A retailer has hit out at Sainsbury’s for the damaged caused after breaking promises to remain committed to the wholesale market.
In July, the supermarket informed wholesale partners of the decision, giving them a year’s transitionary period. The decision affects symbol group Simply Fresh and independent retailers who had struck relationships with the supermarket over the last 18 months.
Jersey-based First Choice Groceries is one retailer affected by the Sainsbury’s exit. Director Jake Shaw told Better Retailing it would have a “major impact” to the business.
“Our business was on the growth path to expand market share into the island of Jersey and two months ago I signed a commercial lease for a major premises to facilitate this expansion. Before signing I did ask that there was a commitment from Sainsbury’s to engage in our expansion strategy into Jersey.
“It is regretful after just a matter of months, this commitment appears to have been reversed. The consequence for myself personally (who has a personal guarantee on this commercial lease) and the other stakeholders in the business don’t appear to have been considered.”
In its statement, Sainsbury’s said the closure of the wholesale division would allow it to simplify the business and focus on “lower prices, exciting new products and convenient ways to shop.” Shaw described the strategy as “unclear,” adding plans to integrate with the supermarket’s delivery system would have helped with the strategy. As part of the supply deals, retailers were given access to 7,000 own label and tertiary lines as well as automated replenishment.
Shaw said: “The stock would have been delivered into Portsmouth harbour; approximately 10 minutes from another drop at one of their mainland stores; and we handle the exports.
“The process has little to no impact to their supply chain other than being an additional drop for the lorry driver. There are no labelling requirements and the SKUs are the same as the UK. The impact on the supply chain are therefore not really very different than being treated as a regular store; and could be defined as quite “simple.” We are also buying food so assumed this fitted the strategy of putting food at the heart of the business too.”
Shaw also urged Sainsbury’s to provide clearer communication about the decision to shareholders. “One of the key concerns I have is they are spinning the words to the investment community to suggest closing wholesale will result in lower prices.
“This gives the impression the division was not profitable. It was, even after accounting for extra supply chain complexities. They are essentially making it simple, but they can’t claim it will lower prices as the decision results in lower profitability to “invest” in prices.
“Essentially, the Sainsbury’s wholesale division is a profit generating division of c.60 people and one that was generating growth. It the decision is therefore a surprise, not just to ourselves but also the Sainsbury’s staff at this decision.
“There were a lot of positive signs for that division with expansion into independent wholesale to compete with Nisa, Booker, etc. International partners like ourselves could simply [help] increase revenue and profits.”
However, despite the issues caused by Sainsbury’s decision to exit wholesale, Shaw praised the dedicated team behind the division. “I would like to highlight the staff in that division have all been excellent,” he added. “They were very proactive and intelligent people who appear to have been let down by an oversimplified and blind pursuit of a strategy by the board.
In its full response to the decision, a Sainsbury’s spokesperson said: “As part of our plan to put food back at the heart of Sainsbury’s, we are simplifying our business so we can focus on what matters most to our customers – lower prices, exciting new products and convenient ways to shop.
“To deliver our plan we must prioritise what we do. We have just started talking to our retail partners and colleagues about what this means for the future of wholesale and it will be a gradual process. We know these conversations may cause uncertainty for our partners and colleagues and we are committing to supporting them.”