The German supermarket cooperation Edeka has enraged its smaller and medium-sized suppliers with its new purchasing conditions. At the same time, Lidl targets the same group, as it will reduce its number of small brands in an attempt to cut costs.
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.