Northern Foods concerned over M&S price cuts
giant Marks & Spencer, wants to establish new conditions before
agreeing to proposed price cuts and margin improvements, writes
Anthony Fletcher.
The supplier has been asked to cut prices by a 1.25 per cent from September 2004, but from next April the company will be asked to accept a much bigger cut of 2 per cent as part of M&S's £100 million-a-year price cut programme.
New M&S chief executive Stuart Rose has said that he intends to reduce the number of food lines sold in the group's stores by about 500. The cost cuts will be achieved in the year ending March 2006, and the company will release a full update in its operational review on 12 July.
Sales at the business have been steadily declining as supermarkets such as Asda, Tesco and Morrisons have gained greater market share.
But Northern Foods, led by its chief executive Patricia O'Driscoll, wants the retailer to make changes to the way it operates its food retailing business as a condition of accepting any new cost-cutting measures. The supplier wants M&S to actively help it achieve the necessary cutbacks.
And according to a report in the UK's Independent newspaper Northern Foods also wants an end to so-called "range proliferation" where M&S had asked for multiple variants of a range which have not added to total sales. This will reduce the number of stock keeping units (SKUs) the retailer maintains.
All this is happening in the context of billionaire retail entrepreneur Philip Green's attempts to take over ailing clothing-to-food group. Green's bidding vehicle, Revival Acquisitions, announced this week a possible all-cash bid of 400 pence per share for M&S, valuing the company at £9.1 billion, a significant increase on his initial £7 billion proposal and, more importantly, matching the valuation expectations of M& S shareholders.
If Green wins control of M&S, its suppliers, such as Northern Foods, will face a new buying regime at the retailer, but in the meantime, larger suppliers are not ready to accept M&S's most recent changes without a fight.
Northern Foods' M&S products account for about 20 per cent of the retailer's £3.49 billion food sales and about 30 per cent of Northern Foods' profits, which were £75.4 million last year.
