Edeka and Lidl target smaller and medium-sized suppliers

Edeka Germany consists of seven regions, each with its own terms and
conditions for suppliers. According to German newspaper Lebensmittel
Zeitung, the group now has created national conditions – by taking
the cheapest of the seven regional prices and applying it nationwide.

Suppliers furious, Edeka deaf

Suppliers have reacted furiously, pointing to the fact that their services to
Edeka are only on a regional basis, with different marketing and
promotion campaigns in each region. Edeka however remains deaf to
this argument.

Anonymous suppliers have stated in Lebensmittel Zeitung that they will have to
pay Edeka a bonus, as their products will now be sold nationwide.
However, most suppliers only operate in their own region, so they
would never ask for this “higher market penetration” – let alone
pay a bonus for it. When asked for clarification, Edeka refused to
“comment on its relations with its business partners”.

Lidl sees same target for cost reduction

At the same time, Lidl too is targeting smaller and medium-sized suppliers.
As they are the ones to supply fancy labels, they are the easiest cut
to make when Lidl wants to reduce its costs.

The remaining suppliers can enjoy higher volumes and more exclusivity,
but there is no doubt Lidl will take that into account during the
upcoming price negotiations – creating a very similar situation to
the one at Edeka, as the smaller suppliers will have to pay a bonus
for a service they did not ask for in the first place.

No direct connection

Retail Planet’s Matthias Queck thinks there is no direct connection between
both retailers’ actions: “Edeka had announced its harmonisation of
regional conditions towards a national level in 2011. Therefore, this
move can not be a surprise to the suppliers”

Queck thinks Edeka’s move is more about an ongoing struggle between the
central Edeka direction in Hamburg and the seven regions. “The
harmonisation of purchasing conditions and the homogenisation of the
supply is in the central direction’s interests.”

Edeka’s Netto: serious threat to Lidl

Another advantage for the central direction is cost reduction: “There are
300 nationwide suppliers now. By adding 250 regional suppliers to
that number, Edeka will have 550 suppliers that will adhere to the
nationwide conditions”, says Queck. “This action will add 6
billion euro to the central direction’s purchasing budget – leading
it to 16 billion in total.”

This leads Edeka chairman Gert Schambach, until 2002 director of purchases
at Lidl, closer to one of his management targets. After Edeka’s
discounter Netto has acquired the Plus chain, Schambach’s group is
now a serious threat to his former employer.

Lidl: swinging back and forth between opportunism and cost control

Just like Aldi Süd, Edeka’s Netto is Lidl’s shining example, says Queck:
“Netto is a soft discounter with 3500 to 4000 SKU and brand
articles. It belongs to a completely different world than the hard
discounting Lidl comes from.

Queck calls Lidl’s policy opportunistic, alternating periods of supply
expansion and rationalisation. “Lidl works constantly with trial
and error. Sometimes, Lidl follows Netto and Aldi Süd in its service
and supply policy, until a controller sees costs rising rapidly. At
that time, Lidl reminds itself it is a hard discounter and corrects
itself.” This is the reason for Lidl’s move against the smaller
suppliers, Queck explains.