Identifying Best Practice in Relationships between Buyers and Suppliers along Food Supply Chains in Australia and the UK

Sue Hornibrook and Rob Clark 

Executive Summary

In the UK, food retailing is dominated by a handful of supermarkets, who having rationalised their supply base dramatically in recent years, now deal with just a handful of suppliers in each product area.  The majority of supermarkets have invested heavily in building the retail brand, and have developed a portfolio of own brands aimed at different market segments, ranging from value to premium sub brands, but there are clear differences between retailers in the balance given to different market segments. 

Australia is similar in context to the UK, where food retailing is extremely competitive but own brands are positioned as low cost, value lines.  However, the major players are now following the UK model by developing a range of premium, high quality own brands.  The relationships between buyer and seller along food supply chains in general, and particularly in fresh produce, are therefore a critical factor in the success of such a strategy.

The purpose of this research is to explore the nature and scope of good practice in the relationships that Australian supermarkets have with their suppliers in the main commodity areas, and to compare this with previous research conducted in the UK.  Sharing best practice between UK and Australia will benefit both food retailers and food processors in terms of demonstrating how to develop and maintain collaborative relationships, and to identify the added value to both parties.

During a two week period in November, 2006, a number of interviews were held with key personnel in fresh produce processors and pre-packers, based in Tasmania, and with fresh produce buyers from supermarkets based on mainland Australia. 

From the interviews, best practice in relationships between buyers and sellers along food supply chains can be identified as follows:

• Suppliers must be proactive in their relationship with the supermarkets, take the initiative and develop new, innovative products based on market research.
• Suppliers need a much greater understanding of individual product costs. 
• Exclusivity of products will become even more important as trying to develop a point of difference becomes crucial when competition between the two main players intensifies.
• Personal relationships between buyer and seller are extremely important to collaborative, long term partnerships.  Technical skills are crucial but interpersonal skills are critical in dealing with relationships both upstream and downstream. However, strong personal relationships should be viewed as a means to an end - assisting the drive for efficiency and innovation - not an end in themselves.
• Supermarkets are in a strong position to gather, analyse and share information on purchasing behaviour.  In the UK, this is done through loyalty data, interactive use of websites, qualitative, quantitative and longitudinal market research.
• Understanding relationships and sharing information along the entire supply chain benefit all players, requiring buyers and sellers to extend their horizon beyond their immediate, traditional dyadic relationship. 

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