global retail strategy.

"These relationships have been developing since 1999 when there was a lot of consolidation in the food retail industry, with Wal-Mart buying Asda and Carrefour following a similar strategy,"​ Fiona McTavish, senior business analyst at IGD, told​.

"But it's a new way of working and there was a lot of resistance from suppliers first of all, as they were the ones being approached by retailers."

Now, more than half the suppliers asked have a relationship with Wal-Mart, Carrefour and Tesco - the retailers most positioned to implement global agreements as they have a centralised management system and operate on a global level.

But although such agreements may not work for every supplier, it is clear that those who build the internal structure to handle such large accounts will reap the benefits of serious brand advantage.

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