Supermarkets and their suppliers share an intricate, yet often fraught, relationship. While consumers enjoy convenient access to affordable food and household products, many suppliers suffer from unfair treatment at the hands of major grocery chains. Supermarkets, particularly large ones like Coles and Woolworths in Australia or Tesco and Sainsbury’s in the UK, use their market power to engage in practices that undermine suppliers’ profitability and long-term viability. Despite regulations and voluntary codes of conduct aimed at protecting suppliers, many are still being exploited.
This article explores examples of how major grocery chains cheat their suppliers through practices such as unfair pricing tactics, payment delays, forced discounts, and delisting threats.
1. Unfair Pricing Tactics: Retrospective Discounts and Price Pressure
One of the most common ways supermarkets cheat suppliers is through unfair pricing tactics. Suppliers often agree to sell their products to retailers at a set wholesale price, but supermarkets can retroactively change these agreements, forcing suppliers to accept lower prices after the sale has been made.
For example, some suppliers report receiving a call from the supermarket demanding a “retrospective discount” for products that have already been delivered. Supermarkets justify these discounts by citing underperformance in sales or poor promotional outcomes. However, the practice is fundamentally unfair, as suppliers are blindsided by these demands and forced to bear the financial burden for reasons often beyond their control.
In Australia, Coles and Woolworths have both faced criticism for pressuring suppliers to accept lower margins. In 2014, the Australian Competition and Consumer Commission (ACCC) found that Coles had misused its bargaining power by demanding retrospective rebates from suppliers, often without any legal basis. These demands totaled millions of dollars, and many suppliers felt they had no choice but to comply to maintain their relationship with the retailer.
2. Delayed Payments: Extending Payment Terms
Another common tactic used by supermarkets to cheat suppliers is by extending payment terms far beyond what is reasonable. While payment terms of 30 days are considered standard, large supermarket chains often push suppliers to accept terms of 60, 90, or even 120 days before they receive payment for goods that have already been delivered and sold.
For small suppliers, these delayed payments can have devastating effects on cash flow, as they are forced to wait months before receiving money they are owed. Suppliers have limited recourse because supermarkets hold the upper hand in the relationship, and suppliers fear losing shelf space if they refuse to comply.
In 2020, Sainsbury’s in the UK was reported to have pushed payment terms for some suppliers to as long as 90 days, causing widespread financial strain. Similar stories have been reported in Australia, where Coles and Woolworths have been accused of routinely delaying payments, particularly for small and medium-sized suppliers who are less able to absorb these financial pressures.
3. Forcing Suppliers to Fund Promotions and Discounts
Supermarkets use discounts and promotions to attract customers and boost sales, but often the cost of these discounts is passed on to suppliers. This practice, known as “supplier-funded promotions,” requires suppliers to bear the financial brunt of retail discounts, often leading to reduced profits or outright losses.
For example, when a supermarket runs a “Buy One, Get One Free” promotion, it is often the supplier—not the supermarket—that provides the second product for free. This places an enormous financial strain on suppliers, especially smaller businesses with tighter margins.
One infamous case involved a supplier of private-label dairy products in Australia, who was forced to fund massive price cuts as part of the “milk wars” between Coles and Woolworths. In 2011, the two chains slashed the price of house-brand milk to $1 per liter, sparking outrage. While this was a consumer win, many suppliers struggled to absorb the sudden loss of revenue. Dairy farmers and processors bore the brunt of the price cuts, leading to severe financial difficulties for many in the industry.
4. Threats of Delisting
Supermarkets hold tremendous power over suppliers because they control shelf space. One of the most pernicious ways they use this power is by threatening to delist a supplier’s products if they refuse to agree to unfavorable terms, such as funding discounts, accepting lower prices, or extending payment terms.
The threat of delisting is particularly harmful to small suppliers who rely heavily on supermarket contracts for their revenue. For them, losing a spot on the shelves of a major grocery chain could mean losing a large portion of their market share. This imbalance of power forces many suppliers into accepting unreasonable demands just to maintain their presence in the market.
In 2013, Tesco in the UK was accused of threatening to delist suppliers who did not agree to make significant financial contributions to promotions or other marketing costs. Suppliers, particularly smaller ones, were pressured into compliance, fearing the loss of business with one of the nation’s largest supermarket chains.
Conclusion
While supermarkets wield significant power in the grocery supply chain, many suppliers find themselves on the losing end of an unfair relationship. Through tactics such as retrospective discounts, extended payment terms, forced participation in promotions, and delisting threats, suppliers are often left with little choice but to comply with supermarket demands. Despite some efforts to regulate these practices, they continue to persist, leaving suppliers—particularly smaller ones—vulnerable to exploitation.
To protect suppliers from being cheated, stricter enforcement of existing regulations and the adoption of mandatory codes of conduct may be necessary. Otherwise, the imbalance of power in the grocery industry will continue to place an unfair burden on suppliers while benefiting major retailers at their expense.
